One of the pre-requisites for achieving financial health is analyzing how and where your money is being spent and adjusting if necessary. And there’s no better time to start than at the beginning of the year!
Spending analysis, however, is much more than setting a budget. It’s taking an honest look at where your money is really going, figuring out where it should be going, and then getting it there.
Do You Know Where Your Money Is Going?
Unless you’re checking your bank account after every purchase or every day (which is probably not the case for most of us), you may not realize how much you are spending. It’s easy to swipe cards, send money via payment apps, and sign up for “free trials” that end up in recurring subscription fees. Left unchecked, these transactions can seriously drain your bank account, limit your ability to save, and rob you of fun expenditures like traveling!
Here are some ways to check your spending:
- Use a budgeting tool. Many online banking services offer budget tools and expense tracking. Spend some time setting up those tools so they can work for you. Some can also break your spending down by category or merchant. Take a look at this easy, expert budgeting tool from your Credit Union to help you better understand and manage your spending habits and stay on top of your finances.
- Find an app. There really is an app for that… several, in fact. Many financial apps can review your spending, tell you where you are overspending, and even cancel subscriptions you may have forgotten about! Just make sure to do your research and only use an app that has stellar security measures and is transparent about how your data is used.
- Review your statements. The old pen and paper route can really help you focus and take notes. Print out your bank statements and carefully go over each line. This will take a bit of work, but you can be sure you’ll know exactly how much you are spending and where. You may be surprised at what you find!
- Comparison shop. Any monthly bill you have, such as internet or cell service, can likely be lowered. If you haven’t looked at other providers lately, you should. Look around for better deals, free quotes, or even call your providers to see if they can lower your bill. This does not need to be an all-consuming chore, just a periodic review to make sure you are still getting good value for money.
- Add it up. For discretionary spending, like entertainment or daily coffee, find out how much you are paying per month and per year. The numbers may shock you. If you cut that spending in half, how much would you save, and what could you do with that money? Cutting costs does not have to be painful either. It may be as simple as changing where you get coffee, how many evenings a week you get food delivered, or what type of outings you take. Be creative, find more affordable options and watch your spending drop!
With our tips in mind, why not challenge yourself to grow your savings and checking balances – to end the year with a lot more cash than you started with.
Step 1: Use one of the methods above to create a full 12-month snapshot of your spending. If it helps, break it down by expense category.
Step 2: Pick at least one bill to lower, then search for a better rate.
Step 3: Pick at least one type of discretionary spending and commit to cutting that in half. Keep track either by regularly checking your statements or by using an app of choice.
Step 4: Cancel one subscription. No excuses, simply pick one and ditch it.
Optional: Calculate how much you are saving and set an automatic and recurring deposit for that amount from your paycheck each month. Your Credit Union makes this easy. It has a number of very high-interest savings accounts which require zero or low minimum balances. One of these is our Rainy Day Savings Account. Looking for more interest? Our High Yield Checking has one of the highest interest-earning rates on balances in the country.
Remember, this challenge can be (and should be) repeated throughout the year. Set a goal to cut a certain amount of your spending each month, and decide how you are going to use that extra money. Soon the habit will become self-reinforcing. The more you see how much you are saving for something truly worthwhile, the more likely you are to keep it up.