Keeping track of your income and expenses can be complicated, and while writing it down on paper might help, good budgeting software can save you a lot of time and effort. By using a pre-built money management system, you don't need to worry about crafting a budget and building expense reports that may or may not be effective.
Most money managers are available for desktop and mobile, so you can keep track of every little expense you incur throughout the day.
What's on offer
There are quite a few budgeting programs around – some are free, others require a subscription, and some are available to buy outright. While many have effectively transitioned to mobile devices, with features that were once only available in desktop software, others aren't quite up to scratch.
Modern money managers are big on convenience. Back in the day, smart savers would typically use a spreadsheet to organise a budget, but you'll find that modern programs take much less time and effort as many can automate at least some of the process while handling all the calculations. Even though you have the option to manually enter data, budgeting software can import financial information from spreadsheets and, in some cases, directly from your bank account. They also include extra features to streamline your spending and saving plans, including budget reports, graphs and charts. Some can even display your financial trends and flag expenses as tax deductions.
Most programs are available on multiple platforms, including iOS and Android devices, which is perfect for budgeting on the go. Instead of holding on to every receipt or noting down the cost of a coffee and smashed avocado on toast, for example, you can grab the app, punch in the expense and factor it into your budget, on the spot. This makes for a much more accurate budget in the long run.
You can access the software on, and sync data across, all available platforms with an annual subscription or one-time payment (in most cases), although some are available for free. The freedom to work across multiple devices can be very useful, especially when dealing with a complex budget, as each platform has its own set of advantages. After you enter the cost of your lunch into the app, for example, you can sync it to the desktop version and use a keyboard, mouse and large screen to generate a food expense report.
Types of budgets
There's more than one way to budget your bank account, but this isn't an area where one size fits all. Most programs use at least one of these popular methods:
- Categorise: Breaking your income/expenses into specific categories – such as work, leisure, travel, food and so on – with an expense limit. Incomings and outgoings are moved into the relevant categories, so you can see whether you're under or over the limit you defined, at the end of a specified period (e.g. a week).
- Envelope method: Similar to categorisation. You create different envelopes for each expense type (food, power, internet etc.) at the start of each pay cycle, add the amount of money you expect to or are prepared to spend for a certain time period, and withdraw from the relevant 'envelope' when necessary. Any leftover money can be rolled into the next period or moved elsewhere. If you wind up with an empty envelope before your time is up, you need to reassess your spending, or your budget.
- Zero-based: Budgeting based on expected needs. You prepare a list of predicted expenses for a certain period, and budget your income accordingly with the expectation that the money will be spent. Every expense must be categorised, leaving little-to-no room for frivolous purchases. Income, minus expenses must equal zero, although expenses can include savings.
Applying your financial data
Budgeting software is useless without income, expense and other financial data. You can manually enter information into any available program, but they can also automate the process to varying degrees:
- File import: Most banks and financial institutions let you export account data, which you can import into budgeting software. There are several file formats floating around, but .CSV, .QFX and .QIF are the most common. This approach is quite secure, and it can save a lot of time compared to manual data entry. However, this option isn't automated, so the onus is on you to import data regularly. There's also no guarantee that the software will read the file's data accurately.
- Bank sync: You can sync your bank account with the program, so it automatically pulls in data, including income, expenses, regular bills and so on. This is the easiest approach to accurate budgeting, as the software handles most of the data entry for you. The caveat is that you have to entrust a third-party app with your bank account details. Bank sync is only available in some programs.
Although there is a risk factor involved in bank syncing, it's the easiest option if past budgeting efforts haven't been particularly effective. One of the hardest elements of budgeting is confronting how much we spend and, at times, leaving luxury items behind. When you use manual or file import methods, it's easy to fudge the data, skip an expense or "forget" to enter one. Bank sync, however, pushes you to be honest with yourself.
Software that can connect to banks usually uses account aggregation services. These are third-party programs that establish a secure communication channel, to pull all the necessary data into your budgeting software. Salt Edge and Yodlee are two popular aggregation services used by many budgeting programs, which provide detailed security information on their websites. Third-party protection can be beneficial, as aggregation service security specialists may be better at protecting your data against online attacks, compared to software developers. While Salt Edge is based in Canada, Yodlee has offices all over the world, including Australia, with a local customer service branch. This level of transparency is important, and you can investigate each aggregation service, to decide whether they meet your security needs. Some programs support bank-sync, but do not specify whether they use a third-party service or their own systems.
Note that your bank may hold you responsible if money is fraudulently taken from your account as a result of sharing your login with such apps. Check with your Bank before using a third-party app that uses your bank login information.
Each of the "big four" banks (Commonwealth, Westpac, ANZ and NAB), as well as a number of smaller banks and financial institutions, provide their own budgeting software or calculators. These typically require an active bank account to use. For example, a St. George customer can't access Commonwealth's Netbank budgeting tools. But you may want to consider your bank's app first, if one is available. You can find more information on each bank's website.