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I am looking at using a money management app, rather than just my own Excel spreadsheet, for my personal finances.

The way I've always thought about my money is "I have a fixed amount of income which I can't exceed, so I need to look at my outgoings in light of that income, to ensure that I'm not spending more than I have, while still meeting my savings goals too".

Looking at apps like Yolt and Money Dashboard, the focus is different. It's very much focused on the breakdown of your outgoings compared to other outgoings (e.g. 10% on food, 5% on cinema, etc.) - which is fine as far as it goes; but without comparing that to your income what does it actually tell you? Money Dashboard, for example, has no way of even showing your income on the main dashboard (although you can see it in on another screen). This seems like a major oversight to me, and surely encourages people to spend all of their money (because they can't see what money they have available to spend); rather than focusing on saving?

--Note that I previously mentioned that I budgeted as a % of my income, which only works because I have a fixed income. It wasn't really the focus of the question, so I've edited it out above, but left this comment here because some of the answers won't make sense without that context--

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    This is either off-topic because it's about the decisions of software designers, or opinion-based, or both. That said, I would opine that most people have trouble knowing where they're spending their money, not trying to maximize savings. Once the first problem is addressed, the solution to the second comes more naturally. – D Stanley Sep 25 at 15:17
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    @DStanley, I disagree. If someone asked how mutual fund managers make decisions, I do not think it would be considered off topic. Understanding decisions in a tool's construction can sometimes help people be better users of the tool. – Charles Fox Sep 25 at 17:54
  • It lets you see where your money is going quite easily. For example if you're spending 5% of your income on the cinema you should really think about cutting down on that or getting NetFlix at least. And it doesn't really matter how much money you're making, 5% is still a sizable chunk. – Aequitas Sep 26 at 6:08
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    @Aequitas You said "if you're spending 5% of your income". The point the OP is making is that the software he refers to does not compare it to income but rather "outgoings compared to other outgoings". 5% of your outgoings spent on the cinema is not a big deal if your total outgoings are a small percentage of your income. – JBentley Sep 26 at 9:55
  • Consider editing your question to remove all mentions of percentages. That seems to be a recurring sticking point in answers, and you've commented that's not your focus. Before I read the existing answers, I was also planning on answering to say stop concentrating on percentages. – Aaron Sep 26 at 19:16
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This phenomenon is something I have discussed in previous answers. Essentially, I see budgeting software lumped into two categories: the proactive approach and the reactive approach.

With the proactive approach, you tell the software how much money you have, and you assign this money to your budget categories. Then as you spend money and assign it to budget categories, the money within those categories decreases until you add more money (income). Apps using this approach include You Need A Budget, EveryDollar, and Mvelopes. This is essentially an electronic version of a cash envelope system, where you would put cash into different envelopes for different purposes, and you can look in the envelopes to see how much money you have left in each category.

With other software using the reactive approach, you simply enter in what you actually spent and why, and at the end of the month you might get a report explaining what you spent your money on, with the idea that you can see how you are currently spending money and make adjustments in your spending in the future as desired. Quicken and Mint use this approach.

Some people might prefer a reactive approach, because when you are doing poorly with your spending, it won't feel quite as "judgey"; these apps don't tell you when you are spending money you don't have. But it sounds like you would prefer a proactive approach (as do I), where you make a plan for your money before it is spent, and the app helps you follow your plan. The proactive approach definitely encourages saving money, as you can see your category balances grow as you add more income and can earmark money for long-term savings goals.

I don't have any experience with either of the apps you mentioned, but it sounds like they are using the reactive approach. If the proactive approach sounds like it appeals to you, then keep looking until you have found an app that you like. You could start by looking at the three apps I mentioned above.

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    Is reactive software actually budgeting software? It's nothing more than reporting after the fact. – RonJohn Sep 25 at 18:08
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    @RonJohn Often these apps will optionally let you enter in a budget plan, but won't really use it, except at the end of the month to show you how bad you did at following it. :) – Ben Miller - Reinstate Monica Sep 25 at 18:10
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    Totally agree. Another way to put this: Proactive apps are actual budgeting apps, while the reactive ones are really just expense-trackers. – henning -- reinstate Monica Sep 26 at 9:48
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    reactive apps might not seem effective, but as the saying goes "what gets measured, gets managed". just seeing where your money is going is often enough to change your spending habits. – james turner Sep 26 at 15:49
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    Reactive apps can ease people into proactive budgeting. For some, putting together a budget for the first time is overwhelming. They don't know how much to put in certain categories or the total from guessing exceeds their income and they feel defeated. Reactive apps help with the first part of budgeting which is figuring out how much (and a ceiling) on what you currently spend. It also feels more real when it shows you're spending more than your income than a first pass on a spreadsheet. – iheanyi Sep 27 at 14:17
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You call these things 'personal finance apps', but really most people would call them 'budgeting apps'. How frequently is your income going to change that you need to update it on an app?

