AI budgeting: How artificial intelligence is changing banking
Not sure how to make a budget? You don’t have to look too far for a jumping-off point: simply use artificial intelligence. AI can be a useful tool for developing ideas and can be used for budgeting plans, goal-setting, and tracking financial habits. AI-powered budgeting is a growing trend in financial technology, offering advanced features for real-time tracking and collaborative planning. One of the key benefits of using AI in this context is its ability to improve money management by helping users develop effective strategies and simplify financial oversight.
That said, AI budgeting tools can’t do all the work for you. You still need to understand the basics of budgeting to create an effective plan. Additionally, AI isn’t flawless; in some cases, it may not fully meet your specific budgeting needs.
What is AI budgeting?
To understand how AI works in budgeting, you need to know what intelligence is, in simple words.
Intelligence means the ability to learn from information and act on it. Artificial intelligence mimics human intelligence by enabling computers to collect data, analyze it, and generate useful outputs. All you need to do is provide a clear description of your financial goals, and guide the AI to refine its actions until the results align closely with what you want.
With this in mind, AI can be useful for generating a budget because it can help you interpret your income and spending habits, producing a plan to manage your money more effectively. AI budgeting tools assist with tracking expenses and organizing your finances into spending categories like groceries, rent, and entertainment. Additionally, AI can provide detailed insights into your financial habits, helping you make more informed decisions.
Benefits of using AI for budgeting
There are several benefits of AI budgeting. For one, it’s pretty accessible. You can build a personal budget for free online through an AI chatbox. Some budgeting apps and financial institutions are also integrating AI features, so the user experience is a bit more personalized. These tools provide users with real-time insights, allowing them to make quick decisions based on up-to-date financial data and trends.
If your goal is to create a spreadsheet for your budget, AI can guide you step-by-step through the necessary information and even generate the spreadsheet for you. If you want to make any changes, AI can quickly adjust things to fit your preferences. Additionally, many platforms offer customizable dashboards with a user-friendly interface, allowing you to tailor your financial data views to your specific needs and gain a clear view of your money management.
While there are free budgeting spreadsheets online, utilizing AI is often more interactive. In fact, the more that you engage with it, the better the results. AI can offer personalized suggestions to help users optimize their budgets, such as recommending expense reductions or new savings strategies. By using an AI budget maker, you might think about things you hadn’t considered before or explore new ideas by testing out different scenarios.
Challenges and limitations of AI budgeting
While AI can be an effective tool for creating a structure that works for you, there are some challenges and limitations to be aware of.
For example, inaccuracy and misinformation are some of the major AI budgeting challenges you’ll experience. When you’re creating a budget through AI, you need to double-check to make sure what AI produces is correct. AI can make mistakes. It might make a spreadsheet that doesn’t add up to what you told it. It could also tell you something outdated or misinterpret a financial concept, and oversimplify it when explaining it to you. AI relies on data and sometimes processes all the data it has access to, which can lead to errors if not properly managed.
Something else to be aware of is that AI doesn’t do all the work for you. To create a budget, you still need to enter some information manually, like your income after taxes, budgeting categories, and targeted spending amounts. In fact, the more details you can share, the more refined your budget can be.
If you’re using an AI chat box, it’s not recommended to upload bank or credit card statements. These statements have your personal bank account information, which you do not want to share in any way online. Read through the privacy policy of the AI platform before you use it. That way, you’ll be aware of what information is stored and the security measures it offers. It’s important to protect your data and understand how all the data you provide may be used.
How to use AI for budgeting: Step-by-step guide
The budgeting process is a structured approach that uses AI to help you set financial goals, create a detailed budget, and refine your plan through ongoing feedback and adjustments.
Use the following guidelines for AI budgeting setup if you’re using a chat box.
1. Gather basic information about your income and expenses
The first step to starting a budget is understanding how much you make and spend each month. Tracking your monthly spending and listing all monthly expenses will give you a clear picture of your finances. That way, you can figure out where you need to add or cut back.
