One of the building blocks to effective personal finance is controlling your personal cash flow. There are two parts to cash flow:
- Do you spend less than you take in?
- Do you put money toward your priority items?
Sounds simple enough, but very few people manage their personal cash flow effectively or efficiently. One reason people fail is that it's a pain to track income and spending (especially spending!). No ifs, ands or buts about it, tracking your spending is a chore. Like counting calories when you're on a diet, no one likes to do it (other than some accountants, actuaries and accountants I've met!).
There are two major players in the software world when it comes to tracking your spending: Money by Microsoft and Quicken by Intuit. Both packages are available from a variety of sources on the web. Shop for best prices and always buy new. Both are good comprehensive personal finance programs that do more than track spending and I recommend either to all my clients. There are advantages and disadvantages to both programs and in recent years, a flurry of websites have sprung up that compete with these programs and allow you to track your spending online. Seems like a good idea and some of the sites are okay. Others should be avoided.
I'm not a fan of online money-management programs that track personal spending and here's why.
The first issue is security. By allowing you to connect all of your personal financial account to one online site, you are open to wholesale financial risk. All the sites I looked at purport to have the best security in the world. Of course they do. I don't recall one of them offering to reimburse you if someone hacks into their system and steals from you. But maybe I missed that guarantee.You can avoid this problem by entering your own information.
For example, Green Sherpa and Budgettracker.com allow you to enter your numbers to avoid the security risk. Green Sherpa also allows you to import your financial data from banks and brokerage companies so you can minimize the risk. (Note that Green Sherpa is currently in test mode so they're allowing a small number of people to sign up.) For security reasons along, a site to avoid is Mint.com. This site claims it downloads your personal information daily. You don't need to know your 401(k), IRA or bank balance daily so this is not a benefit to you and the risk is enormous.
The second issue with the sites I reviewed is that they are all created by technology and marketing people and not one that I could find had as a financial planner of any kind helping them. The sites are more about computer programming, web 2.0 and marketing than about financial planning. The sites could be counting jelly beans as easily as your dollars and cents. So buyer beware if you use on of these sites.
Two sites attempt to combine spending tracking tools and social networking. Wesabe.com and Geezeo.com are online forums where members can share their money ideas as well as access financial tools. I have to wonder about the value of an online community brought together by their love of tracking personal spending. And remember, neither of these sites use the services of qualified financial planners.
Finally, the website owners do not have your interests at heart. They have their own. These sites exist to make their owners money by getting you to part with some of yours via the ads they sell. Free enterprise is at work and good for the website owners if they can get you to part with your money. But, again, buyer beware.
For this reason, avoid Geezeo.com. When I clicked on this site, I was bombarded by advertising of every type. The site even has tabs to give you access to TheStreet.com, Jim Cramer's site. Cramer is the master huckster who entertains on CNBC by making outlandish comments about investing. (How that guy has avoided SEC sanction is beyond me.)
If you're interested in trying an online spending tracking program, my recommendation is to try Green Sherpa and either Budgettracker.com or BudgetPulse.com. All the sites are flexible and let you either use their spending categories or set up your own. Green Sherpa's 3-step process is a good approach and elegant in design. I like BudgetPulse.com for its great use of graphics as well as sound budget tracking approach. Either enter your data by hand or import it from your financial institutions for security reasons.
If you don't want to track expenses online and don't want to pay for either Money or Quicken, you can find several good spreadsheet-based spending templates online that are free. Whatever you need to do manage your cash flow effectively and efficiently, just do it. A key to your financial success is spending less than you earn and directing the money you do spend to your high priority goals.
Comments
Steve, thanks for the article.
While security and privacy of a consumers financial data is the most important thing to us here at Intuit and Quicken, I want to point out some areas you may have missed.
With our free Quicken Online product, the customer's financial data is "read-only." Even in the oft-chance someone accessed your account, they do not have access to your financial accounts or information. They would know what you're spending your money on but they would have no way to "steal" it or to even steal your identity.
Because the security and privacy of our customer's information is our number one priority, we truncate account numbers and have no personally identifiable information available when someone logs into an account. This protects the customer from those with less-than-honest intentions.
Online personal finance like Quicken Online gives people an amazingly powerful, secure, free tool to help manage their money. When consumers look to an online solution they should look carefully. Who are they dealing with? Is it an established company or a "wiz-bang" start-up without much of a track recording protecting customer's data?
At Quicken, we've been helping Americans manage their money for 25 years. We're proud of our record and know, now more than ever, folks need someone they can trust to help them stay on top of their money.
Thanks!
Hi Steve,
I work at a company that offers one such free online personal financial management tool, Thrive ( www.justthrive.com ), and I appreciate your above assessment but would like to clarify some things that may address some of your concerns.
I can only speak for Thrive, but using the site is at least as secure as using your own bank's website. There is actually less risk here because, by design, we don't store your bank login credentials on our servers, nor do we have the ability to make any transactions -- we only have access to a secure, one-way, read-only connection from your bank, which is how we can show you your transactions and do our analysis without requiring you to do the tedious, error prone task of manual data entry. This also means that, even in the unlikely event of a system breach, there's very little a malicious person can do. We also have our phone number, email address, names and pictures on the website, so if you have any questions, you can reach us quickly and easily.
All in all, as long as your own computer is secure (with all system and software updates and running an up-to-date antivirus program), you're already ahead of the game and really have little to worry about and potentially much to gain.
To address your second concern -- Thrive was founded by two people who simply wanted to eliminate debt in America and have worked hard on the product to do it. The rest of our team was hired knowing and agreeing with that mission. You can also be assured that we have both the financial and technical knowhow to make us qualified to to what we are doing, which is not replacing CFPs like you, but providing valuable tools that are more affordable and accessible to more people. A few CFPs have even told us that they use and recommend the site to their users as an additional tool for their clients' financial arsenals.
Finally, of course it requires money to run a company so that we can offer you the best tools and hire the best people to make them. We don't have ads, but make money from financial institutions (not from users) when people take our advice to get an account with a better interest rate or that is better suited to a user's behavior or financial situation. This is also how we avoid having to use ads. (Of course, again, I can only speak for Thrive.)
While it's true that online personal financial management tools aren't for everyone, I would say that the benefits (i.e. no cost, low effort, high utility) greatly outweigh the risk here. Also, it's not something that needs to replace your offline financial software or your CFP, but we can certainly complement them.
Sorry for the long post, but thanks for your attention!
Cheers,
Usman
Engineer
Thrive
Hide money under your mattress!
Do it!
Hi Steve,
Thank you for including BudgetPulse in your story with the other quality online software. Now more than ever people should be focused on their personal finances and how to budget efficiently.
We choose to keep the tool from syncing up with banks for a few reasons. A lot of people have concerns about security issues with their personal financial information and we do not want them to worry. Our software is compatible with users from around the world because it does not sync up. Also, teachers have been using our tool in classrooms to educate students on the basics of budgeting.
We are working on a complete site redesign right now that we are looking to release in late May early June. The redesign will visually enhance the site, allow for easier navigation, and improved functionality. We have been in direct contact with many users onto suggestions on how to improve the tool, and we are making those improvements for them.
If you have any questions at all about our redesign, please feel free to contact me. Thank you again and I look forward to hearing from you.
Craig Kessler
Marketing Director at BudgetPulse
craig@budgetpulse.com
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