Understanding your personal finances is important. Knowing where you stand on your savings, investments, and yes—even your mortgage—can help you stay on track toward a bright financial future. Plus, creating a budget can help you cover your bases, afford things you’d like in the present, and be better prepared down the road. Furthermore, 85% of people who practice budgeting say the process helped them either get out or stay out of debt.¹

The good news is that it’s never too late to start taking stock of your spending and saving to help you make any necessary adjustments and put you financially ahead of the game. Creating a budget that you can realistically stick to is a great way to start. Here’s a rock-solid way to come up with yours.

Get to know your income
Whether you use an app, spreadsheet, or simple pencil and paper, the first step to creating a solid budget is understanding how your income and spending are related:

• Determine your monthly disposable income: Start by gathering how much money you have coming in from all sources, including take-home pay (salary minus taxes) from however many jobs you have, and any other sources of income such as investments.  

• Record where your money is going: Create a new list with two columns. In the first, list your fixed or essential expenses, including bills like rent or mortgage, cell phone, transportation costs, groceries, insurance, utilities, etc. In the second column, gather your flexible or lifestyle expenses, including entertainment, clothing, subscriptions, or memberships.

• Calculate your discretionary income: Subtract your fixed or essential expenses in the first column from your disposable income to get an amount that’s called your discretionary income. This is the amount of money you have left to spend on the items in your second column, as well as to put toward other financial goals.

Take stock of your other financial goals 
Before using discretionary income to pay for the lifestyle items in your second column, consider your overall financial goals and how they may have recently changed. Maybe you’re moving or growing your family, want to buy a new car, or start saving more. Some other financial considerations that might impact your budget include:  

• Emergency savings: If you haven't already, experts recommend saving three to six months' worth of fixed or essential expenses (more doesn't hurt, especially in a volatile economic climate  ) in a savings account that's specifically intended to cover any unforeseen emergencies. 

• Insurance: If you have a full-time job, your health insurance is likely partially covered by your employer, with the amount you’re responsible for automatically coming out of your paycheck each month. If yours isn’t covered by your employer, research your options and factor this cost into your essential expenses above. Also, consider whether you’d like additional policies, like life insurance or short- or long-term disability, depending on how your needs have changed over the year. It’s also a great time to check in on car and homeowners/renters insurance policies to make sure they are still a good financial fit. 

• Retirement: If you have an employer-sponsored retirement plan, the amount you pay each month likely comes out of your paycheck automatically. Depending on your retirement goals, as well as if you’ve recently changed jobs, you may want to consider adjusting the amount you save for retirement. Make sure to add this to your essential column if you’re paying out of pocket, or adjust your disposable income if you’re altering an employer-sponsored plan. 

• Debt repayment: You might automatically be making debt repayments each month, like student loans or a mortgage. If not, or if you have other debts such as a credit card, revisit your list of lifestyle expenses to see where you can cut back to help pay down debt—particularly high-interest debt—more quickly.  

Pick a budget tracking method
With your expenses and goals in mind, find the budgeting method that's best for you. Some financial experts recommend using the 50/30/20 rule and keeping 50% of your income for your needs, 30% for your wants, and 20% for your savings and debt repayment. The envelope method—where you assign spending categories to individual envelopes and contribute a certain amount of cash to be used each month—is another way to keep track of expenses. 

Make things automatic
Once you know how much you’ll be spending on each item in your budget for the month, approach any online payments with a “set it but don’t forget it” approach. Set up automatic payments to help avoid costly late fees should you forget to pay, and to ensure you aren’t tempted to spend the money elsewhere.

Practice active management
Just because any budget might work for you now, that doesn’t mean it’ll work for you down the road. Perhaps you decide to refinance your home and begin paying a different interest rate, or you change jobs and find yourself with adjusted discretionary income. Whatever the reason, life happens—setting a calendar reminder to revisit your budget every few months throughout the year can help ensure you stay on track to match your evolving lifestyle. 

Our lending experts are here to help you with anything you might need regarding your mortgage. Plus, Wintrust Mortgage is part of Wintrust Financial Corporation, so we offer a wide range of financial services in a one-stop shop.