The word “audit” has terrifying implications for businesses and individuals who are less than diligent when it comes to financial recordkeeping. There’s another side to it, though, that has nothing to do with the IRS or scary government accountants.
When it comes to your family’s personal finances, an audit is a valuable tool that can keep you out of trouble and free up money that can be used for things you want to do. It shouldn’t automatically be seen as a form of self-torture. If you and your partner have ever wondered (and who hasn’t?) “Where did all that money go?” then a personal audit can be just what the doctor ordered. An audit can provide a clear picture of your financial situation and give you needed direction, a kind of road map to good financial health.
Your Full Attention
A full financial audit requires concentration and full attention to detail. It’s not something to be done while you’re watching the big game or Friday night after work. Pick a quiet time at home in a peaceful, well-organized and secluded spot, preferably when the kids are busy. Early morning, late at night or any time you’re apt to feel sleepy and unfocused isn’t ideal. Remember, an audit is about getting down to dollars and cents and analyzing spending patterns. That can be tough to do with a lot of distractions.
Consider using a financial management system such as Quicken, Mint or Personal Capital as you weed through bank statements, comparing income, expenditures and debt management. The idea is to find where you’re spending too much and where you can realistically cut back.
For instance, if you find you and your partner are overspending by eating out every weekend, then you’ve identified money that could be going to pay down credit card debt if you start cooking at home or grilling out on Friday and Saturday nights. Go through every kind of expenditure: groceries, child-related expenses, travel, car maintenance, entertainment and media (Internet, cable, etc.). It’s tedious and time-consuming work, but if it points out wasteful spending patterns, you’ll know what needs to be addressed, and it’ll be worth the pain.
Once you’ve identified where you can reduce costs and be more efficient, start thinking in terms of strategic spending. That could mean going to the grocery store once a week instead of two or three times to reduce the likelihood that you’ll spend wastefully, or look for better ways to grocery shop so that you can cut spending. If those trips to the dry cleaners are starting to bleed you dry, consider laundering those dress shirts at home and rescuing the ironing board from the basement. Spending strategically does not mean eliminating what you enjoy doing or eating. It just means being more economical and measured in how often you indulge yourself.
In many parts of the country, high gas prices makes commuting to work every day an expensive proposition. It’s an adjustment, but it may be worth looking into public transit or carpooling with work colleagues, at least until that aspect of your spending is back under control.
Plan Your Attack
Everybody has an expense that tends to stay on the high side, debt they have a hard time paying down. For a lot of us, that means credit card debt, or it could mean overspending on your cell phone service. An audit may reveal that it’s time to consider consolidating debt or shopping around for a better cell phone plan. Or, you might find it makes sense to take on a side gig until you’ve slain that credit card debt monster once and for all. If you’re a homeowner, another option could be selling your current home and moving to a less expensive one or renting. If you’re considering this option, review a home-worth estimate to get an approximate value of your home. Consider getting a head start on retirement planning by determining where you want to be financially when you’re ready to call it quits.
Periodically reassess your life insurance policy and make sure it makes sense for your family and circumstances. Life insurance is a great idea, but it shouldn’t be overwhelming you financially, especially if it isn’t useful. Talk to your agent to see if your policy still makes sense. Bear in mind that you can always sell your policy later if you need extra cash in retirement. If you don’t have life insurance yet, you can use an online calculator to determine how much coverage your family needs.
Review your car insurance as well to see if there are any ways you can save. Where you live has a major influence on how much you’ll pay, but that doesn’t mean you can’t reduce your insurance costs. You may be eligible for lower rates if you keep a clean driving record, raise your credit score, and combine your car insurance with another policy like home insurance.
If you really want to take the long view on saving, buying long-term care insurance when you’re in good health will produce lower premiums; costs increase with old age and as health conditions change. It can end up saving you more money in your later years.
A financial audit doesn’t have to be a scare tactic or a burden. It can be a very useful tool that helps your family stay on top of your finances. Try thinking of it as a way to be responsible with your money. The payoff from your diligence will be worth it.
Image courtesy of Pixabay.com