Focusing on your personal financial strategy over the latest financial app
Please create your personal financial strategy before downloading your next financial app. Please. :)
So many people come talk to me and tell me that they have Stash, Acorns, Robinhood, or a whole host of other personal finance apps and are using them to try to ‘get ahead’ or to ‘save a little bit’, but yet they don’t yet have an emergency fund and aren’t taking other more solid steps to move financially forward.
I’m not trying to knock these apps here - but really. Let’s talk about how they do and don’t fit in to your financial life. First, the app is NOT your financial life. I get that it can be exciting to try something new, to see if it can help you, to not have to think or do much financial work there. But they are dangerous when used without a more holistic financial strategy in mind.
No app can create your personal financial strategy for you; no app can replace you spending less than you earn or paying yourself first. When these apps are used as a part of a strategy, they can be helpful, sure. But no app can replace the basic tenets of personal finance to spend less than you earn and do something smart with the difference. You still have to do the work to make sure that you aren’t spending over your limits and that you are saving something somewhere for your future.
No app can create your personal financial strategy for you; no app can replace you spending less than you earn or paying yourself first.
I’m not trying to be the bearer of bad news here - it is/can be simpler than you might think! It doesn’t matter how you track your spending (see options for how here), and in fact spending tracking can be a great use for an app.
Unfortunately, personal finance apps, especially investing-related ones, do not know enough about you, your goals, or where you are at in your financial life to adequately help you select appropriate investments, suggest how much you can/should invest, or otherwise move financially forward (more on what is investing here). Only you (and your financial planner) know enough to make those informed decisions in a holistic way for your future.
Apps do not know enough about you or your goals to adequately help you move financially forward by themselves.
For example, Robinhood recently announced it was removing its ‘popular stocks’ feature. Take a moment to think about the self-fulfilling prophecy there. If more people see it, then more people are going to want to buy it just because everyone else is doing it, and so on and so forth. That’s not a great investment strategy!
The other piece here is that these apps want you to spend more time in them and make more trades with them, so they show nudges that make you want to trade more (i.e. the loss in stock price over the course of just a day in big red letters). From a long-term investing perspective, ‘trading’ is generally a term to stay away from and should tell you that this company is not thinking with your financial future in mind.
The other danger with apps like this: investing before you might be ready. If you are just out of college with your first paycheck and don’t yet have an emergency fund in the bank, it is likely too early for you to think about buying some individual stock just for the heck of it! One stock or one company generally represents too much risk to take with that first few thousand dollars you keep from that job. The concern is that something (random! crazy! #life) happens to that company and the stock value plummets just at the moment you need the money because your own life also #happened (car broke down! Last-minute wedding tickets! Laid off!). Scary :o
Once you have your basic personal financial life strategy in place, these apps can indeed be helpful to lower the barrier to learning how investing works and getting started. However, they are far from the only option. You can also go to a website like Vanguard or Fidelity at any point and also open up an account there - it’s not any harder than investing with the app and you generally have more accessible diversified options there - (potentially more boring, yet potentially more reliable) ways to start investing.
I could talk forever on this, but let me just leave you with this last image.
Focusing on financial apps without a financial strategy:
You can do this!
Need help forming your personal financial strategy or deciding if and how you’re ready to start investing? Schedule a free 15-minute chat with me here!
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