Should You Be Using a Budgeting App?

0:00Trying to keep track of your finances and spending can feel overwhelming, especially at a time when the prices of groceries, gas, and other essentials seem to keep going up. That's where online financial planning tools can come in. Some of these apps aggregate information from your various financial accounts, checking savings for 1Ks, IRAs, to show you the bigger picture. And many offer to help cut through the chaos and take action toward financial goals, whether it's saving for a vacation or building towards retirement. But not all budgeting apps are created equal. How do you know which platform is right for you? And how do you ensure your sensitive data is being protected? To talk about all of this, I'm here with Riley Adams. He's a CPA and the founder of Young and the Invested, a blog where he works to help people kickstart healthy financial habits. This is Terms of Service. I'm CNN tech reporter Claire Defi. My conversation with Riley after this short break. Call us footballers back.

1:04So Hilton called to me the superstition concierge to make your fan rituals a reality. Need a room to match your lucky number? We got you. Want to make sure our team doesn't wash your lucky jersey? Oh, that smells lucky. Hilton's unmatched hospitality can keep up with any superstition. Even a marching bandwink up call it 555 and 55 seconds. Hit it! When you need a team that will do whatever it takes on game day, it matters where you stay. Hilton, for this day. This episode is brought to you by PayPal. You know how a mom's bag has everything? Sunscreen? Snacks? A stapler? The new PayPal app is like that, but for your money. Shop, pay, manage your account, and earn rewards all in one place. And with purchase protection on eligible items, biometric security, and pasquies, you're protected at every step. Download the new PayPal app to get started. See PayPal.com slash protection terms. Riley, thank you so much for doing this. Of course, thank you for having me.

2:05Appreciate it. To start, I want to just step back and ask you a really general question, which is, why is it worthwhile for people to track their finances, whether they're using an app or an old-fashioned spreadsheet? Why, as long as you're paying your credit card every month, do you need to be actually tracking your budget and your spending? Well, you know, there are different schools of thought on that. Some people think as long as they know they're spending less than they have coming in their bank account each month, they're fine. They don't ever really think they need to look at their finances. That's fine. My brother is just like that, and you know what? He's never had a check-bounce. He's never missed a payment. He's been great. But on the other end of the spectrum, it's really helpful to have good insight into the money coming into your account. And then perhaps more importantly, the money going out of your account. So being able to track that, whether it's with an app on your phone, some browser app that you can have, or even a simple spreadsheet, having access to those, and being able to look at and understand what is happening with your day-to-day finances is really helpful.

3:08If you're trying to set goals for yourself, you're trying to accomplish different milestones, like save for your kids' college education, save for retirement. If you don't know what's happening on a daily basis, it's really hard to stay on track for some long-term goals. How do you personally maintain and track your finances? Well, I'm somewhere in between. I don't need to see every day what's happening in our different accounts. But my wife and I, she and I will have, let's call it annual, but it's probably a little bit more frequent than that. Just family finance check-ins, where we'll go through all of our various accounts, see where things stand, identify, and a makeshift budget. Are we spending what we think we should be spending? Should we reduce in one area? Should we move money somewhere else? It's a way to keep a pulse, so we'll have that each six months to a year where we check in and see how we're pacing and how we're performing against our goals.

4:11And how do you bring all the information together for that? Is that all in a spreadsheet? Is it just like you open up the accounts and you look? You should prepare for that meeting. Yeah, so unfortunately, I have tried a number of different aggregator apps where it can pull in account information across various financial institutions. And they generally work, but one thing you'll learn if you're doing a lot of research and analysis on different apps out there for helping with budgeting and finances is financial institutions don't always like to play nice with one another. So their way of connecting APIs, pulling in from bank feeds, they sometimes just stop working. And there's not a whole lot you as a user of one app can do. So quite often you'll have to go reconnect an account. You have a fidelity account that's updating each month you check in. Great. One year from now, why does the last time it updated six months ago? Oh, something must have happened.

