In a world of excess, it pays off to take a hard look at your spending habits. Society tells us “Buy more and save!”, but really, you’ll save 100% if you don’t buy that product at all. So what do you spend money on every month in this “buy-more” world? Are you spending more than you make? Can you think of any areas of excess spending you can trim back? All of these questions can be answered with a spending audit.
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What the heck is a spending audit?
A spending audit is when you and your partner sit down and review (or audit) all of your transactions over the past month. Bank and credit card statements get pulled out and marked up. All this info you’ll gather gets put into a spreadsheet or written out. You get to see just exactly where your money is going every month.
And why should I do an audit? My money habits are just fine!
If you live without a budget, you go without knowing exactly where your money went. Yes, you can kinda-sorta keep tabs on your money mentally. $15 on lunch yesterday, $45 on gas Monday, mortgage was about $850, paycheck was somewhere around $1500 this week. You get the idea.
Treating your money without respect is an easy way to spend more than you earn and end up in debt with no savings.
Yikes!
Worse yet, you ask yourself at the end of every month, Where the *bleep* did my money go??
If you have a well put together budget and keep track of every single transaction, good for you! You can still do a spending audit to assess if any areas could be cut back on to increase savings.
A spending audit will:
- Show you exactly how much you are spending every month
- Give you the exact amount of debt you have
- Puts into perspective how much you should have in savings
- Allow you the opportunity to cut back on spending now before it gets worse
- Help make room in your budget to achieve your financial goals
I have made a super awesome spreadsheet for you all to use (if you like spreadsheets)! Just enter your email (no spam, I promise!) and we’ll send you the spreadsheet for download. Easy! Plus, you’ll get exclusive first dibs on new content that I put out – just like this!
The spreadsheet has space for your income, debts, daily expenses and savings all included. The NET AMOUNT at the end should be ZERO! or very close to it. If you’re in the red, you might need to make some adjustments. But we’ll get to that… Keep reading!
How to actually do your spending audit!
#1 – Gather bank statements, credit card statements, and any loan statements.
First thing’s first: get your statements together. If you’re an online-only type person, it is okay to use your online banking to pull statements. You’ll need your most recent statement for everything. Look for:
- bank accounts
- credit cards
- loans/mortgage
- Retirement accounts/other savings or investment accounts
If you cash your paycheck every week instead of depositing it, grab your last month’s worth of pay stubs, too. Using cash only is tricky, we’ll get to that later.
#2 – Review income
In your spreadsheet or on your paper, write down every credit you received in the last month. This includes:
- paychecks
- gifts
- refunds
- additional income from side hustles (selling things, mowing lawns, etc)
Make a total for the month. Highlight it, make it bold, just make it stand out. This is the money you’re working with for a full month.
Some things to consider…
Are your paychecks regular or are you commissioned based? If your checks aren’t regular, you will want to look at the average for each month over the last year. This is easily done online through your bank’s website and pulling statements. You can also find last year’s income on your tax return. Some employers also include an average pay on your pay stubs or the HR website.
#3 – Review your DEBT payments
It is typical for most American families to have several different types of debt, including:
- Mortgage
- Auto loan
- Credit card debt
- Student loan debt
- Medical debt
Personally, we have an auto loan and a mortgage. Together, that payment is over $1000. That’s a big chunk of money – and our payments are on the low side! I’ve seen car payments as high, or higher than, a person’s mortgage.
So get together your statements for each debt you have. All the credit card statements. The mortgage. Your car loan. That student loan debt that just won’t go away.
With your statements, do TWO things:
- Write down your monthly payment for each loan on the same sheet as you did for your income
- Also write down the total amount you currently owe
If debt weighs heavy on your shoulders, this is why you’ve kept reading. This is why you’re doing a spending audit: to set a goal to pay off debt and get finances back in order. You can do this.
#4 – Review your regular bills
Bills. You’ve got em. I’ve got em. We gotta pay em.
Find your most recent statements for all of your utilities, insurance, and all things that come out monthly. Can’t find statements – never fear. Just look through your online banking or your last bank statement. Do any of those debits (transactions) occur on a monthly basis?
Write all of your regular, monthly bills next to your debt payments. These are things that need to get paid.
HOWEVER, (this is a big however) not all monthly transactions are necessities. Some are subscriptions to things you don’t even need. You still need to write these down. You’re paying for them every single month whether or not you use them.
#5 – Review your everyday spending
Now for the fun part (joking). Get a clean sheet of paper (or new page in your spreadsheet). Make several categories up at the top:
- Groceries
- Eating Out
- Shopping
- Gas
- Home
You can also review the full list on THIS post.
Now read through each and every transaction and put it into the categories you made. If you need to expand categories or make new ones, that’s totally cool! You need to know exactly what you spent money on.
When you’re doing this spending audit, it may be helpful to write down the store name or what the item was next to the amount. It isn’t necessary, BUT it can help you see what stores you spend the most money at.