You say that your expenses should be x% of your income, but that's a rule of thumb anyway, and is a starting place to creating your own budget. If you get a 20% raise, you don't need to spend 20% more on food, for example. If you wanted to gamify your budgeting experience, sure some extra stats might be nice but I don't think that will typically drive someone's decision-making.

  • No, you're right, it's only a % of my current income because it's a known entity that doesn't change - I'm just used to comparing month-on-month how my outgoings compared to my income; whereas with these apps you can't easily do that; or at least that doesn't seem to be their focus – simonalexander2005 Sep 25 at 15:35
  • @simonalexander2005 I set an amount every month for each category (with a pretty hard cap), and only care about not going over. Whatever I don't spend in that category gets rolled over to next month. – RonJohn Sep 25 at 15:49
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For people on a fixed salary, the volatility primarily comes from spending. There would not be much value in seeing the same number on the screen each time the user logs in. It may even create unnecessary noise and confusion because the software would show no month to date income before the first paycheck is deposited.

For everyone people with variable income, I agree: it may be useful to monitor both income and expenses.

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    While I agree, it can be helpful to see, as the month goes on, "oops, I'm getting close to spending my salary from this month, I should cut back any unnecessary spending from now on" - which can only be done if the salary is on the screen (out of sight, out of mind; and all that) – simonalexander2005 Sep 26 at 8:38
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    @simonalexander2005, would you want the software to assume last month's salary for this month or would you want it to display cash received month to date? – Charles Fox Sep 26 at 15:38
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"Outgoings" are necessarily exactly equal to income.

It's January 2000 and you have an income of $5000. Good work if you can get it.

Some of that money goes into food you eat. Some goes to rent or mortgage or whatever. If you're prudent, some of it goes into savings.

On January 31st, all those outgoings necessarily add up to $5000. There's no other place for it to go! Even if it's a bucket called 'change I lost in the couch somehow.' If you spent only $4000, then congrats, you've accumulated $1000 in savings.

Of course, if you're not prudent and you somehow manage to spend $6000, this implies that you in fact have an income of $6000 -- that extra $1000 comes from savings, or debt, or something else. It's money that 'came in' -- so, in-come.

(NOTE that the above advice is contrary to several well-established accounting principles and practices.)

  • True, but debt isn't a type of income you want to encourage - and my point is, how would you know (from the app) that the money came from an overdraft instead of your pay, if you don't have something to show you that fact? – simonalexander2005 Sep 25 at 15:54
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    I don't understand how any worthwhile app would not show you if one of your accounts was in overdraft, but I've been amazed by bad software before. Perhaps a screenshot would help. – Roger Sep 25 at 16:00
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    @Vality My sense is that it's more-or-less fine -- there's nothing particularly special about a one-month timeframe (and with a variable number of days in each month, it's not even that good of an arbitrary box.) But rolling everything forward can make it slightly harder for some people to get a sense if they're actually spending more than they make. – Roger Sep 25 at 17:24
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    Once you start treating "withdrawal from savings" as just another form of income, the tool has lost any value. But a majority of these tools are severely lacking, because they fail to provide separate tracking of long term expenditures from the monthly budget. – Ben Voigt Sep 25 at 18:13
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    -1: @BenVoigt No, this is not how it is normally done. This answer is completely counter to standard accounting principles. Money received in the form of debt is represented as liabilities, not income. Similarly, money saved is represented as assets, not expenses / outgoings. These are important distinctions (for which a comment is not the place for an explanation). I would suggest that anyone with any kind of serious intent to manage their finances should pick up a basic bookkeeping / accounting book or tutorial rather than adopt your own definitions of terms that are very well established. – JBentley Sep 26 at 10:01
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I actually work for a company that provides one of these apps, and I can say that our app does both! There's an area where you can see your outgoings broken down into categories exactly as you're describing, but there's also a part where you can look at your assets, including investments, properties, pension plans etc. The difference, I think, is that the app - particularly the assets and net worth side of it - are marketed to high net wealth individuals.

The difference here is that, quite simply, the app focuses on what is useful to the target market. A user of one of these apps is using the app because they want the app to help them end up with more money. For the majority of those users, looking at their income will be pretty boring: it will tell them how much their paycheck is. Generally, this isn't really something they can control, and even if it is, an app that says "to get more money, try being paid more" is definitely stating the obvious.

For wealthier individuals, this might not be the case. They might look at a breakdown of their income and realise that their portfolio of stocks and shares isn't making them as much as they'd hoped, and decide that they might be better off pulling some of that money out to invest in property, or whatever. The fact that the apps you're looking at don't show you this sort of thing suggests that these apps aren't aimed at that sort of person.

For people whose only income is their paycheck, and who can't really change how much they get paid, their outgoings are much more interesting, because those are things that they can control and change. They might look at their spending and realise that all those times they ordered takeaway actually add up to much more than they thought, and decide to cook more in future. They might realise that their car insurance is way too expensive, and take some time to shop around for a better deal. For the average person, their outgoings are much more varied, much harder to keep track of, and much easier to change if only they knew what needed changing. This is the role that these apps are aiming for.

