Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

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Lorraine Walker, CFP®
Senior Vice President
Wintrust Investments

Is ‘being better with money’ one of your new year’s resolutions? Did you just get your W-2 and wonder ‘where did all that money go?’ If the answer to either of these is yes, it might be time to develop a budget. When people hear that word they typically think of restrictions and controls. However, a budget does not have to be the end of fun; rather it is a plan to reconcile your near-term goals with your income while still reaching your long-term goals. Here are some tips to creating a sustainable family budget:

1. Assess your income: Look at the amount that hits your checking account from all income sources. For most, this is income after payroll deductions for things like income taxes, health insurance, FICA, social security, and retirement plan contributions. If you have income sources that do not have automatic deductions, work with your accountant
to estimate required withholdings and direct that into a savings account.

2. Record your spending: There are several useful apps available today to simplify this process. Most banks can categorize spending on checking account and credit card statements so that you can organize the spending into categories without it being a timely manual process. Alternatively, you can build your own spreadsheet and comb through your bank statements yourself. Either way, this can be the most eye-opening part of the budgeting process, as well as the most rewarding. Simply being aware of how you spend your money is the best way to correct wasteful habits. You should have some fixed expenses (like rent/mortgage, utilities, insurance, car/gas, etc.) that might not
present many opportunities for improvement, but variable or discretionary expenses often offer considerable room for improvement.

3. Identify problem areas: Do you have two health club memberships because you forgot to cancel one? Can you get a better deal with your cable provider (now that you mostly stream your entertainment)? Are you dining out more than should, driving when you could take public transportation, or buying coffee when you could make it home? Some of the wastefulness you will uncover is glaringly obvious and probably habits you have been meaning to break for years. It will be more motivating to implement change when the amount being spent is made apparent to you.

4. Set goals/make a plan: Having some smaller/short-term goals can be a great way to kick-start more mindful spending habits. Establishing an emergency fund (three to six months of expenses), contributing more to your 401(k) savings, contributing more to college savings, buying a new car, etc. are all attainable goals that can be a benchmark for your success. As these goals are met, the stakes can get higher, but setting the goals too high can mean failure which often leads to a return to old habits. So be fair to yourself and reward yourself when you succeed.

5. Check back in regularly: A quarterly check in on how the new, more mindful approach to spending is working will keep you accountable. Did you notice there was a surplus in your checking account at the end of the month? Could that be directed to savings? Have you eliminated some of the unnecessary spending? Is there more opportunity to refine spending and savings habits? Have you reached any of your short-term goals?

In my years of helping people plan and budget I have learned that there are a handful indicators that suggest whether the budget process will be easy or a constant struggle. Positives signs include: a husband and wife working as a team and make financial decisions together; bonuses are saved and not spent; salary increases are directed to savings, not lifestyle spending; and saving is done routinely (every paycheck). Conversely, trouble signs include: expanding spending to match income and wage increases; adopting an ‘I deserve it’ mentality (luxuries are not necessities); counting too heavily on future windfalls; and not being prepared for emergencies.

For help with a successful budget plan and guidance in avoiding the budgeting pitfalls, reach out to your trusted Financial Advisor.