Broke again? But you just got paid. Where did all your money go? Well, according to your bank statement, you got a manicure, a couple rounds of drinks during happy hour, and Starbucks every day for the past week. Are these responsible ways to spend your hard-earned money?
If you’re constantly out of money, this is a wake-up call that something needs to change. It may be time to run a spending audit on yourself. By determining what exactly you’re spending money on, you can identify bad habits and nip your bad spending in the bud. If you’re looking to save more and spend less, you’ve come to the right place. Read on to find out how you can improve your spending habits through a self-audit.
Running the Audit
When you think of an audit, the IRS may immediately come to mind. Have you ever been audited by the IRS? You have to gather all your receipts for tax-deductible purchases and have an agent review them so they can make sure you’re not trying to pull one over on them and claim refunds and tax credits you never earned.
A spending audit on yourself is sort of like the same thing, expect it may be even more painful – if that’s possible. You’re going to review your spending for the past month or so and try to justify your purchases. Can you truly say that all the money you’ve spent has been on necessities? Yeah, we didn’t think so.
For your audit, you can simply use an accounting program like Quicken, if you have one. If not, gather your bank statements and go through each line one by one. What are you spending your money on? This trip down memory lane will likely be an eye opener for you as you watch all the fast food and coffee purchases add up. Maybe you took way too many shopping trips. $200 in clothes? Are you even still wearing them or are they already collecting dust in the back of the closet? Do you they still have the price tags on them? This is the time to analyze each nonessential purchase and think about why the money was spent.
Feeling buyer’s remorse yet? You’ll likely be feeling stupid about some of the purchases. That buy one, get one free meal deal coupon seemed like a good buy at the time, but the free meal ending up going to waste, and you ended up spending more than usual just to get the free meal. That dress was on clearance, but once you took it home, you found out it didn’t fit and you didn’t return it in time.
You’re probably gritting your teeth by now and feeling enraged. That’s a good sign because it shows that you’re aware you made financial mistakes. Hopefully you can learn from them and never had to make them again.
Find Ways to Cut Back
Now that this trip through time has uncovered some bad spending habits, it’s time to fix them. You should only be buying necessities, like food, housing, utilities, medicines, and gas for your car. Look at your list of expenditures and think through each one.
For example, you may be paying $100 a month for cable TV. Is this absolutely necessary? How often do you watch TV? Could you try a cheaper alternative – like Netflix – and be satisfied?
Gym memberships often go unused. Do you have one you’re not using? If you’re interested in getting more exercise, start by walking more or buying a fitness DVD. Splurging on a gym membership is not a good idea financially unless you’re truly committed to going on a regular basis – and once a year is not considered a regular basis, FYI.
In many cases, you’re paying for stuff you don’t use or could get for a lot cheaper. Most people use only their cell phones nowadays. If you’re one of them, get rid of your landline. Many people pay big bucks for identity theft protection when they can get them for free through their credit cards or sites such as Credit Karma. Look at your auto insurance and see how you can lower your premiums without compromising on coverage. It may pay to switch to a different company.
Once you’ve eliminated the fat from your financial diet, you want to create long-term spending habits. While it’s not feasible to cut out all nonessential spending forever – how boring would that be? – you do want to get a better feel for how you’re spending money so you can identify triggers and temptations. The goal is to spend wisely so you’re not wasting money.
A good way to do this is by using cash only. Leave your checkbook and credit cards at home and bring a limited amount of cash. If you bring $100 with you, that’s all you can spend. You can’t spend a penny more. This will teach you to budget your money better, so if you’re forced to choose between laundry detergent or a chocolate cake, you’re going to want to buy the detergent if you want your clothes washed this week.
Money lessons can be hard to learn. We’re not taught about budgeting and saving in school, so having to learn it while out on your own in the real world can be a sobering reality check. The good news is that it’s never too late to change your spending ways, so if you’re up to the challenge, you can always find ways to spend less. If there’s a will, there’s a way.