It used to take a lot of work to manage money. For decades, people around the world have been writing down balances in checkbooks, saving receipts in files, going to bank branches to transfer money, and reading through bank statements to see where they stood.
That approach has changed.
Technology has made it so that managing your finances can be done from your phone or computer. Tracking your accounts, categorizing your spending, scheduling of bills and transferring of savings can all be done with ease and within a short period of time. And on top of that, there are a multitude of financial tools that can help individuals forecast the effects of their financial decisions.
Having money in a bank account does not necessarily mean that a person is able to manage their finances well. With the advent of technology, however, people are able to view their financial information in a much clearer light. They can use this information and then act on it.
So if you are looking to get more control over your money, the ability to see your finances and understand what’s going on with your money can be really powerful.
Start With a Clear View of Your Money
The first step in managing money well is knowing what is actually happening with it.
Financial problems don’t often develop from a single financial mistake, but rather from a compounding of small mistakes over time. Without visibility into our finances, it can be hard to recognize many common pitfalls before they affect us negatively.
Most digital banking platforms and budgeting apps will allow you to view all your financial information. Some will also allow you to group your financial information into categories of spending. This allows you to view your financial information in a way that is easiest for you to understand.
Viewing your accounts, reviewing past transactions and tracking your current spending is far easier than repeatedly logging into your online banking account at the end of each month to check on your financial status. Tracking all of your spending and reviewing all of your financial transactions can be completed within a matter of minutes when using an online budgeting tool or digital banking platform.
This creates a clearer starting point.
When people get control of their finances, they can begin to see patterns in their spending. This allows them to assess how they are spending their money and see if it is in line with their current goals. They will realize that dining out costs more than they thought, and that all of those little monthly subscriptions can cost as much as another monthly expense.
Your goal here is not to track every single dollar going in and out of your account, but to be aware of what is going on financially so you don’t get any surprises along the way.
Use Automation for the Financial Tasks That Matter
Consistency is one of the hardest parts of personal finance.
The best financial plans do not rely on someone remembering to save every month. Similarly, no one intends to miss a payment on a bill. All financial plans, of any size, can benefit from being automated. That way, the hardest part (remembering) is removed and the task becomes almost routine.
Automation can help.
Automating bill payments will ensure that you never miss a payment date. Transferring money to your savings account immediately after you receive your paycheck will also be a good practice. Some online banking systems allow their customers to divide incoming money between different accounts.
This is how good financial habits work. They have to be set up in a way that they do not rely on memory or on the person being motivated.
To give you an example: someone who wants to build up an emergency fund can set up a transfer from his/her paycheck to the savings account. The amount does not have to be big. The important thing is that it is done automatically.
The funds in a savings account are removed from the main spending account, hence they are less prone to be spent on impulse purchases. It’s good to have the savings in a separate account.
Make Budgeting More Flexible
Traditional budgets often fail because they are too rigid.
For example, just last week, fuel prices shot up again. Maybe the person was planning to go out to eat each evening, but now, after checking the budget for the day, they find that they have less for food each evening. All categories in the budget, therefore, need to be reviewed.
Digital budgeting tools make adjustments easier.
On the other hand, by allowing for more flexibility, digital budgeting can enable a more realistic and thus reliable way of planning for future expenses. The more frequently financial spending is checked against budgeted amounts, the quicker any financial miscalculations can be corrected before they result in more serious financial problems.
These flexible budgets are usually way better than an attempt to create a perfect budget.
What constitutes a good budget? A good budget will help answer several questions for the household that created it. For example, how much money will the household have coming in? What expenses do the household members have to pay out? How much can be put away into savings or paid down on debt? Finally, how much money will be left over to spend as the household sees fit.
The Consumer Financial Protection Bureau is another online resource designed to serve consumers to make financial decisions with understanding and confidence and have tools and online resources designed to educate on personal financial management and borrowing.
Technology can be really powerful to help people make good financial decisions but the user of the technology needs to set the priorities and make the decisions.
Compare Financial Decisions Before Making Them
Before decisions are made regarding spending or saving, consumers can use technology to ‘test’ their financial decisions before any money changes hands.
This is especially useful when borrowing.
However, a monthly payment may appear affordable but hide the full cost of the credit being extended. As noted above, the cost of a loan is determined by the amount borrowed, term of repayment and rate of interest. Small differences in these variables can have large implications for the monthly repayment and the total amount repaid by the borrower over the life of the loan.
By using an online loan calculator, the user can estimate the amount of payments which will be required for a loan prior to deciding on the best option. For example, someone may look at a short term loan with a high repayment amount versus a longer term loan with a low monthly repayment amount.
The same idea applies beyond loans.
Online financial tools can help you forecast the growth of your savings, payments on a mortgage, the increase in your retirement fund, the interest you will pay and other related expenses. Keep in mind, these are estimates and should not be taken as fact. However, they will help you to get an idea of what to expect.
When you can evaluate your financial decisions in terms of tradeoffs (e.g. more cash up front for a lower interest rate over time) then you are in a much better position to make the decisions that are right for you.
A lower monthly payment may provide more money in your pocket today, but cost you more in the long run. A larger contribution to your savings each month will require you to cut back in other areas. Paying off one debt early may have to come at the expense of another goal.
Technology enables us to put numbers to these trade-offs, enabling us to make better financial decisions.
Keep Track of Recurring Expenses
On the positive side, they come and go automatically, which can be a very convenient feature. You will probably even forget that they have been charged to your account at all.
These can continue to automatically charge your account for months or even years. Streaming services, software subscriptions, gym memberships, cloud storage, delivery services and others continue to add to your monthly expenses.
Individually, many of these charges seem small.
In aggregate, however, they can quickly add up to consume a large portion of one’s monthly budget.
However, online financial tools can also help with tracking recurring payments in order to determine whether they still provide sufficient value or not. In some cases, financial apps also can automatically highlight certain payments, so the user does not have to search for them every time.
Let Technology Support Better Decisions
Financial technology works best when it reduces friction.
Technology for managing your finances can organize your information, automate tasks and give insight to your spending and your financial situation. This can save a lot of time and help in making better financial decisions.
But they are still tools.
An app can’t set your financial goals. A calculator can’t tell you how much risk you are willing to take. Your budgeting software can’t decide for you whether it was worth spending money on something that your software categorizes as being excessive in some way.
