So Christmas is out of the way and we’re at that week of the year where we start to look forward to the next. There are a number of things that I look to do at this point of the year, the first being a spending review. If your looking to build a solid financial future, reviewing your spending is key.
There are a 3 key reasons I believe for why you should review your spending each year:
- To understand firstly if you are if you have been in a surplus or deficit each month throughout the year. Hopefully a surplus! No worries if not because this is what a review is for.
- Reason 2 is to assess your spending. This is where the real work is done. You can understand what you’ve been spending the most on this year and what you haven’t been spending much on. You can then review what you plan to spend more on or less on. So say if you are in a deficit in the previous year when comparing your spending and income, you can use this assessment to work out the areas you need to cut back on so you bring yourself back into surplus and start building your solid financial future.
- Lastly to plan out your new year. Planning ahead in life is a key for any success and this is no different with your spending. If you can create a rough plan for your spending, you can enjoy guilt free spending on what you choose whilst still saving and building a solid financial future for yourself.
How You Can Review Your Spending
So how can you go about reviewing your spending. Personally I do it in Microsoft Excel. However, you can use anything really to do it, you could just do it on a plain bit of paper. It doesn’t matter where you do the review, it just matters THAT you do the review. Here’s a few simple steps to follow though to do it.
- Collate all your statements. Start by gathering together all statements for any accounts you have e.g. your current account, credit cards and any other types of spending cards you hold.
- Go through month by month. Start off with January and go through each account one by one for the month. Note down each expense, what it was for and for how much.
- Now for each month add a separate column for your income.
- Next you want to create categories for each type of spending you may do for the year. This could be food shopping, clothes shopping, eating out, rent, bills etc. Once you have a total amount for each category, divide this by 12 to give you a monthly average. Now add these categories all together to give you your roughly monthly spend. Now compare this against your income monthly income. If this average monthly spend is above your income, it’s time to make some important decisions.
- The first decision to make when reviewing your spending is whether you either need to earn more or spend less. I’d always say the best decision would be to look to earn more! So start by considering what ways can you earn more money? Could you push for a raise or promotion in your career? Can you start a new side hustle to start bringing in some money? There are plenty of ways you can make more money, you just have to go out and take it! I’ll be discussing plenty of methods for increasing your income on my blog as I release further posts.
- Now you’ve looked out how you can raise more income per month, it’s time to look deeper at your spending. Unless you’re in a real deficit, don’t cut your spending too much, you need to be able to enjoy life. Cutting a cup of coffee for £3 each week won’t create any real difference, it’s the big decisions where you can make the real savings. If you have any debt you’re paying off each month, do you have options for consolidating your debts and paying them off at a cheaper rate? Can you find cheaper providers when it comes to your various bills each month? Cheaper internet provider? Cheaper gas/electricity provider? There are plenty of comparison sites out there which you can use.
- Lastly of course, you can review your areas of spending are there any obvious consistently large expenses that you can cut back on without reducing the enjoyment of your life? Do you really need to go out twice a week for dinner? Could you enjoy a few more home cooked meals rather than takeaways? Are you really watching enough Netflix/Disney+ each month to warrant keep spending. These are things to consider.
One Step Further
Something for those with a business savvy mindset this is where you can go one further when you review your spending. I’m a big fan of Mr Andrew Tate, a not so controversial opinion when you actually take time to watch his content. In his interview with Samuel Leeds he talks about an interesting perspective he has. This is to look at each time you spend money and work out how that money was taken from you? This I have found extremely beneficial in my life. It really helps to get you thinking.
As he speaks about in the podcast, each time you bought a coffee think why did you buy that coffee? Why did you go to that shop and not Starbucks or Costa? Was the advertising better? Less of a queue? What about the seating area, was that nicer? How did they convince you to part with your money? Now think right the coffee was £6, how much of that is profit? (In the coffee game typically a lot…). You’ll start learning important lessons about business from this. The importance of speed, good signage, what makes an attractive place.
You can then start formulating business ideas from this. How could you do things better than that coffee shop? Could you be selling cake? What type of people are visiting, are you offering a meeting area for business people? Could you leave copies of the Financial Times out for them, or have other things for them to use? Your entrepneurial mind will continue to develop from this and you will be identifying opportunities everywhere and realising how you could outcompete everyone.
Concluding
I hope this has helped you to realise why you should review your spending each year. It’s an extremely important thing to do so you can understand where your money is going. You can then make important financial decisions from there. As said it’s not about getting the small decisions right, it’s about getting the big ones right.
Lastly before you go, you can check out more of my posts here.
