It’s Time to Audit Spending
Whether you’re deliberately ignoring some bad spending habits or falling victim to a larger lifestyle change trend, it’s easy to lose track of where some of your money is going. We’ve previously covered how many sources like to exaggerate the impact of small purchases like morning iced coffee on your long-term finances. At the same time, you really shouldn’t be spending more than you earn, which makes it harder to pay off debt and save money for the future.
The first step to taking control of your spending is to take a close look at where your money is actually going. If you don’t know where to start budgeting, or if your current budget isn’t right for you, spending audits are a great way to get the numbers right and make a plan that works for you. Here’s how to audit spending and prepare to make better financial decisions in the future.
What is a cost audit?
An audit is a review, not a budget. Many people prefer to look ahead and budget without being honest about their current spending habits. But the goal of “cutting costs” is abstract and elusive. It’s best to figure out what you’re actually spending first and start from there. Think of your spending audit as the sometimes painful but definitely necessary first step to creating a budget that actually works for you. View all your transactions for a given period of time – for our purposes, let’s say three months of spending. Then think about what the results say about your spending habits and what you can change.
How to audit expenses
Collect all your bank statements, credit card statements, copies of your bills, and any other documents that show your expenses. Strive to get enough data for about three months of spending.
Then look for patterns that illuminate your spending behavior. One way to do this is to check each item on your account statement. Put an asterisk next to essential purchases, a tick next to optional purchases you like, and an “X” next to more questionable ones.
Once you’ve noted down all the expenses you regret or want to change in the future, group them together and ask yourself a few questions to identify problem areas. Consider: Is your coffee habit out of control? Are you spending too much on a gym membership you rarely use? Are your monthly subscriptions out of control? Are your debt payments higher than you can afford right now? You may be surprised to find out how many expenses you can eliminate because they were unintentional or caused by stress.
Finally, at the end of the audit, add up all of these problem areas to get a rough idea of how much money you could put into savings if you changed your habits. A spending audit is a simple exercise that allows you to spend a little more consciously now before things get out of hand later. (And after you’ve done your audit, here’s our budgeting guide .)