6 Steps to Declutter Your Spending
Today's blog is all about how to declutter your spending. This is important to talk about because we're getting our tax returns back, maybe you’ve got a little extra money coming in, and this topic not only applies to personal expenses - but also for business. Typically, I'm only talking about business things but today, you can really use these tips and tricks to impact your spending on a personal and business level.
Why do we need to declutter our spending?
There are three results that you're going to get from decluttering. The first thing you're going to get is you're going to save money. The second thing you're going to do is you're going to be able to reallocate some of the money that you're spending on things to make a greater impact. The third thing is that this is going to be great pre-work for your budget. If you've followed me for very long, you know, budgets are very, very important to me, both in business and in personal finance.
So, why do we need to declutter our spending? Well, here are some little things that could happen that will tell you it's time for you to do a spending audit, and that's what we're going to talk about today. So the first thing is if you steadily swipe your debit and credit card, but never really pay attention to what you're spending that money on.
Maybe your credit card balances are higher and higher and you say “Wow, I don't have anything to show for this.” That's the time to start decluttering your spending. If you have a recurring subscription for anything, in your personal finances that may look like a subscription for extra storage through Apple, maybe you have Netflix, Hulu, Amazon Prime - those are recurring expenses that could be coming out of your checking account or being put on your credit card every month and you don't even realize it, right? It's $7.99 here, $19.99 there, $30.00 there and those expenses start to add up.
Furthermore, I'll want you to really ask yourself this, and you have to be honest with yourself when you're doing a decluttering of your spending. Ask yourself “Do I really know where all my money goes?” If you can honestly answer that and your answer is no, you don't know where all your money is going, it's time to do a spending audit, and I'm going to show you exactly how to do that. I actually have it broken down into six easy steps for you below, or…
If you’re ready to take action right now, download my Spending Audit Worksheet below!
1 - Set a Goal
Setting the goal is important because, as I said, you have to be honest with yourself during this and it's going to get hard. For me personally, when I purge my closet or clean it out once or twice a year, it's really hard for me to get rid of something, even if I haven't worn it in two or three years! I still think there’s a chance I might wear whatever it is. My husband, on the other hand, is completely different. He is a very simplistic person - the simpler, the better. He throws out things sometimes, and I have no clue that it was even gone. I may look for it two years later. And he's like, “Honey, that's been gone.”
When you're setting a goal, consider the closet and which kind of person you are. You can set this goal in two different ways. The first is going to be that you want to cut X amount of money out of your spending. You go into this and you say “I want to cut $100 a month out of my spending.” Okay, that's one way you could set the goal.
The other way you can set the goal is if you know realistically how much money you make each month, and you say, “You know what, I want to spend only X amount of dollars.” So you see the difference there. The first one is going into expenses and cutting out so much, maybe it's $100, 200, whatever, the goal is to find that much in savings. The other option is only spending so much per month. And then we're going to work backwards on this.
2 - Gather Information
In order to complete your spending audit, you’re going to need your financial information. That is going to be your bank statements, your credit card statements, and any Venmo or PayPal transactions - anywhere you spend money. If you're a cash spender, you’ve got to keep up with your receipts, which is really hard. Most of us are not cash spenders anymore, I don't see that a lot. A lot of us just swipe cards, it’s so easy to swipe cards, right? To the point that I know, when I was younger, I would tell my mother, just write a check, right? You got plenty of money, write a check. Our kids now in this society say just swipe your card, right? They just feel like there’s an endless supply. Don’t we wish!
Pull all those statements for at least three months, but I prefer you do a spending audit for six months if you can. That way you can really see different things that are going on in your business or in your personal spending.
3 - Look For Recurring Expenses
What am I talking about? Well, in your personal finances that could be your Netflix, your Amazon Prime, could be your Hulu subscriptions. It may be that you're going through the Chic-fil-a drive-thru three or four times a week - that would be recurring, right? If you're going out to eat on a regular basis, that's a recurring thing. It may not be to the same exact place, but it's something that you're doing over and over and over again. Those are things I want you to write down.
If you're a business and you have subscriptions like Streamyard, Canva, QuickBooks Online, if you had credit card payments you're paying, those are the things that are happening every month in your business - I want you to write those down. It's important that you write down the day, what it is, and how much you spent.
