It’s Time for a Spending Audit

Whether you deliberately ignore certain bad spending habits or you’ve fallen prey to a larger trend of lifestyle creep, it’s easy to lose track of where some of your cash is going. We’ve previously covered how many sources like to overstate the impact of small purchases, like your 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 difficult to pay off debts and save money for the future.

The first step to getting control of your spending is to take a hard look at where your money actually goes. If you don’t know where to get started making a budget, or your current one doesn’t seem to work for you, a spending audit is a great way to get the right numbers and make a plan that works for you.

Here’s how to perform a spending audit and position yourself to make better financial decisions in the future.

What is a spending audit?

An audit is a review, not a budget. Many people choose to look forward and create a budget without being honest about their current spending habits. But the goal of “cutting back on spending” is abstract and hard to achieve. Better to figure out what you’re actually spending first, and go 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 of your transactions from a certain amount of time — for our purposes, let’s say three months of spending. Then, consider what the results say about your spending habits and what you can change.

How to conduct your spending audit

Round up all your bank statements, credit card statements, copies of your bills, and any other documents that illustrate your spending activity. Aim to get enough data for about three months worth of spending.

Next, look for patterns that illuminate your spending behaviour. One way to do this is to mark each item on your bank statements. Place a star next to necessary purchases, a check next to discretionary purchases that you feel good about, and an “X” next to ones that are more questionable.

Once you’ve marked all the expenses that you regret or want to change going forward, group them together and ask yourself some questions to identify your problem areas. Think: Is your coffee habit out of control? Are you spending too much on a gym membership you rarely use? Have your monthly subscriptions gotten out of hand? Are your debt payments higher than you can afford right now? You might be surprised to find how many expenses you’ll be able to eliminate, whether because they were unintentional or were motivated by stress.

Finally, at the end of the audit, add up all these problem areas to get a rough approximation of how much money you could route into savings if you changed your habits. A spending audit is a simple exercise that lets you spend a little more consciously now, before things get out of control later. (And once you’ve conducted your audit, here’s our guide to putting together a budget.)