An easy way to find out this information is by looking at your bank statement. You’ll be able to see your income if you receive monthly direct deposits to your checking account.
Now, spending habits may be a bit trickier to figure out. Bank and credit card statements may be useful if you manage most of your expenses through card or bank account transactions. Be sure to identify recurring expenses such as subscriptions and bills. However, if you’re the opposite and use cash frequently, you’ll need to keep tabs on your receipts.
2. Create financial goals
A budget is most effective when you know why you’re doing it. Are you looking to reduce your expenses? Do you want to build an emergency fund or establish specific savings goals as part of your budgeting process? Are you planning for a new upcoming expense? Think about what you hope to achieve with your money in the long term. AI budgeting tools can help you set financial goals and plan for the future by providing goal tracking features and visual tools to monitor your progress. If you can, try to tie in specific details, like a timeframe or goal amount. If you don’t know what you want to do, you can ask AI to help you work on creating financial goals.
3. Start your AI prompt
Enter the information you have in the AI prompt. It helps to be descriptive, but you can also ask if there’s anything you’re not taking into account that should be factored into your budget. Once you submit your AI prompt, you’ll get a budget overview.
4. Review for errors
Verify that the AI platform has accurately created your budget. For example, your total budget balance should not be more than your monthly income. If you ask AI for input, make sure you understand the financial concept or ask for sources – specifically links – to verify the quality of the results. Reviewing your budget in this way helps you make informed financial decisions.
5. Refine your budget until it’s perfected
In this step, you can test out different ideas. Maybe you have several financial goals and want to see which fit best with your spending habits. Perhaps you want to make a monthly spreadsheet budget with charts to help you analyze spending patterns in the long term. Get creative, but also still check for any new errors that may appear. As you refine your budget, explore different strategies to optimize your financial plan and maintain focus on your financial objectives throughout the process.
6. Maintain your budget in a way that works for you
You’ve finalized your budget, and now it’s time to put it into action. There are several ways to maintain your budget effectively. If you created a spreadsheet, you can update it manually each month to track your progress and see how your spending aligns with your financial goals over time. Alternatively, you can simplify this process by using budgeting apps, many of which offer expense tracking features that automatically categorize and manage your spending. These AI-powered tools help you stay on top of your finances by providing real-time insights and personalized budget management. You can also use budgeting features available in your banking app if offered, making it easier to monitor your monthly expenses and adjust your plan as needed.
Top AI budgeting tools and platforms
If you are looking for an AI budget app, more options are continuously emerging. Here are some of the most popular AI-powered budgeting tools that offer advanced features such as real-time tracking, automated processes, and personalized recommendations to help users manage their finances effectively.
The best AI budgeting tool for you might also be available through your financial institution. Several banks have AI tools that provide insights based on your spending habits.
For example, Capital One has ENO, a virtual assistant for Capital One credit card customers. You can sign up for email or app notifications so ENO reminds you when free trials end or when you might have made an unintentional expense, like a significantly high tip. Bank of America has a similar offering – a virtual assistant named Erica. Erica can spot membership cost increases and track your spending by category, including specific expenses like car insurance.
Should you use AI for budgeting?
You might consider using AI for budgeting if you prefer a DIY approach to personal finance management and are confident in your knowledge or are willing to learn. AI tools can help you manage your personal finances and overall finances more effectively by simplifying budgeting, expense tracking, and financial goal achievement. As with any budget, you will have to be diligent for it to work, meaning that you still have to make a conscious effort to track your spending and saving once you have a plan.
If you need more support and direction, speaking to a certified financial planner or financial advisor may be a better option. AI doesn’t replace financial advice. Financial experts and financial advisors have certifications to prove that they have extensive knowledge of financial planning. They also have a code of ethics to follow, so you know that they’re acting in your best interest. A financial professional can provide a more comprehensive understanding of financial management, so you can end up with more than just a budget.
Ultimately, AI can be a good tool for getting started on a budget, but use it carefully and recognize that it still has its limits.
