No one wants an audit. Just the thought of the government swooping in to find every nitpicky mistake in your taxes is enough to give anyone the shivers. But that’s not the only kind of audit out there. Really, an audit just means you are taking a good, hard look at your finances.
Where are you spending too much? How bad is your debt? And will you have any money available for retirement? Although none of that is particularly exciting to think about, it’s needed. You live in a capitalist nation where money is important. Money can’t buy you love, but it can buy you the food, shelter, and clothes you need to survive.
That’s why it’s time for a “spring cleaning” of your finances. Yes, it’s time to audit yourself in three ways: how you spend money, how you budget your money, and how much you know about money.
Auditing Your Spending
There are only so many hours you can work each week, so while your income is important, it’s easier to limit your spending. At least, it’s easy to talk about limiting your spending. Doing that is another matter. Here are some tips to help you audit your spending this year.
- Are you comparison shopping? It’s tempting to buy the thing you want right then, but taking time to check other prices online can save you from overspending.
- How much is the cost of childcare? Some of that is unavoidable, but you might be able to find less expensive options. Just make sure you know how to spot the warning signs of a poorly-run day care center so you don’t trade quality for price.
- Are you planning your meals? You’re more likely to overspend at the grocery store if you walk in there with no idea what to buy. Everything looks so good!
- Can you spend cash instead of using plastic? It’s easy to forget that swiping that card means you are spending actual dollars. Switching to cash only can open your eyes to how much you overspend each week.
Many families make a huge mistake by not having a monthly and annual budget. Imagine a business that had no idea how much they make and spend. How long before they go bankrupt? That’s exactly why you need a good budget.
Your budget doesn’t have to be overly complicated. You don’t have to plan out your weekly movie rental to the penny! But one of the most important things you can do is to use a budget to determine your net worth.
Start by listing how much money you make each month. If this varies, figure out a fair average. Then start listing your costs, from mortage/rent to all those Starbucks lattes. The key here is to be completely honest with this list. Subtract the costs from your income.
But you’re not done yet! Then subtract all the debt you have. That includes student loans, car loans, mortgages, credit card debt (which is just another loan), and so on. That gives you your net worth. Don’t be surprised if it’s negative! The point with this exercise is to understand your budget, not beat yourself up.
Finally, you need to look at how much you know about finances. This knowledge is called financial literacy, and it’s how well you understand how your household’s finances work. If you don’t understand how much interest you pay on your credit cards, then you’re more likely to overspend and get in trouble. And as you may have already discovered, paying the monthly minimum isn’t getting you anywhere.
Being financially literate means understanding how the system works. It’s knowing that a sale doesn’t save you as much money as not buying it in the first place. It’s understanding the interest rate on debt is always higher than the interest rate on savings. You don’t have to know everything about finance; just the parts that you use.
All of this can be tough. It can even call up some anxiety. But money is crucial to life. By auditing your spending, budget, and financial literacy, you can finally be on the road to financial security.