Your Quick Spending Review to Help You Get the Most Out of Your Income

Cost of living squeezing your budget? Not sure where your income is going? It's time for a spending review.

This quick exercise is what every Australian household needs and can reveal hidden expenses, identify savings opportunities and put you back in the driver's seat of your finances.

Before we start, let's make sure we are all on the same page when we use the words budget and spending review.

A BUDGET is a great tool for planning where you want your money to go. You take a guess at what you are going to spend, keep it less than your income and then do your best to stick to it. I have covered this more in the Five-Minute Budget article so check it out if you need more details.

A SPENDING REVIEW (or expense tracking) looks back at your recent transactions and spending to reveal where your money actually went.

A spending review can help you in several ways.

Your budget is only useful if it is accruate. For example, you might have budgeted $5 a month for coffee (which is great), but your spending review reveals you're actually spending $200 a month (ouch!).

When creating a quick budget, it's easy to forget about occasional expenses or smaller subscriptions. A spending review helps you add these to your budget.

By seeing where your money is going, you can easily identify areas where you might be wasting money and you can cut back (for example, restaurants, entertainment, subscriptions and more).

A spending review might reveal areas where you can renegotiate and free up cash (for example, insurance, utilities, finance costs, health cover and so on), allowing you to put those funds towards more important goals like debt repayment or savings.

It's a personal choice how you go about doing your spending review, but you have three main choices.

Paper, highlighter and calculator.

Import your transactions and manually tally them.

A budgeting app can automate much of the process, making it quicker and easier.

Once your've picked your preferred approach, the first step is to collect the data you need.

Grab your bank statements, credit card statements and any other relevant financial records from the past few months. The more data you have, the clearer the picture will be.

Now, go through your transactions and group them into categories. For example, you might have categories like "Groceries", "Transport", "Entertainment", "Rent" and "Utilities".

Using a standard list of Australian spending categories, like the one in the MoneyFormula app, can make this process much faster. It gives you a great place to start instead of having to set up all of your own.

To make sure your review is more personalised and useful, customise your categories to your specific needs. Remove categories that don't apply to you and add others that are relevant to your spending habits.

As you categorise your transactions, you'll start to see patterns emerge. Where is your money actually going? Are you spending more than you thought on certain things? This is where the real insights come from.

Ok, so we all want this done as quickly as possible so its is tempting to click on the button "A.I. do it all for me".

A word of warning. Budgeting and spending are as much about habits as they are about numbers. Trawling through your transactions yourself the first time will give you a much better understanding of your spending habits and help you identify areas for improvement.

So, while A.I. and automation can do a lot of the categorisation for you, it's important you do your first spending review manually.

Also, these tools can just get it plain wrong. So if you base your finances on a totally wrong picture it will come back and bite you.

The good news is, once you understand your spending habits and you have done your first pass, then tools like MoneyFormula's cateogry AutoMatcher can be a huge time saver for future spending reviews.

Once you've completed your spending review, update your budget to reflect your actual spending patterns. Add any missing expenses, check overall totals are correct and double-check you are spending less than you earn.

Maintaining an accurate budget is important to help you make informed decisions about your spending and reach your financial goals.

Try the MoneyFormula Five Steps to Success, use the spending review tools and discover exactly where your income is going!