The reason I want you to write down the day is for cash-flow purposes. Many of us make money, but we run out during certain parts of the month. So if you know when things are happening, for example, if your car payment, your house payment, and your light bill are all due on the same week every month, well, there's some budgeting that has to go on, or you need to change some dates around, right? So I want you to put pen to paper, write it down, put it in a spreadsheet, use my spending audit, to be able to see these things. Just knowing what's coming out of your bank account is not going to work, you have to see it, you need to put your eyes on it.
4 - Categorize & Prioritize
Go through and put all recurring expenses into three different categories:
Essential. These items are absolutely 100% necessary. In your personal account, that could be your car payment, your house payment, your rent payment, utilities, lights, water. Those would be essential. Personally, for me, subscriptions such as Hulu, Netflix, Disney+ aren’t essential to my household, but it may be essential to you. So everybody is going to be different. An essential item for me would be Streamyard, because that is what I use to go live in my Facebook group every week. Another essential for me is going to be QuickBooks Online, because I'm a bookkeeper and that's what I use to do bookkeeping services. For you, it could be something different. It could be Canva, ConvertKit, or Kajabi - those are things that could be essential to running your business.
Non-essential. These are the things that are nice to have, but they're not necessary. Essential means you can't do your business without them, you can't live without them. Non-essentials are going to be nice to have, but do you really have to have them? For personal, that's where I would put my Hulu and my Netflix and things of that nature. For my business, maybe I'm paying two different broadcast services, maybe I have Streamyard and a different one that is repetitive.
Not needed. Those are things that I am not using, and they are just eating up my money. Those would be subscriptions that you started a trial for and now they're charging your card every month that $7.99. $8 a month will add up because usually if you're doing free trials on something, it’s more than one because we're trying to compare different platforms. Then we pick our favorite and just forget about the rest of them.
So, go through and actually find your recurring expenses, and then I want you to categorize them between essential, non-essential, and not needed. You can do that inside of my spending audit as well!
5 - Decide on Your Action Steps
Now that you’ve determined what expenses are essential, non-essential, and not needed, what are you going to do about it? First things first - if I'm not using it, I'm going to put an action down then I'm going to cancel that charge. Then I'm going to look at some of the things that I'm using that are essential, or maybe non-essential, but they're really nice to have and I'm going to find ways to cut the amount of money that I'm spending.
In business, maybe I'm using Kajabi, but Kajabi is almost $200 a month. Instead, I would look for an alternative to Kajabi that would do the same thing for my business, but would save me money. Find a cheaper alternative.
If you feel that you're spending too much, 9 times out of 10, when you do a spending audit, it opens your eyes, and you realize “Oh, my goodness, I'm spending so much more money than I realize, I've got to cut, I've got to do something, I've got to stop spending, I'm not going to have enough money in my budget to buy Christmas gifts for my family.” And it spirals on from there. Instead, it's time for you to figure out what those action steps are going to be.
What are you willing to give up to have better financial freedom within your business, and within your personal spending as well. Decide on those action steps, write them down. This is where most people stop: we know what we need to do, but then we never follow through. But keep going!
6 - Take Action
Write it on your calendar that you’re going to spend time - maybe it's an hour this week, maybe it's an hour next week if it takes that long. Finish up your spending audit, know the things that need to change, decide on those action steps and then take action. Pencil it in or actually highlight it in your calendar, because if you're like me that's not on the calendar is not getting done, and do it. Finally, do the things and take the action on those steps. Cut your spending, find different ways to eliminate some of your expenses.
If you find that most of your expenses are coming out on the same week of the month, maybe it's time to get on the phone to your lenders and say “Hey, can I change my payment due date on these?” That way that'll help you with cash flow. Most of them are very willing to do that for you, maybe bump it up or bump it back a week. I promise you will really start to realize changes in your finances if you do those things.
This is something that I work with on a regular basis with my bookkeeping clients. We look through their expenses every month, we plan a budget, we have goals. Having set goals are so important, but if you set them and you never take action on them, what was the point in setting them to begin with? You must take action.
I was speaking in another group recently and I told them, to put on that CEO hat. If you're talking about personal finances, if you don't have a business, you have to put on that CEO hat every day and make decisions around your finances, because if you let it go too long, it could really damage things in your business and things in your personal finances.
You’re going to feel the pain of it to begin with. I promise you that. But after a couple of months of this getting into the habit, of saying no I'm not going to do that. I'm not going to the Chic-Fil-A drive-thru today. You won’t realize where you're spending your money until you really do a spending audit to know where those things are coming from. Remember, this is not just for business, it could also be for personal spending as well.
