My thoughts on personal finance software

Over the past week I have been researching tools for managing your personal finance. The main reason is that I think that if you are going to invest in one of these tools and the time to enter and manage your finances through it, you should also consider something like Carbonite to automatically back it all up.
In researching these tools, I have found that there really aren’t many tools out there. The two key players are MS Money Plus and Quicken. See end of this blog for references to some others as well useful blogs to check out.

I downloaded an MS Money Plus trial. I started entering some information into it, seemed pretty easy to use. There are plenty of opinions out there on what is better, however the real issue is do you really need this type of thing and are you really going to use it? Some of the blogs/forums out there say that many of the MS Money licenses are actually not paid for (OEM versions sold with the machine) and those that are paid for, well they are used at the beginning and then abandoned, too much effort to maintain. (Makes you wonder if there is really any money in developing this type of software).

Personally I think using a tool to manage your finances is going overboard. There are much simpler ways to do it.

Financial institutions (funds management/banks), have been looking at this issue ever since the web became the key to client communication and service. Every institution has been looking at how to make the client relationship stickier. How do we give the client one total view of themselves that they can’t get anywhere else? (There is a service called my2ic that was released a few years ago that attempts to offer this.) If you have a financial adviser you probably could, otherwise forget about it. Or keep waiting because the cost to develop such a thing is enormous and in today’s shrinking markets, budgets for such projects will not be easy to come by.

As I said though, all financial planning systems out there offer a client interface. COIN, XPlan, VisiPlan. Each of these enables the client to see what the adviser has created for them. And if they are doing their job right, they would have a complete picture of you (income, expenses, assets, liabilities).

The challenge is to keep it all up to date. All of these systems support feeds and hundreds of them (from everywhere). Many advisers have problems managing feeds from fund managers, wraps, shares etc. It costs them a bit and then they can spend hours each week trying to reconcile accounts. The problem with getting feeds is that if the source has changed (eg an adjustment etc that happens post) then your records must also be changed and if you have made any manual adjustments, it all goes out of whack. Its hard work.

Many advisers are just happy to get a record/balance for each account at the end of each month. Gives you the same end result without the hassles. Maybe there is a lesson in this for users of MS Money Plus or Quicken.

The way I manage my finances is to run everything through 2 accounts, my bank account and my credit card. I use my credit card for everything and then pay it off fully each month. The monthly statement is my expenses record, whilst my bank account gives me my income and what is left over. Through my bank account I make my loan repayments and cashouts for cash transactions and anything left over (above a certain minimum that I keep in my account) goes straight into my loan, no use keeping money in the bank earning 0% interest. Through this simple process, I know exactly what my monthly P/L looks like. No data entry, no mucking around. Simple.

Below I have listed a range of sites and blogs that will give you more on the in’s/out’s of the personal finance software market.

Software options:
• http://lifehacker.com/396507/five-best-personal-finance-tools
• http://personal-finance-software-review.toptenreviews.com/
• http://home.quicken.com.au/Pages/ProductDetails.aspx?pcode=9&pcatid=7
• http://www.microsoft.com/money/freetrial_info.mspx
• http://budgetsgetreal.com/
• http://www.gnucash.org/

Good blogs on the topic
• http://rowansimpson.com/2008/05/12/fixing-personal-finance-software/
• http://www.itsjustbusiness.co.nz/2008/05/25/some-thoughts-on-personal-finance/

Cloud Computing and Financial Institutions

Every financial institution I have worked for has had the same objective to move its clients to online statements and correspondence. Over time with a small incentive here and there they manage to get 20%, maybe 30% people across the line. The reason why they have never managed to convert me is because I have always feared losing it all (my financial records) when my computer inevitably crashes.

What would I do? I would need to ask for it all again and pay them (when it was free in paper form the first time).

Since joining Carbonite here in Australia, I have wondered about the opportunity to partner with a financial institution, and offer their client base a real incentive to convert to online correspondence. If the client knew that they would be protected, should the inevitable happen, then it sure would add greater weight to the argument compared to a cheap incentive such as movie tickets.

This morning I read a blog by Dr “Mostly Cloudy” Gerlich. He talks about Wells Fargo (large fin inst in US) offering its clients an online safety deposit box for their electronic records. The service is called vSafe. It isn’t a free service but you can’t expect any more from a bank. As he says, they have awoken to the idea and the opportunity.

vSafe will compete with Carbonite, in the US anyway. Over time, I hope to convince some of our financial institutions of the same thing, maybe not going it alone though, but partnering with Carbonite. Maybe it is still a little too soon as online storage still isn’t a mainstream service here (only really known by the technical world).

Stay tuned for more on this.