The Audit
The Audit doesn’t require a scary accountant showing up in a suit and glasses at your office so you plan ahead to take a personal day on the day they are scheduled to arrive. Just relax.
The Audit is a practical follow on to the previous article ‘Get Ripped, Financially’ on replacing the word spending with investing, to give you a structure to evaluate your investments and what you want to invest in more and less.
The Audit is an annual process of critical evaluation on the micro (the small) and macro (the big) investment habits of a person. Every year in December or early January, I take on The Audit over a 3 or 4 day period when my office is quiet and the phone isn’t ringing off the hook. This is ideal for business owners who are also doing year-end expenses which may coincide with timing here. This is the process I have recommended others take on when they feel like they are out of control financially or cannot conceptualize where their money is going. Nothing slips through the cracks here.
Here’s how I do it.
Every transaction throughout the year from my bank accounts and credit cards is downloaded and added to one spreadsheet. Each line is categorized into common categories that work for me. Once categorized, I sum up all the investments I made in the year in that category and continue this exercise for all categories. A few examples of categories for my audit are as follows:
Beauty/hair, Groceries, Eating out, Pilates, Gifts, Donations, Clothes, Travel, Stone, Car, Mortgage, Property Tax, Hydro…
Once I have a total for the year, I look at each category as a total number and in comparison to other categories. I take account of what I feel good about, then what I wish had been done differently and I assess how the category investments fit into the overall investment plan for last year.
Usually, I allow a few days to think this through at a time of year that is slower, work wise, so that I can dedicate my mental capacity to planning.
Then after a few days, and with fresh eyes, I go back to the information and I make notes on where I want to invest more and less for the upcoming year. I note specific details on what I can change after I think back to how each of these transactions played out.
Now, this is a very high level summary of the process which can take 2 to 3 days to complete, from each download of a transactions report to summaries and categorizing expenses.
Here’s a thorough list of questions to go over and be honest with yourself in the process when you find an area you want to invest less in going forward and anything you feel emotional about.
Who was I with?
What state of mind was I in?
Do I want to invest more or less in this next year?
Was this purchase in store or online?
Did I feel pressured in any way?
Was this a “must have” at the time?
Are too many of these “must haves” at the time?
Is there a way I can reduce this recurring expense easily by using a different provider?
Do I enjoy this?
What spurred this on?
Was this purchase the result of a newsletter or email list that I can be removed from?
Where is the item now?
And the answer to these questions should get you to the root cause of purchases and give you an idea of what to change ahead of time next time.
Tune into the next article for a few examples of the behaviour modification side of this process.
