Auditing Your Personal Finances For More Money And Piece Of Mind
Just saying the word “audit” can make people cringe. The idea of the IRS sending agents to try and find any mistake on your tax forms is understandably nerve-wracking. However, an audit is really just a solid, hard look at your finances. And believe it or not, it’s something you should be doing to your household.
Unlike IRS auditing, you’re not looking for any mistakes to penalize and fine. Instead, you’re looking for ways to save money. It’s like taking a look at the big picture of your household’s financial health — but still taking a close-up look at times to know what to keep and what to change.
When it comes to auditing your personal finances, you should start with where you’re losing money.
Auditing Starts With Where You Lose Money
Trying to improve your income can only go so far. Sure, the occasional side gig or Etsy sale to earn a few extra bucks is usually worth it, but those are more for special occasions. You need downtime! That’s why it makes sense to look at where your money is going.
For most Americans, some of the biggest ways you lose money are housing (mortgage or rent), food, transportation, healthcare, and entertainment. That’s why you need to look at these household expenses and see where you can stem the flow.
Entertainment is the obvious choice; eating out less often can quickly save you some money. But look at your health care and housing costs. Are you using your health insurance? If you have a regular need for medical care (like with diabetes or bad allergies), you might save money each year by having better insurance. Likewise, an expensive and big house is awesome, but if you’re not using the space, consider downsizing to save hundreds of dollars each month.
The tricky part is the cost of childcare. If you need someone to look after kids when you go to work, you can’t exactly cut these costs. Shopping around for a high quality day care center that won’t break the bank is key.
Look Hard At Your Budget
Most people have something they call a “budget,” but it’s not really that. If you can’t clearly state how much you can spend on going out each week, then it’s not a workable budget. That’s why you need to look at it — or in some cases, create one.
Start by collecting all your financial data: bank statements, paystubs, bills, and receipts. Separate your costs into two categories: fixed (meaning you can’t do much to change them) or discretionary (meaning you have control over them, even though it might be hard to change them). Using a worksheet easily found online, create your budget by listing your income and subtracting your expenses.
If you end up with a negative number, you need to make changes today. Look at those discretionary costs and decrease them. Then put those new limits on your phone, on a small piece of paper in your wallet, or somewhere you can easily remind yourself when out shopping.
Improving Your Financial Skills
Lastly, you need to make sure you are financially literate. That doesn’t mean being able to read a bank statement. It means knowing how to manage your money for your lifetime. For example, if you have extra money each month, what are you doing with it? Do you know how much you’re paying each month on credit card finance charges? Can you pay off a car loan sooner, or will that incur a fee?
Money is very important to your well-being, both physical and mental. Sure, the best things in life are free — but food, heat, and fuel are not. That’s why you need to look hard at where you’re losing money. Then, take time to create an actual budget, and make reminders so you can stick to it. Then, teach yourself a few financial terms each year. By auditing yourself this way, you can be on-track to getting wealthier each year.