Managing personal finances has become far more accessible thanks to the rise of budget apps. In fact, Google finds that up to 73% of smartphone users now use an app to budget their money.
But can you really trust them? After all, you’re not only depending on them to help you with your financial well-being, but you’re also inputting sensitive information into the app.
So, while budget apps can definitely be helpful, there are risks, and they’re far from perfect.
Here’s everything you need to consider before using a budget app—from trips and tricks to pros and cons to alternative budgeting methods.
The Appeal of Budget Apps
Budget apps like Mint, YNAB (You Need a Budget), and PocketGuard have grown in popularity in recent years for one simple reason:
They make budgeting easy.
For example, many of these apps can directly connect to your bank accounts, credit cards, and other financial tools. Then, they can categorize your transactions and even provide insights into your spending habits.
Other features include things like:
- Notifications for upcoming/pending bills;
- Customized saving goals;
- Investment trackers.
All in all, they brand themselves as some sort of one-stop shop for financial management.
For some users, the ease of use and integration can be the very reason why they’re budgeting in the first place. If they were to budget manually, it would be too much of a hassle for them to consider.
But nothing is perfect. Here are some risks involved with using these apps:
The Risks of Using Budget Apps
1. Data Security Concerns
Perhaps nothing is more sensitive or personal than one’s finances.
And in order to use a budget app, you need to input your financial details. This includes things like your:
- Bank account credentials;
- Transaction histories;
- Credit card numbers;
- Personal financial goals.
While many reputable apps will claim to use bank-level encryption and adhere to stringent security protocols, no system is foolproof.
Data breaches are not uncommon and the largest of corporations have fallen victim to them before. So, who’s to say that these apps, often made and managed by smaller to medium companies, are immune from them?
2. Privacy Issues
And even if these apps claim to prioritize cybersecurity, the very knowledge that a third party hosts their financial data can be uncomfortable for some.
Additionally, many budget apps operate on a freemium model, which means that the basic service is free while premium features require payment. Many users are satisfied with the basic version of the app—but if that’s the case, how do these apps make money?
Like many websites, they may be selling anonymized user data to third-party advertisers (perhaps the same ads you see while using the app’s free version).
3. Dependency on Automation
With apps automating most of the budgeting process, the user has to do very little. But that can be a double-edged sword, as this can lead to over-reliance on the app.
What happens if the app makes mistakes? Fails to update? Or is it shut down or breached?
This leaves overreliant users without a budgeting method, as they may no longer know how to do it themselves.
And when they do move on to a new budgeting app, they may no longer have the discernment skills to determine if the app is making mistakes or does not have effective features.
Tips for Using Budget Apps Safely
Despite the risks, budgeting apps can still be helpful.
If you decide to use them, make sure you’re doing the following things to not only protect your data and finances but also so you can get the most out of it.
1. Choose Reputable Apps
Budgeting apps are not made equal. There are now countless budgeting apps on the market—and new ones are creeping up all the time.
Stick to well-established apps and make sure to read or watch several reviews of the apps you’re considering.
These reviews will also help you determine which apps have the most suitable features for your specific financial needs.
2. Prioritize Cybersecurity
Because you’re constantly letting the app monitor your sensitive financial data, make sure to implement strong cybersecurity practices, such as:
- Setting a strong password for the app;
- Using a VPN;
- Using 2FA for the app.
3. Monitor App Permissions
Always check what permissions the app requests—don’t just click on the “allow all permissions” option willy-nilly as many people do.
Be wary of apps that ask for unnecessary access. Generally speaking, it shouldn’t require your contact list or your location. If it does, double-check which of the app’s features require these permissions.
4. Avoid Linking All Accounts
Only link the accounts you need to track regularly, like the bank account that has regular transactions.
If you think about it, there’s really no need to link an account for your emergency savings, for example. After all, the money in that account should theoretically not be touched unless there is an emergency.
Giving the app access to every financial account you own simply risks more of your privacy and data.
5. Oversee the App’s Actions
Many users of budgeting apps take on a “set it and forget it” approach to it. However, this is actually not advisable if you want to be as smart and as secure as possible with your money.
The categorizations of these apps are prone to error, as they often rely on pre-set algorithms. You’ll need to correct them should mistakes happen.
“Setting and forgetting it” may also make you unaware of your spending habits, which defeats the purpose of budgeting in the first place!
So, always review your app’s transactions to ensure accuracy and stay aware of your financial situation.
Alternatives to Budget Apps
If you don’t feel comfortable trusting your money and budgeting schemes with apps, consider these alternatives:
1. Spreadsheet Budgeting
A good old spreadsheet like Microsoft Excel or Google Sheets can be just as effective at monitoring your spending and saving habits, although it is less convenient.
While it may take some effort to set up the spreadsheet, you can use a free, pre-made budgeting template online. There are many of them available!
2. Pen and Paper
Old-fashioned and tedious, yes.
But if you want to stay as mindful as possible of your spending, then there is no better way. After all, studies show that manually writing things is better for remembering information than typing.
3. Envelope Budgeting System
Another old-fashioned approach is the envelope system.
You simply have separate, labeled envelopes for different categories (such as groceries, entertainment, or savings).
Whenever you get your salary (say at the start of the month), allocate money to each envelope. Once an envelope is empty, then you’ve reached your spending limit for that category!
4. Financial Advisors
If you don’t trust yourself to budget the most effectively, hiring a financial advisor may be a worthwhile investment.
They can provide you with saving and investing advice and help you create tailor-made budgeting strategies.
Final Thoughts
While budgeting apps can be extremely helpful, they’re not the only way to budget effectively.
Remember: this is your hard-earned money we’re talking about here.
So consider your needs, values, and comfort level with technology before determining which budgeting tool is the best for you.
