Small changes you can make a big difference to your savings over time. Just switching one latte from a coffee shop, to one made at home, can save hundreds a year. It’s just by switching one thing that is more expensive thing to a more financially-wise option that can make a huge difference over time.
The thing is that there are loads of opportunities for you to do this in your life. The secret is to be conscious of where your money is going.
Everyone spends money differently, and we all have our little indulgences. For me, it’s a sneaky latte in the afternoon. For you, it might be UberEats after a long day. Or those mobile games that suck you in to buy more credits so you can keep playing (I’m looking at you, Lemmings!).
The point is that we all have few expenses that we’re not really paying attention to. But that’s okay. That’s why I want to introduce you to an activity to help shine a light on those sneaky expenses we don’t pay a lot of attention to: a money audit.
What is a money audit?
A money audit is the process of seeing where your money is spent – not where you think it’s been spent. This means you can get a more realistic idea of what is working for you, and what you can improve.
It’s about finding patterns in your routines or life that if you change, so that you can save big bucks in your bank account by the end of the year. Kind of like Bejewelled, except at the end of the game, you get loads of cash that you’ve saved.
Why should I do a money audit?
It might seem like a second latte now and then isn’t a big deal. But there might be a time in your life where that $200 you spent on lattes this year could be a life-changer. You might be made redundant. Or you need to repair your car. Or you’ve had a break-up and need to move house. That $200 would mean a lot more then.
Making these small tweaks now means you can build up a savings buffer for an emergency fund. It’s a safety net for if things go wrong. Life is complex and full of surprises, and I’ve never guessed any of the things which have come my way which have drained my savings accounts over the years. Getting into good routines now, makes life less stressful later on.
How do I conduct a money audit?
What we’re trying to do with a money audit is to find out where we spend our money. Everyone spends their money differently, because we all have different needs.
Someone who lives in the country might find it essential to have a car, but someone in the city doesn’t. Someone who loves rock climbing will find a gym membership is essential to their life.
We all have different things that we consider essential in our life, so I’m not going to tell you what is a right and wrong way for you to spend money on things that are important in your life. But I want you to learn the skills so that you can critically evaluate that for yourself.
I go to my bank account and I export a copy of my expenses into Excel. This means I can actually see how much money I actually spent. I often think that I only spent money on groceries that day, but I would have forgotten about that movie I rented on Google Play. Exporting your transactions means you can see your spending in the cold hard light of day.
I usually export three months worth of expenses. This is useful because some things, like gas bills, are charged quarterly, so getting three months means you don’t skip those. Also, some months you just spend more than others, like if a friend had a wedding and you spent more one month. Three months gives you an average to work with based on your everyday life, but doesn’t exclude a few ‘surprise’ expenses which are good to keep in mind, too.
I go through all of my expenses that I can see and I put them into categories that make sense for me. For example:
- food and dining
You might have some other categories if you want to go into more depth. For example, if you’re someone who catches a lot of taxis, you might want to separate your train travel from your taxis to get better insight into how you spend. It’s your audit. Own it.
I like to put on my fave tunes while I’m doing this, because it usually takes about 30 mins.
I add up how much I spent on each category for the whole three months. I have a nifty Excel spreadsheet which auto-calculates those categories for you. You’re welcome. [Download the Money Audit Excel here].
Now, I know how much I have spent each category for three months.
I want to get an average so I know how much I spend for one month, so I divide all my figures by three, if I downloaded three months worth.
Now, I’ve got a really clear idea of I have spent each month.
I might see that I’ve spent $500 just on UberEats. Or taxis. Or on Lemmings.
This isn’t a time to judge, you’re just seeing how you spend, unchecked, in the wild. Like a David Attenborough documentary: you’re studying yourself.
For here, you can make a call about each category. Are there any categories which you can trim down?
For example, you might see that you’ve spent $200 on coffee in a month. I’m not saying cut out coffee entirely – but can that second coffee be one you make in the office? I want to encourage you to challenge yourself: is there a few swaps you can make for each category to trim down expenses? Yep. It involves thinking creatively!
From here, come up with an action plan. It’s not enough to say ‘I’m going to have an afternoon coffee in the office instead of buying one’. You need to set yourself up for success.
- Make it easy to switch: take your favourite mug in to work with you, so you’re ready to swap.
- Get your supporters on side: tell your colleagues you aren’t buying a coffee on the afternoon break. Get ready for that conversation that might feel a bit weird. But own your financial future. Sure, you can go for a walk with them if that afternoon walk helps you break up the day but don’t buy anything. Leave your wallet at your desk.
- Be prepared for change: yep, new things are hard. And the first few times you might not like the coffee as much. Or you might feel a bit dorky. But think of the bigger picture. Every sip is one step closer to putting you in a stronger financial situation.
The action plans work for plenty of things.
Craving a coffee on the way to work? Buy a thermos and take one from home.
If you eat out with friends and that is eating into your expenses, suggest going for coffee instead, or cooking at your place.
If you are an UberEats addict, spend the weekend cooking and do a little meal prep. Freeze a bunch of meals so when you’re starving, you’ve got options that don’t involve a minimum order of $20. (Here’s a fave of mine – or check out our Pinterest for more inspo).
If your groceries are skyrocketing – have a look in your fridge. How much of your food is expired or thrown out at the end of the week? Change the way you plan your week so you’re eating the food that will expire first.
Catch taxis instead of catching the bus because you’re running late? Lay out your clothes the night before and set a few extra alarms, so you’ve streamlined your morning.
Let’s keep it real
The money audit isn’t designed to make you feel restricted and that you can’t live your life. But it means that you’re just paying a little bit more attention to what you’re spending your money on.
You might love going to cafes on the weekend, but instead of ordering a big brekky, you could just have a single coffee and still have that cafe experience. Have a think about if there are opportunities where you can do the things you’d love without spending as much money in the process. The little changes make a big difference over time.
I do a money audit every three months just to check in with myself, because I know it’s easy to fall into habits I’m not aware of. I’m always surprised every time I do a money audit, because every time I think “I’m so conscious with my money!” and I realise that developed a sneaky habit somewhere where I spend more than I need to.
If there’s a category that I’ve spent more money on than I intended to, I do my best not to chastise myself. Treating yourself with kindness and compassion is proven by science to help you succeed when you are trying to make changes in your life, like losing weight, so I think it can work here, too. You’re trying new things. You’re learning. And that’s ok.
In the end, it’s not about what’s ‘good’ or ‘bad’. We’re just studying what our behaviour and reflecting on if where you’ve been spending money in the past is where you want to spend it in the future.
These are all little tiny steps, but I promise – promise – that these add up. And one day, these savings can be used for something life-changing. It might be that you can quit a job you hate. Or go to school to become a programmer. Or it might be that you can travel the world. Or spend six months on a yoga retreat. Or design a video game.
It’s your money, so you can do what you want with it. But for you to be able have that freedom to do what you want, first, you need to own your money today. You got this!
- Download the free money audit spreadsheet. [Download Money Audit PDF here].
- Export the last three months of expenses from your bank account.
- Close all other distracting internet tabs. Put on your fave music and do this now while you’re inspired.