January is a great time to make a budget for the year ahead, and we’ve shared plenty of budgeting tips in the past for those who want to sit down and work out their own spending plan.
However realistically, a lot of people struggle to find the time – and even if you do have a few spare hours on a Sunday, we understand if there are things you’d rather be doing.
Budgeting apps aim to make the process easy and take out a lot of the manual labour, so that you can reap the financial benefits of better budgeting without it becoming too time consuming.
What do budgeting apps offer?
Budgeting apps fall into two main camps. In the first group, you have apps like You Need a Budget (YNAB) and Goodbudget, which encourage you to look at the money coming into your account and separate it out into separate spending pots for different types of expenses. The philosophy here is that giving your money a purpose will help you to avoid overspending, and to ensure that you have enough cash set aside for those bigger expenses that can pop up once or twice a year and throw you of course.
In the other group, you have apps like Money Dashboard, which analyse your actual spending by linking with your bank accounts, then tracking and categorising what goes out. While this isn’t as good for helping you to plan ahead, it requires even less effort on your part and helps you get a full understanding of how you are using your money.
Potential pitfalls
Apps like Money Dashboard tend to be free, but they are not as helpful as the other apps we’ve looked at, and could be better described as financial tracking apps than real budgeting tools. On the other hand, the more in-depth apps tend to have a small monthly fee attached – YNAB, for instance, comes to around £35 a year. While this is fine for those with the disposable income to spare, if you’re trying to get into budgeting in order to cut your expenditure, it may seem like a frivolous expense.
Some people also worry about the security implications of linking their bank accounts to an app. Luckily, there is little to worry about: open banking has made it possible for apps to interact with your bank accounts in this way, and the security that they use is top-notch. Most financial experts agree that there is little increased risk from linking up to a budgeting app. Just make sure that you choose a tool with plenty of positive user reviews.
Alternative options
Many banks are now incorporating budgeting tools into their own apps, so this could be an alternative for anyone who prefers to keep all of their financial information in one place. In our experience, these are quite limited, but do offer a basic overview of your spending. To take NatWest as an example, the new ‘spending’ tab automatically categorises all of your transactions, and then lets your review and set a budget for each category. The obvious limitation is that those who use multiple bank accounts won’t be able to compare their transactions side by side.
What’s the verdict?
Budgeting apps can be really useful if you’re trying to get an overview of your spending habits without the hard work of trawling through past transactions and logging things into a spreadsheet. However they don’t work budgeting miracles: you’ll still need to think about how you’re spending your money and what changes you want to make in order to improve your finances for the new year.