  • This is essentially the answer I would have given: you focus on the things that the user has control over. You can change discretionary spending, you can't easily change income significantly (except perhaps moving investments from growth to income-oriented). – Barmar Sep 26 at 21:18
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Why do personal finance apps focus on outgoings rather than income

Because what's relevant is how much -- and when -- money is deposited into your checking account, not where it comes from.

The way I've always thought about my money is "outgoings as a percentage of earnings each month (with a target of max x%); and save the rest".

If you lose your job, you won't suddenly spend 10% of $0 on food.

That's why I think percentage-based budgeting is a bad idea. Use actual numbers in your budget, with percentages only as aspirations or guidelines to determine if you're over-spending.

without comparing that to your income what does it actually tell you? Money Dashboard, for example, has no way of even showing your income on the main dashboard. This seems like a major oversight to me, and surely encourages people to spend all of their money; rather than focusing on saving?

I completely reject that notion, because focusing on saving is a mindset, not an after-effect of budget percentages.

For example, if you've got $3,000 of non-negotiable expenses (after having cut all of the fluff, are living in a modest home, driving a modest car, not buying HBO, etc) every month, only then can you determine how much you can save, and how much to spend on luxuries.

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    Yes, OK I take your point that % perhaps isn't the best way to think about it. It's only because my income doesn't change month-on-month that I can afford to think about it that way. But still, there seems to be very little focus on how much money you have to spend on those apps, which is the point I'm trying to make - you can see what you've spent and where, but not easily whether you're spending within your means or not. If you spend more than you earn each month, there's no immediate way of seeing that - that doesn't seem to be the focus, but I'm positing that it should be – simonalexander2005 Sep 25 at 15:29
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    @simonalexander2005 do they assume that you've already decided how much you can spend in each category, and are just there to tell you how much is left in each category? – RonJohn Sep 25 at 15:42
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    You can set budgets against categories, so I suppose that is what they're expecting you to do – simonalexander2005 Sep 25 at 15:54
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For almost everybody, financial problems stem from spending. At any income threshold a person is capable of overspending. People turning to budgeting are typically getting there in an effort to track and control spending. I have never found any of these software solutions to be useful in any way because the categories are not helpful to me. "Clothing" I don't really care how much I spend in a month on clothing. It seems you are somewhat like me in this way. You are already keeping your own spreadsheet that tracks things in a way that makes sense to you, I do too. I don't care how much I spend on clothing or coffee specifically or gym membership or whatever. I track categories like "screwing around with my friends" which is food, bars, movies, BBQs and sometimes coffee. "Fixed expenses" like car insurance and amazon prime etc. "Dating" how much money is being set on fire in pursuit of a mate. Groceries vs getting takeout for myself, etc. Why was the money spent is a lot more valuable to me than where the money went.

I've often thought it would be nice to have a budgeting software that thought about spending the way I do, but it irritates me when I get an over budget warning because I bought a pair of shoes or a suit because I don't frequently buy clothes.

If you are already managing your budget in a way that makes sense to you and is working to achieve your goals, keep doing what you're doing. If it's becoming too much work to upkeep, then trim the things your tracking. But I wouldn't try too hard to use some canned budgeting software, that's likely just a clone of the other budgeting software that's available, where the main focus is to know to the penny how much money you spend on coffee or shoelaces each month.

At this point I'm pretty sure the primary purpose of Mint is to sell credit cards and loans. The apps highlight your spending then tell you all about how a lower interest rate with this product will save you money.

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It gives you some perspective on expenses.

The point isn't really to budget, or to plan your savings. It gives you some vague idea of what "expensive" means. For example, if I'm thinking about going to a cinema, a $20 ticket might sound like a lot of money. If I think about it as "the cost of two lunches", I have a much more visceral idea of what the cost is. For this kind of thinking, my income doesn't matter at all. I already have a budget for spending money; now I just see what I'm actually spending that budget on.

Needless to say, you shouldn't use this for budgeting, or planning savings. It doesn't help you plan for how to use your income. It only allows you to track where your expenses are going. In my experience, it's a good mechanism for handling spending money. Am I fine with spending as much on going to the cinema as on food? It doesn't help you with financial planning, it just gives you a framework to think about the subjective value you get from the things you spend on, and how it compares to other things you spend money on.

Mind, having expenses shown as percentages of income isn't particularly helpful either. It's not like just because you earn more money you should suddenly start spending more on food, or move to a more expensive house. You budget all your necessary expenses, savings, emergency funds etc., and then you decide how much of the rest you want to use as spending money. How much each of those is compared to your income is mostly useless information. Don't get stuck on that "20% of your income into savings!" idea. Think about your expectations of the future, and design a plan that has a good chance of getting you there. There's no golden rule.

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