When you finally resolve to get your finances in order, you probably start looking for some kind of tool to help you get organized and on the right track. Though you don’t necessarily need a software or an app to regain financial control, pre-made tools can make managing your money dramatically faster and easier — that is, if you know which tools to use.
There are thousands of financial management tools on the market, but almost all fall into the following four categories. Understanding the categories of money management software will help you decide which tools will most benefit you now and later on your personal financial journey.
Perhaps the best known and most used money management tools fall into the category of budgeting. For most starting out on the road toward personal financial management, making a budget is a daunting task, and there are plenty of opportunities to make critical mistakes. What’s more, budgets aren’t supposed to be set-and-forget tools; they are dynamic, changing with your evolving income, financial goals, lifestyle and needs. As a result, budgeting tools are incredibly practical for helping a beginner get started.
However, budgeting tools are also incredibly diverse. Some of the most robust budgeting tools connect to your payment cards and checking accounts, tracking your cash flow and categorizing your expenditures appropriately. In contrast, simpler budgeting tools are more or less pre-filled spreadsheets with calculators, which make creating a budget easier but require your accountability for budgeting success.
Because budgeting software is so popular, almost every financial institution and fintech creator offers some form of budget tool. However, it is important to remember that even with money management apps, free isn’t always better. You should consider your money management goals and find a budgeting tool that best suits your needs — which might be a tool that is part-budgeting, part–something else.
Usually, people begin worrying about money management because they have a new financial goal or concern. For instance, you might have a baby on the way, or you might be planning your world travels; both require a good chunk of change saved up, but putting money away isn’t easy. Having a functional budget is a good first step toward reaching savings goals, but you might want an additional money management tool specifically designed to help with saving.
The most important feature of savings-focused software is that it links directly to your savings accounts. Then, on a schedule, the software should be able to move money automatically into those savings accounts, keeping you on track to reach your savings goals.
Once you are fairly competent in managing the inflow and outflow of cash, you might wonder how you might make your money work for you. Investing is complex and riddled with risk; one bad investment could cripple your financial health for years to come. As a result, you might be interested in relying on an investment tool, which can make the process of investing much more comprehensible and help build your confidence and skill in investments.
Because there are considerable differences in different types of investors, investment software options run the gamut. Many from investment firms, like Merrill Lynch or Fidelity, are little more than brokerage portals where you can buy and sell stocks and check on the performance of your portfolio. However, there are some investment tools that have built-in learning opportunities, which might be important if you are an absolute beginner.
When choosing an investment tool, you need to consider how much money you might need. Some apps have minimum sums for trading, while others offer micro-investment options. Similarly, most brokerages charge fees for managing your investments, and those fees can add up if you aren’t careful.
Unfortunately, regardless of whether you are interested in more intensive money management tactics, you will always be responsible for your taxes. Taxes were not designed to be intuitive, and as a result, between 80 to 90 percent of taxpayers make significant mistakes that can impact their refunds — or worse, subject them to an IRS audit. If you want to complete your taxes quickly and avoid costly mistakes, you should probably lean heavily on tax software.
If you are a private individual with regular employment, you probably only need a simple tax tool that walks you through your annual taxes. However, if you are self-employed or run a business, your taxes might be much more complex. In the latter case, you might want to integrate tax functionality into a more robust financial tracker, which will help you stay on track with estimated taxes, track deductible expenses and more.
Financial tools come in all shapes and sizes, to match the diversity of people looking for help with money management. By understanding a bit more about different types of financial software and apps, you will be better equipped to make the right choices for your financial future.