Managing your finances can be stressful. To do it well can take a lot of time, there are a lot of details to remember, and let’s face it, a lot of people experience high levels of anxiety when thinking about how to handle their money.
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Unless you get a thrill out of crunching numbers and like shuffling money from one account to another, you’ll be glad to hear that many banks now offer various automatic tools to help you save, pay bills and even invest.
As with all details of your finances, there are some important things to be aware of when it comes to these methods. Keep reading for a look at some of the pros and cons of using automated financial planning services.
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Automated Financial Planning Services: Pros
Here is a closer look at some of the benefits of automated financial planning services.
Speed and Convenience
Many banks now allow you to set aside a certain percentage or dollar amount for any deposit, including direct deposits, to be moved directly into your savings account. A major advantage of these automatic savings deposits is that they make saving money easy and simple.
You don’t have to think about it after you first set it up. You won’t have to make two deposits or shift money around online or in an app — your bank will do it for you.
A similar service is automatic bill payments. This is a great option for anyone who occasionally forgets to pay a bill on time, as it can help you avoid late fees and other charges.
This is especially true for credit card payments, as late payments can have a significant impact on your credit report. Automatic payments are a lot faster than handling all of your monthly bills manually, and you won’t have to worry about remembering them once you have this service set up.
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Expert Advice for Everyone
One major benefit of some forms of automated financial planning is that you get access to money management tools that have traditionally been out of reach for anyone without a considerable amount of personal wealth.
Financial advice has traditionally come at a prohibitive cost. Many people can’t afford to hire a financial advisor to discuss investment opportunities because the cost would often outweigh the returns, which can be modest when starting out. Robo-advisors are closing that gap for novice investors with fees that are a fraction of what financial planners typically charge.
Affordability
Though automated financial planning tools have been around for a while, earlier versions were fairly limited and dispensed basic advice. With the advent and widescale adoption of artificial intelligence, that’s all changing, and because the technology is so widely available, these tools are creating cost-effective opportunities for investing.
Some are as cheap as $4 per month with no minimum account balance, while others have varying balances but don’t charge a fee at all, presumably making their money on transaction fees when investments are bought or sold.
Personalized Investment Management
Though robo-advisors all use algorithms to pick and choose investments for their clients, the process generally starts with a questionnaire to discover each investor’s personal financial goals, risk tolerance and other salient details.
These details, combined with the power of AI and advanced algorithms, can lead to personal portfolios that better match each investor’s specific preferences while providing the potential for higher returns.
Automated Financial Planning Services: Cons
Here are some of the negatives about these services.
Data Security and Privacy Concerns
This is a big one. The financial sector is the second most targeted industry by cybercriminals (the first is healthcare). There are nearly two financial data breaches every day, and the risk of vulnerability is real. If your personal and financial information is compromised, it could lead to fraud, identity theft and financial loss.
No Human Connection
Robo-advisors have their strengths, but they can’t provide the nuanced approach a human financial advisor can. Though you may be able to choose from a list of options or broadly define things like financial goals and risk tolerance, robo-advisors and other automated systems aren’t yet sophisticated enough to talk you through sometimes confusing and intricate options.
If your financial needs or personal circumstances change or become more complex, there’s only so much adjustment an automated system can make.
Lack of Flexibility
Automated financial services, even those as basic as automated savings and bill payments, are “fire and forget” financial products. While they’re great if your situation doesn’t change, they can’t replace your judgment.
If your income changes or you have an unexpectedly large expense, those automated tools will keep shuffling money the way they’ve been set up to do, which may not be the best use of your available resources. Most of us have a bill we can safely put off for a week or a month if needed, but automation can’t account for that.
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This article originally appeared on GOBankingRates.com: The Pros and Cons of Automated Financial Planning Services
