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Rethink those budgeting apps - 10 tips to choose and budget wisely

By Opinion Time of article published Apr 22, 2021

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Tough financial times and a weakening economy have forced many South Africans to be more cautious with their cash. Many have turned to the multitude of budgeting apps that are available to help curb overspending and track their income and expenses. However, recent research conducted by the Think Forward Initiative and Eller College of Management, University of Arizona, has found that this may not be the best bet.

“In fact, the research revealed that budgeting apps could increase spending by almost a third,” notes Susan Steward from Budget Insurance.

The study was conducted with over 350 US consumers.

They were asked to manage a weekly budget, allocated for dining out and grocery shopping for one week.

The one group of consumers, the information access group, received personalised budget information every other day, similar to that provided by a budget tracking app. The second group did not receive any information on how much they had spent against their determined budget. Consumers in both groups set similar budgets and did not differ in their commitment to budgeting goals or desire to save more money.

“When analysing the results, it was found that, on average, the consumers in the second group did not go over their budget. The first group, however, overspent their budget by 26.7% on average. Interestingly, this increase in spending occurred at the end of the budget period – when users in the first group were aware of exactly how much money they had available”,” says Steward.

In simple terms, explains Anastasiya Pocheptsova Ghosh, Assistant Professor of Marketing at Eller College of Management, University of Arizona, people tend to spend more when they are confident there is money left in their budget.

And the solution? According to the study, apps that:

  • provide users with less precise budget information (ranges rather than specific amounts),
  • allow users to update their budget during the budget period and
  • apps that remind users that they can rollover the money left in the budget into next budget period were proven to be successful.

For those who prefer the tried and tested approach to drawing up a budget – a trusty Excel document or pen to paper, Budget Insurance offers the following advice:

List it: The first step is to draw up a list of your fixed expenditures and other monthly deductions and tally these up against your income. If your expenses are more than your income, then you need to begin planning how you are going to reduce them. If you do have some money left over every month but believe you should be saving more, draw up a budget to stick to and gain control of your expenditure.

Easy targets first: Some areas are easier to trim down on so concentrate on them first. Remember, even the smallest adjustments can make a meaningful difference over the long term.

Squash your debt: Once you have trimmed-down your expenses, you can start channelling the extra money you have into paying off your debt faster, starting with those with the highest interest rates first.

Eye on the prize: Make sure your budget has a goal, whether it’s to pay off your credit card debt or save money for a family holiday. Working towards a goal provides direction, makes it more fun and, delivers a sense of accomplishment when the goal is finally achieved.

Be realistic: If you set too lofty a goal and reaching it means deprivation on all fronts, the likelihood of you sticking to your budget is minimal.

Nothing but the truth: Be honest about your debt obligations and your expenses so that you have a clear and realistic picture of your financial situation.

Deliver on your promises and offer rewards: If the goal was to save enough money to go on a holiday, then you must deliver on your promise when that goal is reached.

“Some of these tweaks may seem insignificant, but the small changes and sacrifices you make now will be worth it in the long-run. Just a 5% saving on a R10 000 monthly budget will put R6000 back in your pocket each year,” Steward concludes.

PERSONAL FINANCE

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