Jeremy Bennett couldn’t believe the pie chart on his iPhone. He’d recently started using a personal-finance app called Mint to track his spending habits and was now faced with a painful reality in yellow, orange, and blue. “I had an ‘Oh, shit’ moment,” he says over a beer in lower Manhattan. “I spend how much on food?” He ended up saving more than $500 a month just by cutting back on takeout. I was blown away by how much I could save by changing one little thing.”
And he’s not the only one opening his eyes to the power of your phone over your finances. Thanks to an explosion of innovation—and $20 billion in venture capital in just 18 months—financial technology, or fintech, is upending the banking industry and changing the way we interact with our money. Fintech is exploding so fast I had three tech-savvy 20-something guys test-run the latest and greatest apps on the market. Then we met at a bar to discuss our findings.
The Best App for Budgeting Your Life: Mint
Budgeting is not the sexiest of wealth-building activities but, as Bennett discovered, it’s the critical first step, and Mint is the big kahuna of budgeting apps, a powerful tool that tracks all your banking, credit card, and investment accounts, sends alerts about pending bills, and can help you plan.
To get the most out of it requires some setup time–for instance, it didn’t recognize “Other Half Brewing Company” on my credit card, and I had to go out of my way to categorize it under “Food & Dining," whose subcategories include “Alcohol & Bars” as well as “Groceries.” I went with the latter. And it’s often very glitchy. I spoke with one former Mint user who found its alert system too tenacious and often wrong. (It was sending him alarming e-mails that red-flagged unusual “spending” on “financial matters.” Turns out he’d been paying off his credit card bill.) But it is, overall, an excellent resource.
Kyle Humphries, 26, says that seeing his net worth on Mint changed his life. “Before I felt like I was flying blind,” he said. The number was smaller than he liked, so he limited his spending on clothes for this summer and increased the monthly amount he diverts from his paycheck to his investment account.
The list of Mint competitors is long, but close runners-up include Level Money, which ignores categories and analyzes your income and expenses, then presents you with a “money meter” that tells you how much you can afford to spend today, this week, and this month, as well as Spending Tracker, Personal Capital, and mvelopes.
Note: The simpler your financial life, the faster you’ll see benefits from these apps. In my case, the income is so complicated—some freelance money, an annual bonus, and lumpy expenses such as tuition payments that are huge but not monthly—it throws Mint for a loop.
The Best App for Saving Dough: Acorns
The burgeoning field of behavioral economics has found that big benefits accrue when we automate good financial decisions. (Imagine if you had to decide, every two weeks, how much to put in your 401(k). You wouldn’t have much in retirement savings.) Acorns is a simple app that takes your pocket change and invests it.
So when Bennett drops $2.50 on a cup of coffee at Simon Sips, Acorns rounds the charge up to $3 and deposits the 50 cents in a portfolio of low-cost exchange-traded funds. You choose the level of risk, from conservative to aggressive. Other than a strangely large allocation to real estate (30%) in the aggressive portfolio, the investment options are excellent. Bennett says he’s saved $250 in his Acorns account in a few months without noticing the money. Over the years, that could really add up. Digit is a similar app; it monitors your checking account and transfers small amounts into a savings account when you can afford it. Only problem: The money is not invested, it just sits there.
The Best App for Amassing Wealth: Wealthfront
There may be no more disruptive force in money management right now than so called robo-advisers, automated services that allocate your investments into a broadly diversified portfolio of index funds and charge a small fraction of what you would pay a human adviser. They’re not perfect—they’re so new they’ve never been tested in a market crash, when humans will help their clients take the long view and avoid rash decisions. But they are a fantastic way to start investing. Humphries launched a Wealthfront account after watching an investment in energy stocks get cut in half by the collapse of oil prices.
“I learned in business school that the vast majority of money managers can’t beat the market” after fees, he said. Plus, the program automatically re-balances his account (trimming winners and adding to losers as a way to buy low and sell high) and does “tax-loss harvesting,” which reduces his tax bill.
For accounts below $10,000, Wealthfront charges no fees. Above that level, Wealthfront fees are roughly the same as Betterment, which pioneered robo-advising and charges just $2.50 for every $1,000 invested, while most human advisers would charge about $15 per $1,000 depending on the size of your account.
The Best App for Building Credit: Credit Karma
When you first get out of school, you may have little to no credit history, making it tough to get a credit card. Humphries, who likes to travel, wanted to start racking up frequent-flier miles, so he used Credit Karma for guidance on how to build credit. It told him what cards he was likely to get approved for, a useful tip because getting turned down would ding his credit score. He now has a FICO above 760 (excellent) and enough miles to fly him and his girlfriend to Germany for Oktoberfest.
The Best App for Paying for Dinner: Venmo
Does your posse include that deadbeat guy who never seems to have the cash to settle up the tab? Have you ever been to a big dinner in which the server wanted to kill you when the group piled 12 Amexes on top of the check?
Well, the solution is Venmo, a digital wallet that allows you to pay or receive money from anyone else who uses the app.
“I’m much more willing to pay for things because I know I’ll get repaid,” said Humphries, who has arranged group ski trips and then “charged” his friends through Venmo. Because it’s a social network, everyone can see who’s paid and who hasn’t, shaming the deadbeats into ponying up.
A Final Caveat: Don’t Let the Apps Control You
As with any tool, of course, these apps can be abused. Behavioral economist Shlomo Benartzi has written that smartphones are not well-suited for making complex financial decisions and might even encourage bad ones.
Steve Wolf, 27, learned his lesson when a stock he owned tanked earlier this year. Seeing the red on his phone, he sold in a panic. “I should have doubled down,” he says. Since then, the stock has rebounded 50% off its low.