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Budgeting is one of those things like flossing your teeth — you know you should do it regularly, but you might not actually make time for it.
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Budgeting apps purport to make this process simple on the user. But there are so many of them, each with different approaches. Do they really work?
Financial advisors suggest that no, they don’t. Here are some reasons why and some tips on how to budget better without an app.
It’s Hard to Get Real
In a nutshell, budgeting apps don’t work because people will never be honest about their expenses, said Julian B. Morris, certified financial planner with Concierge Wealth Management.
“Even if they log everything accurately, they don’t change their habits,” Morris said. “I think the best way to budget is to do it in reverse. Save first to emergency funds and retirement plans. Automate this whenever possible. We don’t want the money hitting your bank account.”
He added, “After you have met your savings goals both short and long-term, go ahead and spend the rest.”
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Budget Micromanagement
John Browning, a financial advisor and founder of Guardian Rock Wealth, said that a lesser-known challenge of budgeting apps is that they may “inadvertently encourage budget micromanagement.”
“Some clients become so fixated on tracking every minor expense that it can lead to anxiety and a negative relationship with money.” he said.
What he advises instead is to focus on macro-level budgeting by categorizing your expenses broadly.
“This reduces the stress associated with minor fluctuations and allows for more flexibility in their financial planning,” Browning said.
Irregular Income
Many budgeting apps rely on the user having a consistent and predictable income, which may not be the reality for everyone, Browning pointed out.
“Self-employed individuals, freelancers, or those with irregular income streams often find these apps less effective,” he said. “Instead, I suggest using a ‘pay yourself first’ strategy, where a portion of any income is immediately allocated to savings or investments before budgeting.”
He said this ensures that even irregular earners can build wealth over time.
Lack of Income Optimization
Budgeting apps may help with expense tracking, but not with optimizing income.
“Many clients may not realize that their current job or investment strategy is not maximizing their earning potential,” Browning said. “As an alternative to budgeting apps, I encourage clients to conduct regular income reviews to assess their career or investment choices and explore opportunities for salary negotiations, career advancement, or diversified income streams.”
Budgeting Apps Are Not One-Size-Fits-All
Financial advisor Michael Ryan, owner of Michael Ryan Money, finds that while apps have “revolutionized the way we approach personal finance,” they are only as useful as the user’s commitment and understanding of their financial habits, and are not “one-size-fits-all.”
“Much like my personal journey with a fitness app, I realized that the tool itself didn’t guarantee success; it was my consistent effort and mindfulness that led to positive change,” he said. “The same principle applies to budgeting apps. They are fantastic tools, but they require a user’s active participation and reflection on their spending habits.”
Security Risks
In addition to sometimes miscategorizing expenses, and not aligning with a user’s specific financial situation, Ryan pointed out that there are “potential security risks associated with sharing sensitive financial information [that] cannot be overlooked.”
Instead, he said a combination of professional advice, personal accountability, and a method that suits an individual’s needs is key to achieving financial stability and success.
They Can Be Overwhelming
James Taska, a financial advisor with Forest Hills Financial Group, said that his clients often find themselves overwhelmed with the need for constant input into their budgeting apps.
“These days, with the ability to make consumer purchases directly from your smartphone, we find that individuals have difficulty self-regulating their spending habits regardless of the app being used,” he said. “Combined with the numerous ways a consumer can pay for goods and services — online payment system apps, credit and debit cards, cash etc. — it becomes a daily accounting nightmare.”
The repeated need to record and analyze every financial decision, even with the help of an app, is exhausting and ultimately leads to failure.
Instead, Taska recommends clients automatically contribute to their retirement accounts, brokerage accounts and high-yield savings accounts to put away all the money that isn’t essential to pay for bills and other needs.
“Simultaneously, an individual now has the freedom to spend the rest of their pay how they see fit without the psychological stress of constantly having to make tradeoff decisions regarding their daily spending,” he said.
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This article originally appeared on GOBankingRates.com: Financial Advisors Offer 7 Reasons Why Budgeting Apps Don’t Actually Work
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