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Savings = [What you earn] – [What you spend]: How can tech adjust this financial formula?

The formula of personal finance is known to many people: Savings = Income – Expenses

This equation is comprised of three core elements: Income, Expenses, and Savings. The formula is really simple in order to save you need to have an income which exceeds your expenses.

So logically, the more money you make, the more you’ll save. However, not everyone can make more. On the other hand, everyone (I repeat, EVERYONE) can save.

But sometimes you are willing to save and you earn more than your ordinary level of expenses, but you can’t. How is it possible? Let’s look at an example: Your usually spend 500$ per month, you earn 700$. So as per formula You should save 700-500=200$. but you can’t save. Mathematically it means there is some extra element on the right of the formula which is not very evident at first glance.

Hidden element in personal finance formula

Savings = Income – Expenses – X.  

And the extra element X is the result of zero savings. Wiping away the 200$ and leaves you with no savings. It’s a result of your bad spending behavior. In fact 59% of Americans state their number one fear is running out of money and have no savings in their pocket for some emergency situation. But even in this case of fear they don’t control X well enough. An average American lacks self-control when it comes to showcasing saving habits and the way of controlling the finances. According to a study conducted by Moody’s Analytics, savings rate in the United states has dipped to negative 2%. This means that people are spending more than they earn.

There are lots of articles and blogs that try to help people to manage their personal finance and control the hidden element (bad spending behavior). They try to give advice on good spending habits to control the extra element. Many of them seem to be magicians that can help somebody to save. And seems some of them have some track of success stories. But have you thought how technology solutions can help to adjust the formula of personal finance and also help you to do savings.

Tech comes to adjust the formula

Actually Technology solutions can adjust the formula of savings. Mobile first solutions powered by AI can have an impact on the spending decision and direct it to grow the pool of savings. Of course, one of the most important aspects of saving is knowing where to stash it. Fintech startups are important players which affect the saving decisions and stash your savings in smart and simple way. These apps can’t have significant impact on your fixed monthly income (which is your salary), but can have an impact on spendings. To illustrate the effect of bad spending behavior just imagine that 52% of Americans are overspending. And these fintech apps learn your spending behavior and manage your expenses not to be uncontrollable.  

Let’s see what type of technology solutions are designed to adjust the formula of personal finance. There are several types of apps trying to help people in the United States to meet this challenge.

  • A personal savings app Looma uses machine learning and Artificial Intelligence to do painful deductions from bank account and put them to savings accounts for rainy day. It is applying a certain percentage to your purchases and putting that amount towards your savings pool to ensure that you’ll be able to shop without feeling any sort of remorse.
  • Some apps like Qapital, or Empower link your savings to some goals and help you save money to buy something you wanted to.
  • Some apps like Mint help you set monthly budgets and keep track record of your expenses not to exceed the defined limit.
  • Some apps like Cleo, enable users to ask questions directly to the app regarding their personal finance and get quick answers on cash balance or certain expenses.
  • Some apps like Acorns allows you to invest spare change from purchases, like your daily cup of coffee, and invest that into stocks and bonds.

These apps basically help you to control your spending process, so as you’re not in danger of debt. As a result you spend less than you earn. So you get a positive cash flow and you have money to save. Of course, one of the most important aspects of saving is knowing where to stash it. And here is where fintech apps help you to stash your savings in smart and simple way.

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