If you’re reading Retire By 40 and other personal finance sites, then you’re probably looking for ways to improve your financial situation. The answer is really simple.
- Spend less
- Increase your income
- Invest for the long term
However, the execution is another story. All these 3 things are hard to do and that’s why we scour personal finance blogs for inspiration. Well, today is your lucky day. I just read a UCLA study that shows how easy it is to reduce your discretionary spending by 15%. Actually, they looked at people who had installed the Personal Capital mobile app, and that was the result. Is it really that easy?
Mindful Spending
Smart phones are a wonderful modern device. They insinuate their way into our lives and once you start, you can’t quit. Yes, I have a love/hate relationship with my Moto X. I’m a little bit addicted to it. The phone is always with us and it’s beeping at us all the time. Anyway, let’s just talk about the nice things the Personal Capital app brings us and ignore the addition aspect for now. The UCLA study didn’t go into a lot of detail about why the subjects spend less so the following are mostly my theories.
- Ease of access – The Personal Capital app makes it easy to check your bank account balance and the amount of available credit. This action promotes mindful spending because you can see if an item is affordable or not. According to the study, those who check their balance usually spend less than those who don’t. My theory is that just by checking your balance you’re actually delaying the action of purchasing something. You’re online so you might as well check the price at Amazon, right? After a few minutes of browsing online, the burning desire to purchase is usually doused a bit and I’d be able to put off purchasing for a day. Once I put off purchasing for a day, then I’ll only come back if I really really want the item. Heh heh, that’s how it works for me at least.
- Constant reminder – I installed the Personal Capital app a few days ago and it’s useful for me. Normally, I go over our finance in detail once a month. That works well, but a month is a long time. It’s a bit of a pain to categorize various line items all at once at the end of the month. With the app, it’s easy because I still remember what I just purchased and I can categorize it right away. The constant reminder is also helpful to put a break on spending. I can check how many times we ate out so far this month and maybe skip going out if we already exceeded our once a week quota.
- Cash flow – We can also see the monthly cash flow on the app. If your expense is overtaking your income, then it’s time to clamp down until the next paycheck. We usually don’t have that problem, but it’s still nice to see that we are on track for a cash flow positive month.
The UCLA researchers found that the spending reduction was in groceries and restaurants. These are the easy discretionary spending categories. You probably won’t get the 15% result if you’re already tracking your expense. We eat out once a week and that’s a good level for us. I don’t think the app will help us reduce 19% in that category. However, if you’re just starting out on the financial freedom journey, then you need all the help you can get. Most US households are terrible at controlling their expenses. The constant online feedback will be very helpful if your spending is out of control.
Here is how to get started with Personal Capital
- Sign up through the Personal Capital website.
- Link your accounts. You can link all your bank accounts, mortgage, investments, and credit cards in Personal Capital*.
- Link your home. Personal Capital recently rolled out the Zillow integration. You can link your home and your net worth will be updated automatically. Nice! Zillow tends to overvalue the home, though.
- Install the Personal Capital app – You can just search with Google Play.
*Personal Capital takes internet security very seriously and they employ multiple levels of security. Your account information should be safe. However, if you’re paranoid about your passwords, then Personal Capital probably isn’t for you.
I’m a huge fan of Personal Capital and I log in almost every day to get a quick look at my accounts. They have quite a few useful tools for investors. The mobile app is pretty nice and it helps me keep track of our spending. It makes my life easier and that’s a good thing.
Would you give the Personal Capital app a try? Do you have another app that you can recommend? I’m not an early adopter, so I don’t know all the nice apps out there.
Disclosure: We may get a commission if you sign up with Personal Capital.
Graphic credit: Economic Behavior in the Digital Age by Yaron Levi and Shlomo Benartzi
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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One need not download an app to reduce spending. I’ve been budgeting to the penny for 25 years now the old fashioned way…EXCEL! Personal Capital is an OK APP. I downloaded it and use it but it won’t help me any.
My wife and I are old-fashioned. We just do an excel budget every month, use the envelope system (AWESOMENESS!), and have a chart posted on our wall by our bed. That way, the last thing we see before bed and the first thing we see when we get up is our progress towards paying down our debts!
That said, I am becoming more of a fan of mint.com…
Hi RB40,
Am I right that it is a US only app? It looks really useful but I can’t see a European equivalent.
Thanks
I think it is US only at this point. Sorry about that! I’ll update the article.
No worries! Seen it mentioned elsewhere and looked like the type of app I was looking for!
I like having a lot of control over how I track my finances so I use a good old Excel spreadsheet. But I certainly like the idea of using an app so I can check my budget on the fly. I have tried a few finance apps but I have yet to find one that works for me, I might have to try Personal Capital but I have a feeling I’ll revert back to what I know best.