5:11I need to go reconnect that. I've not had one app that has universally avoided that problem. And I don't think that one app truly exists because it can't control how other financial institutions share their data. So what my wife and I do is we just get a good old fashioned spreadsheet and we go through all of our accounts methodically, pull whatever the latest balances are. And that's what we use when we're doing our annual financial check in. Interesting. So you hinted at this, but we have obviously seen this growing slate of apps and online services popping up to serve people's financial needs. Just give us an overview of the landscape and what's out there right now. Sure. So as you mentioned, there are a lot of solutions out there now and they have different ways of making you more engaged with your finances. Some gamify it by giving you points and scores.

6:11If you hit certain goals, they'll even do roundups where if you spend $10 and 12 cents, they'll round it up to 11. They'll put that money into an investment account. It's a way to kind of nudge you and build these micro habits, if you will. A lot of apps are finding ways to make money more interesting and more accessible. It's been the big development here in the last five to 10 years and it's only been super charged lately with the advent of AI coming into the space. It's trying to help you understand what you're doing and in some cases recommending things you can do. But that doesn't necessarily mean you should do what these AI or these apps recommend because while they are learning on your data, it's not necessarily the best advice for you if you are not careful about what they're telling you to do and suggesting you do.

7:15Got it. I want to ask you a little bit more about the AI of it all in a minute. But when you talk about these apps generally, what kinds of goals are they helping consumers work towards? Is it mainly budgeting? Is it saving? Is it investing? Some of all of that. Yeah, so it really runs the gamut. You can have single-purpose apps that will really just help you with budgeting. Those are generally ones that you can actually find for free in many cases inside of your bank app, which is Chase Bank, US Bank, whoever it is you bank with. They typically will have some way to track your spending and your income and they'll put it into different categories so you can get a breakdown of how much I'm spending on fast food versus groceries, how much I'm spending on utilities, streaming services, what have you? I'm always horrified by how much I spend on Uber, so I'm like, oh no. Yes, I know. The convenience of them make it nice, but also at the same time, a little bit of a drawback financially.

8:16But yeah, these builds in, let's call it, budgeting apps within your existing bank apps are a good place to start if you're really just trying to get a pulse check on your finances. But if you're looking for something a little bit more involved, they do make special purpose budgeting apps that you will connect your bank account or bank accounts into and they will try to process all of the different payments and income that you're getting into those accounts. And they'll build sometimes some automated budgets and see where things stand. Then if you want to go further than that, once I have my budget in control and I understand what's happening there, how much of that, if you're including savings as part of your overall budget, is going into investing? Part of the challenge, I think, at least for myself of managing finances is you've often got different services. You've got different financial institutions.

9:18You've got a checking account here, a credit card over there. You're investing on another site. It sounds like there are services to kind of bring all of that information into one place, even if they are maybe imperfect as you were describing in your situation. Yeah, no, that's definitely the case. You do have challenges when it comes to getting all of these different accounts to communicate in one place with you. But that doesn't mean it's not worth the challenge or even the normal upkeep to make sure all of these accounts keep tying into the same place to give you a comprehensive view of your finances. It's very natural to start accumulating all of these accounts, whether you intend to or not. You want to stay on top of it because when the day comes and you need money, you're going to want to know what you have in those accounts. So staying on top of it and keeping these connected in one place is very helpful. And are these services generally free?

10:19Do they cost money? Does that tell you something about the quality of the service, whether they are free or paid? Yeah. So there's a common saying if you're not paying for a service you're getting value from, odds are you are the product that's being sold. Right. So you have to be careful. Free does not necessarily mean free. You are giving up something, whether you realize it or not in return for the value this app is supposed to be providing you. That is the free version, which they can have lots of value. Don't get me wrong. But typically if you're looking to have your privacy be preserved, you don't in this world of AI, you don't want to have your information be used to train some AI model that you have no control over, you typically would have to go into the paid tier of services. And that doesn't mean their cost prohibitive.

11:20Some of them can be more expensive, but you would assume for that higher price tag you're getting more features, more services, more things to help you and also to justify the price that you're going to pay for such a service. Riley's financial literacy site, Young and the invested, has some helpful articles that review popular finance and budgeting apps, including services to track your overall net worth, get a grip on your budget, and start investing. There are a ton of apps to choose from depending on your goals, but Riley says that no finance app is perfect. So what should you keep in mind to ensure your financial data stays safe? And how can you pick an app that suits your own circumstances and goals? That's after the break. Call us footballers back. So Hilton called to me the superstition concierge to make your fan rituals a reality. Need a room to match your lucky number? We got you. Want to make sure our team doesn't wash your lucky jersey?

