There’s something brilliant, but also insidious, about services like Amazon Prime, where you don’t have to reach for your credit card to pay. Spending is painless.
Credit cards have separated us from our cash. Services like Amazon Prime, iTunes and others have separated us from our cards. And once we can pay more easily with our smartphones, consumers will experience yet another degree of separation.
All of this means that consumers need to work a bit harder to “feel” what they’re spending – and keep track of it. Behavioral scientists will tell you what you intuitively know: Willpower alone will take you only so far, and restrictive budgets eventually fail. But this is the time of year when many people try to get a better grip on their spending.
“Look for structural solutions or things that change your environment so you don’t need to be constantly vigilant,” said Stephen Wendel, a behavioral social scientist at HelloWallet, which helps employers provide financial guidance to their workers. “My favorite technology is the automatic transfer, so you don’t see the money in your account.”
There are some new financial apps that try to acknowledge our innate weaknesses as humans, most of whom despise deprivation and keeping tabs on every last dollar spent.
I spent the past week testing several cash management tools, including the newest apps targeting younger generations as well as improvements made by established services like Mint.com that still dominate the market.
A note of caution: To use most of these apps and services, which promise bank-level security, you need to be comfortable entrusting them with the passwords to your financial accounts. To analyze your spending, they need to collect and then ferry data about your income and transactional history into their programs; many rely on established players like Yodlee and Intuit for that plumbing and do not have the ability to move your money. I’ve also listed a couple of more traditional, and more labor-intensive, options.
Less than 3 months old, this app is intentionally simple: You can’t create fancy charts that categorize every last dollar, nor does it wag a virtual finger to alert you when you’ve spent too much on restaurants in the past month. Instead, it acts as a spending meter or a gas gauge: On the first of each month, it fills up with your estimated income based on your previous history; from that, the app automatically subtracts your recurring bills and a saving rate. (It suggests 7 percent). The app is available for iPhone and is coming soon for Android.
The money remaining is what you can spend, and the app breaks that down on a daily, weekly and monthly basis. The app is connected to all of your credit, debit and banking accounts, so it knows every time you make a transaction and adjusts the money meter accordingly. If you had a day of heavy spending, it will show that you have less to spend for the remainder of the month.
You can’t add in your cash transactions, and the app won’t work as well for people with inconsistent income and expenses, but the company is working on adding features that will address those issues.
This app started life as a security service that scanned users’ credit and debit charges for potentially erroneous or unauthorized transactions – a service that Target shoppers can surely appreciate now. But last summer it added a spending analytics tool and personalized savings alerts. The spending feature gives you a snapshot of your monthly spending, although you need be a heavy credit and debit card user for the numbers to have meaning. Every time you swipe a card, the transaction is automatically categorized. It did a relatively good job with the two cards I connected.
The analytics are informative but one-dimensional. You can compare spending across all accounts with the prior month, but the app doesn’t provide insights into spending relative to income. Those features and customizable alerts will be added in coming months.
The app, which will be available for the iPhone and Android in February, also searches the Web for coupons that you are most likely to use based on your past spending. The app works for two linked accounts, but there’s a one-time charge of $9.99 for up to 10 accounts. Yodlee handles account aggregation.
For several years now, I have had an on-again, off-again relationship with Mint.com, the automated money-tracking service introduced in 2007 and acquired in 2009 by Intuit for $170 million. If you want to get a better sense of where your money is going, keep tabs on your net worth and chart it all with pie and bar charts for different time periods, then Mint is still the most comprehensive tool on the market. LearnVest, which offers a human financial planner if you want one, has a similarly robust free tool, which I’ve reviewed in the past.
Mint’s budgeting tool sets up a starter budget for you – based on up to three months’ spending history – across various categories from groceries to mobile phones. You can add to the list and customize to your heart’s content. If you spend more than you’ve allotted, you can set it up to receive an email or a text message. LearnVest has its own budgeting tool, which also provides some guideposts: You should spend no more than half of your income on essentials and no more than 30 percent on lifestyle expenses.
Mint users, estimated at 2 million by the company, can now track their spending, income and net worth via the mobile app, but people will inevitably find something that doesn’t quite work for them. The app requires maintenance, because its categorization is not flawless. It still irks me that Mint refuses to learn that the target-date mutual fund in my 401(k) is not Target, the retailer. The app is available for Android and Apple.
You need a budget
This budgeting program requires you to enter everything manually, although much of that can be accomplished by syncing the program with its app. If you are reluctant to hand over your passwords to your financial account, this could be a good option. You can give it a test run for 34 days. After that, it will cost $60 for the program.
The idea behind its method: Give every dollar a job. The program does seem geared for dedicated, disciplined self-starters who don’t mind spending a chunk of time each week going over their spending.
The program and its apps are available for Apple and Android.
This program tries to modernize your parents’ or grandparents’ envelope system, where you allocate money to various envelopes for different categories, like food. The idea is that, when there’s no money left, you either stop spending in that category or pull money from another envelope. The tool, which is available for Android and iPhone, automatically connects to your accounts with its own technology, although you have the option of entering transactions manually.
While I found the envelope concept alluring, I didn’t find the service at all intuitive and could not connect a Citibank account to the system. Creating up to 25 envelopes and adding four accounts is free, and includes a free phone session with a money coach (the service sells these sessions, too, but they aren’t necessarily with financial planners or accountants). Unlimited service costs $9.95 monthly.
Other apps and services
Dozens of other apps will help you track your money, from Spendee ($1.99 on an iPhone; it is coming to Android soon) to Bdgt (free), both of which have been featured by the Apple app store. But they are really just electronic notebooks, requiring manual entry, that make tracking your spending easy to categorize.
If you just want to raise your consciousness for a few weeks or months, you might try something like Spendee, which is easy to use and pleasing to look at, and can back up data to iCloud and export it if you wish.
Even Jim Bruene, founder of the NetBanker blog who tracks innovations in personal finance technology, can appreciate old-school methods for a period of time.
“Diligently hand-entering every expense for a month or two can be eye-opening, at least for the more short-term scenario where you are trying to get a handle on what’s happening with all your cash,” he said.
But that’ll require some willpower.