Working on laptop doing a money audit

Do you find it all too easy to lose track of exactly where your hard-earned salary is going? It might be time for a money audit. Laura Whateley, personal finance journalist, formerly The Times consumer champion and author of Money: A User’s Guide, spoke to experts to find out how to conduct a financial MOT and stay on top of your spending.

Online shopping, contactless tapping, Netflix, Amazon Prime, that subscription you signed up for and then forgot to cancel. All so convenient, but a recipe for losing track of where our money is going. The way we spend now has made it extra challenging to keep tabs on our budgets and pay attention to exactly how much money we might be frittering away. With the rise in popularity of buy-now-pay-later apps like Klarna and Clearpay, which allow you to shop online and pay in 30 days’ time, we don’t even need money in our accounts to buy those irresistible purchases.

‘Often what we think we are spending money on, and what we are actually spending money on, differ considerably,’ says Emma Maslin, who is a financial coach for women and runs the site The Money Whisperer.

For many people, lockdown has offered a new insight into our financial habits, as we no longer overdo the takeaway sandwiches for office lunches, or rack up Uber bills on the journey home. It is a good opportunity to consider what we really want to be spending our money on. What do you miss? What, does it transpire, could you live without? The economic fallout from the pandemic and lockdown has also highlighted the importance of an emergency fund, a sum of cash that you can access quickly if you have unexpected expenses or suddenly find yourself out of a job or with a reduced income.

There’s only one way to get to it, though – and that’s by taking a long, hard look at your spending habits. It’s only once you have a clear understanding of where your money is going that you can start to establish better financial habits. ‘Once you have highlighted your money leaks – and we all have them – you can use this information to make conscious decisions around where to cut costs,’ says Maslin.

Want to get started? Here are five top tips to start getting your finances on track.

1. Keep a spending diary

Start off your money audit by sitting down and working out exactly how much money you’ve got coming in and how much is going out each week or month, and where you might be able to make some changes. ‘Keep a spending diary for a couple of weeks to develop an awareness of where your money is going,’ says Maslin. ‘Note down everything that you purchase.’ It’s time-consuming, but it’s amazing how much unconscious spending can add up. Use this information to make clearer decisions about where to cut costs and build an effective plan for your money, being realistic about how you spend and your weaknesses.

2. Dive into your direct debits

During your money audit, examine all the regular outgoings from your bank account. Are you paying for an old mobile phone contract that you forgot to cancel, or a subscription that you signed up for only because it was a free trial? Set aside time to cancel anything you no longer need.

3. Look at your debts

Address your credit card situation. If you’re only making minimum payments, it’s going to take a long time to clear the debt. Switch any cards you can to a 0% balance transfer card. Prioritise paying off any cards that have an interest rate that’s higher than 0% before you start saving any money.

4. Set your financial targets

Emilie Bellet, founder of Vestpod and author of You’re Not Broke, You’re Pre-Rich, recommends thinking about your financial goals. What do you want to achieve in the short, medium and long term? Once you have that figured out, it will motivate you to start saving to reach those goals. Saving money can be challenging but it’s easier to think about your next holiday than your pension, says Bellet. Once you have your emergency savings and some money saved, consider investing the money you’ll keep for longer (about 10 years) to make it work harder for you, benefit from compound interest (that’s when your money starts to earn interest on the interest which has previously been added to your savings or investment) and beat inflation. Take the time to do this, your future self will thank you for it!

5. Analyse your relationship with money

Don’t forget that money is emotional, and some of our attitudes to spending, saving and debt are not rational and may be triggered by feeling stressed or worried, happy or excited. During your money audit, consider whether some of your emotions are attached to how your family viewed money and whether you want to change them, says money coach Bola Sol. ‘When you decide to unravel your upbringing, you’ll find out why you feel the way you do about money. Reflecting on your past and how it impacts on your attitude to money is tough, but it can be very illuminating and is an important step towards changing your current spending habits.’

If this has whet your appetite for even more ways you can be smarter with your money, check out 8 quick ways you can stop over spending. 

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