12:20Oh, that smells lucky. Hilton's unmatched hospitality can keep up with any superstition. Even a marching bandwinkup call it 555 and 55 seconds. Hit it! When you need a team that will do whatever it takes on game day, it matters where you stay. Hilton, for this day. This episode is brought to you by PayPal. You know how a mom's bag has everything? Sunscreen? Snacks? A stapler? The new PayPal app is like that, but for your money. Shop, pay, manage your account, and earn rewards all in one place. And with purchase protection on eligible items, biometric security, and pass keys, you're protected at every step. Download the new PayPal app to get started. ZPaypal.com slash protection terms. How do these services stack up with a human financial planner? Well, that is a great question. So it depends on the type of financial planner that you're working with. Sun will stick largely to investments, and that's really where they stay.

13:21And they're laying, they don't go too much outside of it. If you have a true financial planner who does that, plus the budgeting, personal finance, maybe even a state planning, those people can be very helpful with really giving you detailed, personalized advice on how best to handle your money. And I am an advisor myself. And with my clients, what I always do is we always start with their budget because you have to know if the money is coming in, what are the holes in your bucket where leaks can happen. So you can understand what might need to change, what your priorities are, and then we can act accordingly to make sure your actions are aligned with accomplishing the goals you set for yourself. Are there gaps in these services challenges with using them that you think people should be on the lookout for? Well, I was mentioning earlier about the new FAD of AI being kind of table stakes.

14:26At this point, for many apps, because that's what a lot of the marketing is being geared towards, I think you have to be very careful when it comes to using any of the recommendations that come with these apps, because I think a lot of people, if they see that a feature can make advice or suggestions after you've put in your personal information to these apps, they will think that this is something they themselves should follow or implement in their lives. And it very well could be the case. It could be a solid suggestion. But the fact of the matter is, if you're in office and you don't really know a lot of the terms that are being used, you might not fully understand the concepts being suggested. You might have some issues implementing it as the apps AI suggestion is intending you to. So I think you can't just blindly trust this.

15:29You also need to understand, are these apps making tailored suggestions to you? Because they oftentimes will just pull in transactions, see what the past has shown about you, but you can't communicate your future goals if you're only looking at the past. So you need to be very mindful of that when looking at the suggestions that come with these apps. I think that's a real gap that is usually best answered by a human. And that could mean working with a qualified financial planner. Yeah. Well, it's such a good point too, as people are probably increasingly using mainstream AI services like ChatGPT and Clawed, like let alone searching out these apps and services that are targeted towards their finances. I'm sure there are lots of people just asking ChatGPT for financial advice. So that seems like very important. It's a very important thing to keep in mind.

16:29Absolutely. Just like dieting, not everything that tastes great is good for you. So you have to be very careful about what these tools will be telling you and make sure it makes sense for your own situation. This sort of touches on what you were saying to about being careful about where you put your financial information. Are there risks if you are putting this sensitive information all in one place and even linking bank accounts to a single app so that they have direct access? Yeah. I mean, imagine you're trying to use some basic financial calculator to see how much mortgage you can afford if you're looking to buy a house. If some online tool says, please provide your credit score, a range of what your income is. Those are pretty general things that you don't need to worry too much about your information being exposed because people can't do a whole lot with just those two general data points. But the moment you sign up for an app and it asks you to connect your credit card and

17:31to the account and it pulls in 24 months of spending history and then it starts learning about your habits. You know, I mean, maybe each month you're buying pregnancy tests or you're going to the doctor for different things. It can interpret a lot of things that might not be what you want shared with some AI or some app. You don't want that to be known about you. So I think the moment you start feeling uncomfortable with this information being in the hands of someone you don't know and you don't know how your data will be used. I do think it's worth a moment of stepping back and saying, is this a good decision for giving my data to some type of service? Yeah. How can people get a sense of which ones they can trust? Well, if you're a lawyer, you can read lots of terms of service and different agreements there about how the data will be used.

