Good money management does not have to mean high income and lots of financial knowledge. First, money needs to be managed, i.e., monitored in order to recognize spending in good time. Then, with foresight, in a sufficient and optimal way. Only then can money be spent in an appropriate way. Even small spending needs to be controlled in order to prevent it from becoming a big problem.
Modern technology also provides tools that enable management of personal finance in an effective manner. This is done by the use of financial apps that are able to track spending and keep an eye on bills that are due to be paid in order to enable the person using the apps to monitor their finances in real time, as opposed to simply having to review paper-based financial records and trying to remember individual financial transactions.
Technology cannot make financial decisions for you. However, with financial information at your fingertips, you can make better financial decisions.
Start With a Complete View of Your Money
Before creating a financial plan, you need to understand your current position. You will need to go through a list of your income, regular expenses, debts, savings, and financial obligations.
Once you have entered all of your payments, many online banking systems will organize them into categories. These can include such things as your spending on groceries, on your travel, on your home, for your entertainment, on your various subscriptions, etc. This will give you an immediate view of your spending throughout the month.
The classifications provided for transactions by the accounting app are not always correct. While a dinner at a restaurant would be categorized under Entertainment, a payment made to a local handyman would probably be incorrectly listed under Unclassified/ Other.
Some systems also allow for the aggregation of accounts (accounts that are linked online through a service such as Mint.com, MaxInvestor, etc). Therefore, in addition to individual accounts (checking, savings, credit cards, etc.), you can also view your money that is invested (individual stocks, mutual funds, etc.) and even outstanding loans (car, home, etc).
Until you have gathered all of the information together, you are left to struggling through a sea of financial information in a state of uncertainty.
Build a Budget That Reflects Real Life
Create a realistic budget that helps you reach your financial goals, and don’t forget to leave some room for fun.
Budgeting apps, for the most part, allow for tracking of the money that is coming in as well as the money that is being spent. This tracking of money allows for setting of a monthly spending limit for certain categories of spending, for example of dining out and/or of entertainment. Apps for budgeting also can assign every single dollar to be spent in advance, to a specific purpose in order to help save money and reach financial goals in advance of time.
When building a budget, it is best to start with essential expenses first. The essential expenses of any individual are typically the cost of housing, utilities, food, transportation, and minimum payments on debts. Next, would be the flexible expenses of dining out, traveling, entertainment, clothing, and hobbies. Remember to leave some room for irregular expenses like the occasional vehicle repair, a surprise medical bill, annual subscription fees, and the like.
It is also important to keep in mind that there are many irregular expenses throughout the year that can add up to a significant amount. Try to budget for repairs to your car, for medical expenses, for annual subscriptions to magazines, clubs, and other services, for special occasions and for home maintenance. It is also wise to set aside some money each year for gifts.
Adjusting your budget is far simpler when done through digital budgeting tools. After a change to your income or the cost of certain products, altering the budget is a doddle and ensures you are sticking to your financial goals.
The goal is not perfect accuracy. The goal is steady awareness.
Use Alerts to Prevent Avoidable Problems
One of the simplest ways to improve your finances using technology is to set up alerts.
Low Balance Alert: Your checking account drops below a set amount, preventing overdrafts and fees. Large Purchase Alert: Significant transactions occur, helping you track spending. Bill Alert: Upcoming payments are listed, to stay on top of them. Unusual Transaction Alert: Suspected fraudulent activity occurs, alerting you to verify the transaction. And Payment Due Date Alert: Upcoming payment dates are listed.
Low Balance Alerts – Set up a notification when your checking account falls below a certain amount. Also, Large Purchase Alerts can be set up for amounts that are larger than normal such as when a purchase exceeds a chosen amount.
This will be especially important to track for credit card charges in order to stay on top of your spending. It is very easy to get sucked into overspending on your credit card, and then be shocked at the high balance when the bill comes due. However, by receiving alerts after each transaction, you will be able to immediately connect each purchase to the corresponding charge to your credit card. This will help you track your spending and also keep you accountable for your purchases.
Alerts should support your financial habits, not create financial headaches. By choosing the right financial alerts, you can create a better financial routine for yourself.
Evaluate Borrowing Decisions Before You Commit
To make a more informed financial decision, evaluate the terms of a potential loan before you commit. Make sure to review the interest rate, repayment term, as well as the corresponding fees and total amount to be repaid over the life of the loan. Use a loan calculator to explore different options, such as varying down payments or shorter repayment terms.
A loan’s interest rate, payment period, charges and total amount to be repaid should all be reviewed before borrowing. A longer repayment term can result in lower monthly repayments but higher interest repayments overall.
A loan calculator will help you figure out the costs of different kinds of loans with different terms. This will help you figure out how much it will cost to borrow money for things such as a down payment on a house or paying for a car. For example, paying more down on a house will reduce the monthly payments, but the total amount that you will pay for the loan will increase.
By comparing loans, you can determine the best loan for your situation. There are loan calculators available on the internet for a wide variety of different types of loans, including personal loans, auto loans, student loans, and mortgages.
Automate Savings and Important Payments
Financial progress is largely dependent on consistency. It is better to have automated finances than unpredictable ones.
Set up automatic transfers from your checking account to your savings account on each payday, no matter how much it is. Although it may seem counterintuitive, transferring small amounts of money on a regular basis can be more effective than trying to save what’s left over at the end of each month.
Apps like Digit will sometimes round up a purchase to the nearest dollar and then transfer that difference to a savings account. Others automatically split direct deposits between a checking and savings account.
By setting up payments to be sent automatically, the risk of late payment or even missing a payment date is removed, ensuring that bills are paid on time, every time.
Some automated payments, however, need monitoring as they can create financial trouble if there are not sufficient funds for payment.
Automation works best when paired with attention.
Use Technology as a Tool, Not a Substitute for Judgment
Apps, finance programs, and other financial tools help track data, automate routine tasks and even find hidden spending. Users can organize finances, track spending, and receive comparisons for items including loans.
They cannot determine your priorities.
An app cannot determine whether it is better for you to spend money on travel or to pay off your debts. This is a matter for you to decide and depends on your income, your other commitments and your financial goals. Your investment requirements and your attitude to risk will also play a part.
Technology can be managed by your financial decisions and enable effective monitoring and adjustment of spending and finances. Using Technology to track and manage finances is only good if it complements financial management.
Just because there are a lot of great tools out there, it does not mean that you need to use them all. The point of using these financial tools is to make sense of your money and to help you make better financial decisions.