How to Audit Your Own Expenses
I know what it’s like when the thought of looking at your personal finances makes your stomach turn. The first step to gaining control of your spending is to take a close look at where your money is actually going. I’ve previously complained that many sources like to exaggerate the impact small purchases like your morning iced coffee will have on your long-term finances. At the same time, you really shouldn’t spend more than you earn, which makes it difficult to pay off debt and save money for the future.
If you don’t know where to start budgeting, or your current budget isn’t working for you, an expense audit is a great way to get the numbers right and create a plan that’s right for you. Because whether you’re consciously ignoring certain bad spending habits or falling victim to a larger lifestyle trend, it’s easy to lose track of where some of your money is going. Here’s how to audit your expenses and prepare to make better financial decisions in the future.
What is an expense audit?
An audit is a check, not a budget. Many people choose to look ahead and budget without being honest about their current spending habits. But the goal of “cutting costs” is abstract and difficult to achieve. It’s best to figure out what you’re actually spending first and move on 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. Review all your transactions over a period of time—for our purposes, let’s say three months of expenses. Then consider what the results say about your spending habits and what you can change.
How to audit expenses
Here’s how to conduct an effective spending audit that will help your spending habits in the future.
Collect all your numbers
Begin your audit by collecting financial statements from all of your accounts for approximately three months, including:
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Credit card statements
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Bank account transactions
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Digital payment services (PayPal, Venmo, etc.)
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Cash expenses (tracked by receipts)
I believe three months provides enough data to identify patterns while still being analysable. Having all this information in one place helps create a complete picture of your shopping habits.
Classify your transactions
Create meaningful categories that reflect your lifestyle. Common categories include:
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Housing (rent/mortgage, utilities, maintenance)
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Transport (payment for car, fuel, public transport)
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Food (groceries, restaurants)
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Entertainment (streaming services, hobbies, events)
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Healthcare (insurance, medications, appointments)
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Personal care (haircuts, gym memberships, clothes)
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Debt payments (student loans, credit cards)
Review each transaction and assign a category to it. Be honest with yourself: going to a coffee shop can be “food” or “fun,” depending on your point of view and habits.
Start looking for patterns
Then look for patterns that illustrate your purchasing behavior. One way to do this is to mark each item on your bank statements. Put a star next to must-have purchases, a check mark next to discretionary purchases, and an “X” next to those that are more questionable.
Once you’ve noted 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 that you rarely use? Are your monthly subscriptions getting out of control? Are your debt payments higher than you can afford right now? You may be surprised at how many expenses you can eliminate, whether because they were unintentional or caused by stress.
Create a budget that fits your lifestyle
Finally, at the end of the audit, add up all of these problem areas to get a rough estimate of how much money you could put toward savings if you changed your habits. Calculate the percentages for each category relative to your total expenses. Compare these with generally accepted financial principles, such as the 50/30/20 rule (50% needs, 30% wants, 20% savings).
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 now that you’ve done your audit, here are some ways to get started with budgeting.)