Sick of spreadsheets? Here’s everything you need to know about personal financial management (PFM)

When you think about your money, your brain may be pulled in a number of different directions: the cash coming into your checking account, the expenses you pay each month, the charges to your credit card and the funds you’re investing to grow for retirement.

Juggling all those transactions and balances at once can be overwhelming. That’s where personal financial management — commonly referred to as PFM — comes in. PFM uses advances in technology to help consumers navigate their everyday finances.

How is PFM different from budgeting?

So is personal financial management just a fancy way of saying “budgeting?” Not exactly. Following a budget is indeed part of personal financial management, but PFM has evolved into something much bigger, says Nate Gardner, chief customer officer at MX, a company that builds data-driven products for banks and credit unions such as U.S. Bank, Barclays and BBVA.

“The term personal financial management was born out of the old process of keeping track of where your money was going,” Gardner says. “Some people had the discipline to say, ‘I’m going to stay in this range of spend.’ Those were the roots of the old idea of an envelope-based approach to budgeting.”

Now, Gardner says, the term has much broader implications. It’s about augmenting information (through technological advances) and giving consumers greater clarity regarding their financial lives.

Your bank might already offer a personal financial management tool

Over the past few years, the largest institutions in banking such as Citi, Chase and Bank of America have integrated new features within their mobile apps and unveiled new services designed to help people set saving goals, monitor spending and make more informed decisions about their money.

While the biggest banks have made headlines for enhancements to their PFM tools, Gardner says that smaller banks are part of the shift, too.

“Customers aren’t spending any time in branches anymore, so financial institutions are making sure that they are making the digital experience better,” Gardner says. “The companies that provide technology to the community banks are doing it, too.”

Looking beyond banks

A tool offered by your bank may not be able to give you a comprehensive view of your finances. For example, you might have a checking account and a credit card with one bank, but what if your savings account is at another institution? What about your investments or your 401(k)? What if you’re paying back student loans through another provider?

Your bank may let you link in these outside accounts, but there are also fintech companies that work to streamline all that information and help you save money. Some, like Mint, offer a free introductory level, and others such as Oportun , Stash and Qapital charge monthly fees that vary based on the features you want to access.

How to use personal financial management

With all the PFM options out there, how can you choose the right one? Gardner says you’ll want to find a tool that can bring all those inputs and outputs into one centralized place for a “360 view” of your finances.

“Find a solution that will allow you to pull in all your accounts,” Gardner says. “If you can get all of your transaction data in one place and the tool will do some of the categorizing work for you, you can then confirm if the data is accurate.”

In addition to adding up all the data, consider these tips to effectively use PFM.

• Pick a tool that simplifies your life: The entire foundation of PFM is to eliminate spreadsheets and extra work. “If you’re still having to do an enormous amount of work to get the data correct, the value of the tool is diminished significantly,” Gardner says.
• The information should be actionable: “A strong solution should be guiding and nudging you toward smarter spending habits,” Gardner says. “The app should start to alert you if you have multiple subscriptions or if you’re going to exceed your credit limit. Perhaps it can help make you aware of how you compare against a broader population.”
• Make sure the tool is about your financial journey — not selling you more financial products: Gardner points out that some personal financial management tools were designed with a business model that didn’t prioritize the customer’s best interests. Instead, an advertising-based model can put credit card offers in front of the consumer with tempting sign-up bonus offers and rewards points opportunities. While those can work for some savvy consumers, they can also be debt traps.
• Customize the categories — and don’t have too many of them: Tara Unverzagt, CFP, founder of California-based South Bay Financial Partners, says the key to using any type of PFM is “to not overcomplicate the setup.” She recommends having no more than a dozen categories. “It should be super simple for you to update. If you have too many categories, you start using cognitive brainpower to put your expenses in the ‘right’ category.”

What if you decide to stop using the PFM?

These tools are designed to help you as you continue to grow, but there is a chance you could eventually break up with your current PFM. If this happens, you’ll want to see if you can export your spending and saving data so that you can take with you.

Having those statements can be helpful, but Gardner says that the financial industry has a long way to go to make breaking up with a PFM painless.

“I think you’ll see more financial institutions invest in allowing the portability of data,” Gardner says.

For now, moving all your spending and saving data from one PFM to the next may not be that easy, so Gardner recommends making sure a tool is worth your long-term commitment.

Bottom line

PFM encompasses a wide range of financial tools and apps, but they all have one thing in common: They use technology to add convenience to day-to-day finances, whether that be by automating savings, tracking bills or creating a budget for you.

Consider what kind of features would be most helpful to you. Someone with an extensive budget spreadsheet might want to focus on PFM tools that aid with budgeting. Meanwhile, someone looking to get into better savings habits may want to consider an app designed for saving. Just make sure to scrutinize any app or website you use, especially if it’s lesser known, so sensitive data doesn’t end up in the wrong hands.

– Bankrate’s Marcos Cabello contributed to updating this article.