Updated: Aug 17
Differences between using an app vs a spreadsheet for budgeting and which option might be right for you.
Pros and cons of budgeting in an app
Apps like Mint have become so popular in the past few years and for good reason. Budgeting used to be a very manual process - think back to when people used to balance their checkbooks by hand in order to figure out how much they had left in their bank account. Now, we've gotten to a point where we can just connect all of our accounts in one place and have an app aggregate our data to tell us our credit score, monthly expenses and even net worth.
A few of the biggest pros of using an app:
+ Connects all of your accounts easily: it was extremely easy to connect all of my accounts to Mint. All you needed to do is login to your account once and Mint will stay connected and capture expenses as they come in.
+ Auto labels all of your expenses (though this can be a con as well): this is nice, unless you had the experience I had (see the negatives).
+ Can easily glance at net-worth very quickly: if you are looking to build your wealth, this easily keeps track of your net worth and keeps track of the evolution of your net worth so you can see the fruits of your labor!
But as easy as it is, there are quite a few drawbacks as well:
- Mint can never find my property's address so I have to add/update the value manually: this isn't convenient if you own property as property values tend to change, especially in this housing market. At the very least, it's something you have to update every year based on other sold comps in the area.
- Expenses are labeled incorrectly, and it is tedious to relabel them into the correct category: this to me is one of the biggest negatives of using Mint. It tries to be smart in terms of labeling expenses, but they never fully get it right, especially if the name of the transaction is not straightforward. Changing the labels for all of the transactions isn't easy - and it was more cumbersome than labeling my own transactions in an excel spreadsheet.
- Navigation isn't super intuitive, especially where to find monthly spending/trends
- Sharing all of your data with Mint: if privacy is a big concern for you, well, this is a bit scary because you really are telling Mint everything about yourself financially and you need to be comfortable with that.
- Doesn't allow you to flex into different budgeting rules/scenarios: if you're following a certain budgeting method like zero based budgeting or the 50-30-20 rule, apps don't generally allow you to customize to a budgeting rule/scenario that you're looking to follow.
Pros and cons of budgeting in a spreadsheet
Budgeting in a spreadsheet may sound ancient, but it does offer quite a lot of benefits. As someone who started out budgeting right after college, a spreadsheet offered me better insight into my spending habits that I would not be able to easily see through an app.
A few of the biggest pros of using a spreadsheet:
+ Very in-tune with your spending habits: Because you are looking at each expense, you become much more conscious of what you're spending. I think to myself, wow, I'm entering in a lot of lines of coffee or wow, I buy lunch quite often, do I really need to be? Does this really make me happy? It forces you to see each transaction and really think about whether it's worth the price.
+ Flexibility to categorize things how you want: Apps usually have a standard classification of categories for expenses. It doesn't always align with how you want to categorize things. For example, for me, food can be seen as a need and a want. Food that I order as takeout or dining out with my friends is something I consider as a want compared to groceries, which is a need.
+ No advertisements/ads: This is the most annoying part about apps - you get targeted for advertisements
As for some of the drawbacks:
- Tedious to start from scratch: It's annoying when you start because you have to build your benchmarks and baseline. You don't know where you stand until you actually go through the exercise line by line.
- Requires more effort to maintain compared to an app (but it's not bad): Honestly, once you get in a rhythm, it does take some time to update the spreadsheet, but maintaining it is not as hard as it seems. It takes maybe about 10 minutes per week to update and it's even easier to analyze.
- Can't do it on a mobile phone: It's not easy to update on your mobile phone like an app is. It does require a laptop/desktop to navigate and update.
Which method is right for you?
It really depends! If you aren't sure about budgeting, starting with an app is much easier as it aggregates a lot of your data and it will give you a good, high-level overview. It's also better to stick with an app if you just need to look at your numbers at a high level and your income and expenses are consistent month over month. If you notice that you're not sticking to a budget or it's hard to identify where you're spending too much money and how to cut back, the spreadsheet makes for a better option.
Starting out with a spreadsheet is better since you get to know your habits and expenses on a deeper level. Once you start seeing similar trends or patterns, you're more likely to be aware of them going forward and change your habit. Once you feel more comfortable with your budget and your savings every month, then transition over to the app since it's easier to maintain.
If you have questions on budgeting or personal finance in general, schedule a 1 HR financial coaching session with me below!