18:31Not many people will go to that length. This is usually the things you scroll past, accept terms and then you move on to get on with the app. But, you know, there's not generally a way for you just to know how your data will be used. So that's something you just need to be cognizant of when you're looking into these services. Some will be upfront and they will just give you a clear thing that says, we will not use your data for training our software, our apps. Some apps will be very explicit with how they tell you what your data will help them do and what it more specifically won't help them do. So just think through, you can read reviews online about these different services. I would highly suggest that, especially if they're asking you to link bank accounts and credit cards. I read a few reviews online before you just hit download on that just because it's better safe than sorry, know what you're stepping into before you just jump into the pool.

19:36Yeah, well, it's such a good point too about the availability of these more general services where you can still get some guidance and some information. I, for years, used a free app that was like a budget tracking app, but I input every purchase that I made so I could keep it pretty general and say groceries, $50, Uber, $12, and it wasn't pulling from my account. It didn't have access to that information. And so I got to kind of see what I was spending on and many ways it made me more conscious because I had to do it every time, kind of annoying, kind of positive in that sense, but it didn't actually have any information that was connected to me personally. So that's a good reminder too. You were opting in with every transaction you put in. So you were firmly in the driver's seat with control over what you were sharing with the app. Yeah. Obviously, right now, there are tons of concerns. Americans are facing a really challenging economy. There's inflation. Home prices are up. Instability in the job market.

20:36Lots of people have student debt. Is there a potential for services like these to really help people address these financial challenges? Yes. Certainly ones that if you did not have full insider, really, any insight into your finances before this and these start forcing you to be cognizant of what is happening in your financial situation. Yes, these very much can help you understand things better and sometimes knowing is the biggest part of it all. Now the decision making obviously can be a challenge too, but if you don't know what's happening, you really can't make informed decisions and that can be detrimental to you. So I do think even using a spreadsheet and looking at your financial situation and understanding, you know, I might be due for a raise. Let me see about how I go about doing that. How do I negotiate a raise?

21:36Or maybe it's time I set up an individual retirement account in IRA. I've been putting it off for years. Let me look into how that works. What it can do for me. I think looking at these transactions, the bank data, all of these things to understand your finances will be helpful for making better informed decisions. And you just, like I've said, need to be careful about any sort of suggestions that come up. Does it evaluate, do they make sense for me? Could I see myself doing what is being suggested by these different services? If somebody were looking to get started on one of these budgeting apps or financial services, how would you think about choosing which one is right? I would start with what you currently have available to you, which is most likely through your own bank. They will have some, generally, some free app that's available for you to at least see your finances.

22:36As you're going through that, if it makes sense, then great. That might be all you really need to get your financial journey on this track to understand where you're going. But if it's not, then I do think it is beneficial to try to find another way. That could mean a paid app. It could mean even meeting with a financial advisor and understanding, hey, here are my goals. Here's where I'm at. What do you think? And then what do you think I should do? So I think the best starting point is just with your own bank and looking at the app there. Conversely, if you're not wanting to do that, get a spreadsheet. Start writing down all of your expenses. As you've mentioned, you put your money manually into this free app. It forces you to understand you are spending $300 a month on ubers or eating out or whatever it is. And it makes you more familiar with your finances.

23:40Sometimes just attention is enough to start moving you in the right direction, whatever app you may choose. Well, Riley, this has been so helpful. We really appreciate your time and your insights on this. Thank you for having me, Claire. I really appreciate you inviting me on to the show. Willing to Riley's website, Young and the Invested in our show notes. It has more finance app reviews, as well as other tips for getting a handle on your money. Here are some key takeaways from our conversation. If you've never used online tools for keeping track of your spending, Riley says looking at your own banks offerings is a good place to start. If you're interested in getting more granular or specific and trying something beyond your banks online dashboard, make sure you read reviews from sources you trust. You want to understand how any app you choose is going to use your financial data. But if apps aren't your thing, you could also follow Riley's example and input all of your spending into a good old-fashioned spreadsheet. That's it for this week's episode of Terms of Service.

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