#5.5 – Cash only exceptions
We used the cash envelope system for a long while. The key to that is that you 1) had a set and limited amount of money in a category each month and 2) you kept track of transactions (ledger).
If you are without a budget, you may not know how much cash you’re spending. Check your bank statements for:
- ATM withdrawals
- Teller withdrawals
- Check deposits where you may have received cash back (most banks have the deposit slip available for viewing in online banking)
If you don’t have a bank account (which you need to set one up ASAP!), review your paychecks. Do you have any of that money left in your wallet?
Another way to get cash is at any store when you use your debit card with your pin number. If you have receipts, total up the cash back you received during those visits.
Search your purse, car, and everywhere in between for any cash transaction receipts. You need to have a concrete idea of where your money went!
Total up all the transactions just like you did in #5. If you don’t have receipts and aren’t quite sure, do your best to guess as to how much money left your wallet. You need to be a receipt saving hero next month!
#6 – Add it all up
Whip out your calculator (or just use my spreadsheet and it will total it for you!) and total all of your purchases.
First, make totals from:
Income
Debt
Bills
Everyday Spending
Amount put into savings accounts or retirement
Second, total everything together. INCOME MINUS EXPENSES.
What does that number come out to be? Are you spending more than you’re earning?
#7 – Set goals
Take a long, hard look at those totals. Are you happy with what you see? Unimpressed? Angry? Sad?
It’s okay to feel a range of emotions when looking at the cold, hard numbers. But don’t fight about it. Push through it.
Don’t think for a second about giving up – you’ve come so far already! Let’s set goals to make you happier the next time you look at your monthly budget.
First, what’s your primary “problem” area? Think:
- Are you spending more than you make?
- Too-high debt payments?
- Is eating out and grocery shopping out of control?
- Did shopping become an every day thing?
- Are you saving any money (emergency fund, house down payment, retirement, etc)?
Set goals around your problem area and FIX IT FIRST.
Say your debt payments are just too dang much for you to handle. What are those debts? Can you take any immediate action (in the next week) to reduce them? Maybe it’s a crushing payment on your car. Could you trade it in for something you can comfortably afford? Can you work to pay your debts down in the debt snowball fashion?
We recommend Dave Ramsey’s Total Money Makeover and Complete Guide to Money. Even if you think you don’t need any further reading (other than my super awesome blog 🙂 ), I really really think you should give these books a read. Dave gives tackling debt and savings a whole new look!
Set a goal (pay off debt) and make it actionable. I will pay off my $10,000 debt in 1 year by reducing spending in the following areas and putting those savings towards the outstanding debt balance every month…
Another example: I am spending WAY more than I make and am in debt… I will curb my shopping habits (in whatever areas) to not go into debt any more. My goal is to have my $5000 debt paid in full by November which is an extra $500 each month paid toward my debt.
You get the idea. Set a goal, amount, what actions you’ll take to get there, and a deadline. But remember, don’t beat yourself up if you just miss the mark on your deadline or overall goal – you can still achieve it!
#8 – Make cuts
Whatever your goal is – put money into savings, pay off debt, etc – you’ll probably need to make cuts of some sort. Be super honest with yourself: are any of your spending categories cutting into your goals?
For my husband and I, it was needless shopping and eating out. I’m a frugal person who loves a bargain, but hot dang. I was still spending a ton of money. And eating out? I was a new mom who didn’t have the brain power for cooking (that’s how I thought of it). But when we reduced those areas of our budget or eliminated them completely (no spend month), we saved close to $400. Crazy! And that is just a fraction of what we used to spend before we made a budget.
For ideas of what to cut, read these three posts >>>
Best Frugal Living Tips for 2020
18 Things We Didn’t Buy in 2019
24 Items We Quit Buying to Save Money
#9 – Make a budget for next month
Based on your numbers from the spending audit minus any realistic cuts you can make, create a budget.
A very basic budget looks a little like this…
Set a basic budget for your first month. If you realize you need a more specific category than “kids” (maybe it should be “daycare, after school activities, swim lessons” etc) – get granular! Here are our exact budget categories that work for us pulled straight from our spreadsheet.
Don’t be afraid to adjust as you need to. It’s all about seeing where your money goes and keeping track of it.
It is also a great practice to add in a line for yearly, bi-monthly, or other occasional bills (property taxes, insurance, etc).
#10 – Stick with it
Practice makes perfect. Simone Biles didn’t become amazing in one month. You won’t become an amazing super star budgeter in one month… and that’s okay! I wasn’t either and my budget still gets a tweak here and there. It’s life.
Don’t be scared of adjustments you need to make in your budget.
Maybe you weren’t realistic about setting a low grocery budget this month (me) and way overspent (also me). Talk it out with your partner and find support in them. Adjust your budget and do better next month.
Month after month of sticking to a budget, you’ll see that your goals are achievable. You’re saving more money than you had previously. You find that you’re relaxed when you think about money – not stressed out!