You should try Personal Capital. Their investment tools are really great. The cash flow tracking is nice, but if you’re already tracking it on an excel spreadsheet, you won’t need it. I still use my excel along with Personal Capital.
We prefer to keep life simple.
We have $400 to spend on everyday things like food.
All else goes to bills and savings.
I think Zillow tends to under price homes in many areas. Maybe high cost of living areas like yours are the opposite?
I tend to use Mint for my spending and Personal Capital to review my investment mix.
Really? Zillow always overvalue the homes in our area.
I use YNAB more than I use the personal capital app. I think of Personal Capital as “investing” rather than budgeting and spending. Depending on what information I want/need, that tells me which app to open.
Hmmm, that’s interesting. I think this would just make me already more nervous as it’s hard for me to spend money on anything – I like having many things on autopilot. I have to remind myself sometimes that it’s OK for me to have some discretionary spending or buy food because otherwise I’ll starve, won’t see friends, take longer to get somewhere, etc. But I think for the majority of American consumers this must be really helpful.
I’d love to figure out how I could spend less, but don’t think I’m quite ready for a Daniel Suelo lifestyle change just yet.
It sounds like you’re in the minority. 🙂 That’s great! Actually, I think many readers already have a good handle on their spending so they don’t really these kind of apps. This would be useful for people who are looking to change their spending habit. Maybe there should be an app to help you spend some money. We wouldn’t want you to starve…
I tried Mint for a few days and didn’t feel comfortable giving a 3rd party my banking information. We use Excel sheet to track our spending and it works pretty well.
Right, if you’re not comfortable about an aggregator site, then it’s better to go manual. I still use my excel sheet along with Personal Capital.
So, I haven’t yet tried Personal Capital, but I did use Mint’s app for a while. I found it very useful back in the beginning when we were trying to become more mindful of what we spent. Now that we pay attention to spending better, I rarely use it. Although – if I find us getting in a spending free-for-all, I will definitely whip out the apps to get us back into shape!
You should try Personal Capital. They have great tools for investors. Mint is nice too, but I like Personal Capital better overall.
You don’t really need an app. And categorizing every transaction is largely a waste of time. How much you spend in total is much more useful than having an itemized breakdown, and it’s a lot simpler to track.
Unfortunately, most people don’t track their spending and they have no idea what they spend their money on. For those people, an app would be quite helpful. I like categorizing the expense on my spreadsheet. It makes me spend a bit more time going over what I spend on. If I just look at the total, then I don’t have to even think about what I purchased last month.
Personal Capital does all the categorization for you. It’s very easy and quick to see a breakdown on spending… and free. Kind of hard to argue with that.
I like the idea of a finance app. I probably wouldn’t use it myself because I live on frugal autopilot and don’t buy that much stuff to begin with. But, I’m a big fan of conscious, mindful spending and so I love the idea of having a mechanism to quickly ground your purchasing decisions. I also agree with you on the delay factor–I like to write things down on a list before buying them and, usually by the time I get around to purchasing I realize I don’t really need it. Sounds like checking this app could serve that same purpose.
Yeah, any delay in purchasing is good. Impulse purchase is such a huge problem here.
You ask, “Would you give the Personal Capital app a try?”
Not really. I have never been a fan of diligently tracking my expenses or using a budget.
On the other hand, I believe that I have always had a great sense of the state of my finances in my subconscious mind. This has helped me avoid getting into serious debt (beyond my student loans) when I was living under the poverty line. It has also helped me avoid all debt now that I am making a great income. And I don’t believe in the silly adage, “The more you make, the more you spend.” Sure, that applies to the majority but it doesn’t apply to everyone.
Here are the two primary reasons that many Americans and Canadians have money problems.
1. Immediate gratification takes too long.
2. A “necessity” is any luxury that the neighbor happens to have.
Since I have never been influenced by these two factors, I have done very well financially without any app to guide me. As author Jon Hanson said, “Whether we are from the meanest streets in Detroit or the finest in Beverly Hills, time and money will show us to be fools or geniuses.”
On the other hand, Andrew Carnegie said, “The man who dies rich dies disgraced.” Perhaps I should be using an app to figure out how to spend more money so the last check that I write is to the undertaker — and it bounces. Does anyone know of an app that will figure this out for me?
Ernie J. Zelinski
The Prosperity Guy
“Helping Adventurous Souls Live Prosperous and Free”
Author of the Bestseller “How to Retire Happy, Wild, and Free”
(Over 225,000 copies sold and published in 9 languages)
and the International Bestseller “The Joy of Not Working’
(Over 275,000 copies sold and published in 17 languages)
Well, you (and I) are old school. We don’t need an app to guide us because we already know how to spend money. It’s the majority of the public that needs help.
Your app idea is great! Maybe I’ll work on that. 🙂 The app would need an airtight liability protection, though. I’m sure people would blame the app if they spend all their money early…