Budgeting Apps for the New Year
With the start of a new year, it’s a great opportunity to set some budgeting goals and take stock of your finances. In this day and age, having the digital resources available to help with this makes it even easier to stay on track!
As society has moved away from cash, electronic transactions have naturally boomed. So much so that the average number of electronic transactions made by Australians has jumped from 300 to 650 each year over the past decade, according to the Reserve Bank.
Keeping track of these transactions can be tricky, especially for people who bank across multiple institutions. But for Australians looking to stick to a budget, it can be crucial.
To cater to people's digital budgeting needs, an array of budget and money management apps has sprung up in recent years, including Buddy, Frollo, Goodbudget, PocketSmith, WeMoney and You Need A Budget (YNAB), to name a few.
Peter Marshall, a banking expert at comparison website Mozo, has researched money management apps as part of an annual awards program and has witnessed the budgeting app market grow both in size and sophistication in recent years.
"Looking back when we first started assessing apps, there were only eight or so," he says. "There's quite a few more now, though. Most recently we found 20, of which some are free, while some have a regular fee attached to them."
How budgeting apps can help
At their core, most budgeting apps are designed to enable users to create budgets and input transactions, but beyond those fundamental features Marshall says there can be some other particularly helpful tools to look out for.
"A really big one is categorisation of transactions, and a lot of the good apps do that fairly automatically now," he says. "Some of them even go as far as giving you the ability to create new categories, so if you find that the categorisation that they've got set up doesn't really meet your needs, you can adjust that."
Beyond giving users the ability to customise their transactions, Marshall says the more advanced apps are able to proactively share insights with users.
"Some apps will send you notifications if there's been a large purchase on one of your accounts, or if you've met a budget target, or perhaps if you've missed paying a bill. So, they can really make it easier for people to be on top of their money without having to think about it so much."
One option, with features such as budgeting, goal setting and spending prompts, is the eponymous app from Sydney-based fintech Frollo. It lets users link their accounts from Australian banks and financial institutions so they can get a better perspective on their overall spending.
Piet van den Boer, Frollo's head of marketing, says it can also help users save money with tools like its bill-tracking function.
"Sometimes people have subscriptions they've forgotten about because they have so many transactions, so in our bill overview we can show them their upcoming bills, and a lot of people see that and realise they have some subscriptions they're still paying for that they go and cancel," he says.
Auto pilot or manual
One benefit that most apps have over the more traditional pen-and-paper budgeting method is the option for users to sync their card or bank transactions to automatically feed into the app.
That's not to say there aren't options - PocketSmith and YNAB being two - for people who like the idea of manually inputting their financial data themselves, though.
But on the automatic front, there are typically two ways that apps bring in data from their users' financial accounts: screen scraping or open banking, both of which are useful to know about.
Screen scraping involves users sharing their credentials such as an ID and password with a third party (for example, a budgeting app) in order for the app to access that financial data. Open banking, on the other hand, allows Australians to share their data with third parties that have been accredited by the Australian Competition and Consumer Commission.
Frollo has phased out screen scraping in favour of open banking which, van den Boer explains, ultimately means users have more control over their data.
"To get the right information into the Frollo app you need to connect your accounts, so to do that we use open banking, a government-regulated regime that basically allows a consumer to give consent to a third party to receive data from their bank," he explains.
"Instead of sharing your account credentials and having the third party log in for you - which is what screen scraping is - you tell your bank 'I want you to send this data to Frollo, and this is what they can do with it, but when I tell you to stop sharing it, you need to stop'."
Data security
Given the prominent data breaches that have occurred in the past year, many people will be cautious about sharing their data, especially their financial details. So how do budgeting apps use data, and just how safe are they?
Ultimately, that will vary from app to app, and it's a consideration that users will need to make before signing up.
"I think nowadays almost everything you do as a consumer involves sharing some data - sometimes whether you like it or not," says van den Boer. "You often don't even know what companies are going to do with it. What I think is great about open banking is that as a participant we have to tell people beforehand what we want to do with that data.
"The other benefit is that open banking is secure. The connection, basically, between the bank and Frollo is bank-grade security. So, we have to comply with most of the security regulations that banks have, and that's all part of us being an accredited data recipient as part of the consumer data right."
Credit: Article ‘The best budgeting apps from 2023’ from Money Magazine, 25 October, 2023