The Easy Personal Finance Audit You Should Do Annually

Catherine | Budget Fashionista
5 min readSep 17, 2019

For most of us, the road to riches is riddled with potholes. Big, muddy, messy potholes. Often, you can swerve to avoid them. But there’s always the chance you’ll hit a tree or another car instead.

I stay focused on the road ahead by committing to a few simple practices that help me measure my household’s move towards financial freedom. One of those practices is an annual household financial audit — something like a review of your personal balance sheet and income statement. Doing so gives you a snapshot of your financial health and holds you accountable for improving your finances by a little bit each year.

Financial Well-being: the Basics

You do not have to be a CFO or even a spreadsheet whiz to audit yourself. First, let’s define the basics. Financial wellbeing happens when you have no debt, lots of savings, and your income is higher than your expenses.

Household Financial Benchmarks to Know

I’m not going to spout off a bunch of complicated ratios that no one can understand or remember. Instead, let’s focus on two things: debt minus savings, and income minus expenses.

While it’s important to know your debt, savings, income and expense levels individually, it’s super useful to track these as relationships. Let’s say you have $1,000 in debt and $50 in savings today. If you used the savings to pay off the debt, you’d owe $950. Now assume that a year from today, you have $1,500 in debt and $600 in savings. You could pay your debt down to $900. You’re in a slightly better place than you were the year before, even though your debt is higher.

You can view income and expenses the same way. Your income might go up by $10k this year, but if the expenses rise by more, you’re moving in the wrong direction.

Financial Audit: Step by Step

· Start with a file you can keep on hand for years to come. It can be a spiral notebook or a Word document or even a napkin — whatever you won’t lose.

· Write down today’s date.

· Total up your debt, savings, income and expenses and write them on your document.

· Calculate debt minus savings and income minus expenses amounts.

Now that you’ve benchmarked where you are, you can dive into each category and find opportunities. Those opportunities then become your financial action plan for the next year. That way, when you go through this process again next year, you’ll find you’re truly moving ahead on that road to riches.

Quick Ways to Reduce Debt

Conventional wisdom will tell you to pay down your highest-rate debt first. I like a different strategy. Instead of tackling the highest-rate debt, focus on paying down your lowest balance first. On all the rest, make minimum payments or at least enough to cover the accrued interest.

Work on the lowest balance first because it’s the shortest path to paying something off. And every balance you pay off means one fewer minimum monthly payment out of your pocket. That frees up a little more dough to put towards the next lowest balance. And so on.

Also be disciplined about using any unexpected cash to pay down credit cards. Birthday presents from your parents, work bonuses, money earned from selling used clothes on Poshmark — all of it goes to your debt. I won’t tell anyone if you sneak in a mocha macchiato occasionally, but only do it if that keeps you motivated.

Quick Ways to Improve Savings

When it comes to savings, slow and steady wins the race. Decide what amount, no matter how small, you can afford to stash away each month. It might be $2 a paycheck, and that’s a great place to start. Set up automatic transfers to an external savings account. And then forget about it for a while. I like a Rize account for this, but anything similar will do.

Also find a way to stash your change away. Do it literally in a Mason jar, or digitally with a program like Keep the Change from Bank of America. Pennies and nickels always eventually add up to dollars.

Quick Ways to Increase Income

Do you have stuff in your house you don’t use anymore? Sell it on eBay or Poshmark or LetGo. As a bonus, reducing clutter at home tends to feel very liberating.

You should also keep your savings in a high-rate account. Capital One 360 and Rize both offer good interest rates for cash deposits.

Lastly, you can pick up a small side hustle to increase your earnings. Try walking dogs with Wag or Rover, or testing websites with

Quick Ways to Decrease Expenses

A thorough review of your credit or debit card bill usually will uncover various ways to cut back on expenses. Look for monthly recurring charges for redundant services. For example, you might be paying for cable and Netflix and Hulu and Amazon Prime. Or Amazon Prime and Spotify or Pandora. Pick your top one or two entertainment services and dump the rest.

For gas, coffee, pizza delivery and clothes, pick your favorite retailers and evaluate their loyalty programs. Join programs that offer cash back on purchases, and then keep your shopping limited to those stores. For example, Style Circle Rewards by Stage Stores gives you $5 back on every $100 you spend; imagine how much you’d save if you bought all your clothes there!

You may also find savings opportunities by changing your commute to work. If you’re driving alone in the car, start carpooling or taking public transport a few days a week. You’ll save on gas and wear and tear on the vehicle.

Once you review your borrowing, saving, earning and spending habits, it should be easy to identify two or three opportunities in each category. Write those down and commit to them for the next 12 months. In a year, that road to riches will seem vastly easier to navigate — and a lot shorter too.