How to track your finances: Banking vs. third-party apps

Tracking your finances is a cornerstone of financial wellness. By monitoring your spending, savings and investments, you can make informed decisions that help you avoid unnecessary debt and work toward your financial goals. The key is finding a system — whether through your bank’s tools or third-party apps — that fits seamlessly into your daily routine.

Why financial tracking is crucial

Tracking your finances is vital for several reasons. By understanding your financial habits, you can make better decisions, build savings and avoid costly mistakes. Here’s why tracking your finances matters:

• Budgeting: Regular tracking helps you create and maintain a realistic budget, ensuring you manage your income effectively and avoid overspending.
• Building savings: Monitoring your spending habits reveals opportunities to reduce expenses, allowing you to direct more money toward savings goals like emergency funds, retirement accounts or major purchases.
• Debt management: Consistent tracking helps you prioritize high-interest debt payments and maintain payment schedules, reducing your overall financial burden over time.
• Avoiding fees: Regular account monitoring helps prevent costly overdraft fees and other penalties that can erode your savings.
• Achieving long-term goals: Whether you’re planning for retirement, saving for a house or budgeting for travel, tracking ensures your money aligns with your aspirations.

Banking tools: Pros and cons

Banks have evolved beyond basic money storage to offer various digital tools to help track finances. While these tools provide convenience, they come with certain limitations compared to third-party apps.

Pros of using banking tools to track your finances

• Convenience: Banking tools integrate directly with your accounts, eliminating the need for manual data entry. All transactions automatically appear in your bank’s mobile app or online platform, streamlining the tracking process.
• Cost efficiency: Since banks provide these tools free to account holders, they are budget-friendly options for basic financial tracking.
• Data security: Banks are regulated by strict security laws, offering high protection for your financial data through advanced encryption methods, two-factor authentication and fraud detection systems.
• Basic budgeting features: Most banking tools offer Standard features like transaction categorization, spending analysis and balance alerts to help you monitor your financial habits without requiring additional tools.
• Automation: Many banks offer automated savings features, such as round-up tools that transfer spare change from purchases to your savings account, making it easier to save consistently.

Cons of using banking tools to track your finances

• Limited scope: Banking tools typically only track accounts within their institution. You won’t get a complete financial picture if you maintain accounts across multiple banks or investment platforms.
• Fewer features: While banks offer basic tools like spending analysis, they often lack advanced features like debt payoff planning, investment analysis or detailed goal tracking.
• User experience variability: Bank apps vary significantly in quality. Some offer dated interfaces or limited customization options, potentially making financial tracking more challenging, especially if you want a streamlined and intuitive experience.
• Minimal customization: Most banks use preset expense categories that may not align with your specific needs, especially if you’re tracking business expenses or saving for unique goals.

Third-party budgeting apps: Pros and cons

Third-party budgeting apps like YNAB (You Need a Budget) and Personal Capital offer more comprehensive tracking capabilities. These tools typically integrate with multiple financial institutions, providing features beyond standard banking apps.

Pros of using third-party apps to track your finances

• Comprehensive financial picture: These apps typically connect to multiple accounts across various institutions, offering a complete view of your finances in one place.
• Advanced features: These apps often come with a wealth of features not offered by banks, such as credit score monitoring, tax optimization tools and detailed investment tracking. Apps like YNAB provide goal-setting features that help you save for specific objectives, while Personal Capital offers in-depth investment performance analysis.
• Customization: Third-party apps are highly customizable, allowing you to create spending categories, set unique alerts and personalize your dashboard to fit your preferences.
• Real-time notifications: Many apps provide immediate alerts for spending limits, upcoming bills or unusual transactions, helping you stay proactive with your finances.
• Educational resources: Many apps have built-in financial literacy tools, articles and recommendations that help you improve your money management skills. Whether you’re trying to understand investing or looking for ways to optimize your tax situation, these resources are a bonus.

Cons of using third-party apps

• Potential security risks: While many third-party apps use encryption and other security measures, linking external accounts can create additional vulnerability points for your financial data, especially if the app doesn’t comply with the same security regulations as banks.
• Costs: While many third-party apps are free, premium features often require monthly subscriptions ranging from $5 to $15, which may be difficult to justify when free alternatives exist.
• Overwhelming features: Third-party apps can be packed with advanced tools that may overwhelm users new to financial tracking.
• Data privacy concerns: When using third-party budgeting apps, your financial data is often shared with external providers, raising potential privacy concerns. Some apps use your data for marketing or analytics purposes, and some users may feel uncomfortable with this level of data sharing.

Combining both approaches

A hybrid approach — using banking tools alongside third-party apps — often provides the most comprehensive solution. When combining both tools, you can use your bank’s app for daily monitoring to quickly check balances and recent transactions.

For long-term planning, third-party apps provide advanced tools for investment tracking, goal setting and debt management. You can integrate both systems by exporting your bank transactions into third-party apps to consolidate all your data in one place.

Tips for effective financial tracking

Whether using a banking tool, a third-party app or both, mastering financial tracking requires discipline and smart strategies. Here are some ways to enhance your efforts:

• Set clear goals: Define short-term and long-term financial goals like paying off debt, building an emergency fund or saving for retirement. Having clear goals will help you stay focused and motivated.
• Create a budget: Develop a budget based on your income and expenses and update it regularly to reflect changes in your financial situation.
• Review finances regularly: Schedule weekly or monthly reviews to monitor your spending, analyze trends and make adjustments. Regular check-ins help you stay on track with your budget and savings plan.
• Automate savings and payments: Automating savings and bill payments helps avoid missed deadlines and consistently save money without thinking about it.
• Track all expenses: Monitor everything, from everyday purchases to larger financial commitments like subscriptions, to see where your money is going.
• Check subscriptions: Monitor your subscriptions to ensure you’re not paying for services you no longer use.
• Use alerts: Set up alerts for important financial actions, such as when bills are due or your balance reaches a certain threshold.
• Secure your data: Choose financial tools with strong encryption and enable two-factor authentication for added security.

The bottom line

Effective financial tracking forms the foundation of sound money management. Whether you use banking tools, third-party apps or a combination of both, the key is consistency and regular monitoring. By selecting the right combination of tools and maintaining good tracking habits, you’ll be better positioned to achieve your financial goals and maintain long-term financial wellness.