Someone Could Make a Lot of Money with Personal Finance Software

Mark Hedlund, the founder of shuttered personal finance Web app Wesabe, has written a fantastic post-mortem on his experience entitled “Why Wesabe Lost to Mint.” It offers tremendously candid insight into what they did wrong at Wesabe, what Mint did right, and the surprisingly persistent myths around failures and successes in both camps.

This is a story that is of course full of valuable lessons for entrepreneurs and anyone trying to create a product in a competitive marketplace. What’s even more interesting for me is that the last chapter has hardly been written in this category of software. This is not a case where Wesabe lost and Mint took the market, lock, stock and barrel. There’s still tremendous opportunity in personal finance software, mostly because, in its current state ca. 2010, most of these applications don’t fulfill their true purpose.

This is a point that’s very fresh in my mind. Having recently left a job with a healthy salary to hobble together income from multiple smaller sources while raising a young family, personal finance software has, unsurprisingly, become much, much more critical to me, and its failures much, much more evident.


Time and Money

For a good decade or so I was a Quicken for Mac user, and then a few years back I started using a desktop program called IGG Software’s iBank. They were both fine tools for helping me to balance my accounts, but they provided very little to really help me change my financial picture. This is true for most financial software: we’re still just getting out of the gate with it, living through a surprisingly lengthy first generation of ideas — or maybe slowly starting to emerge into a second generation. But we still have a long way to go.

Moving the functionality of Quicken to the Web is progress, and adding social tagging and features and automated categorization are steps forward too. These are things that the Wesabes and Mints of the world have done well.

On the whole though, most of the personal finance applications I’ve come across are still not particularly imaginative or insightful tools, including Mint. I liken the category to digital calendaring. Using Outlook/Exchange or Google Calendar is a significant upgrade from a paper desk calendar, but it really hasn’t changed the way we approach the management of our time, and it certainly doesn’t result in us having more time. No one would say digital calendaring has solved that problem.

To fulfill its real mission, personal finance software should result in users having more money. I’m not saying if you use these applications you should expect to get rich, but the real purpose of this category of software is to let you do more with what you already have — in effect, to budget your finances. Most applications, in my experience, offer rudimentary tools for this, at best. They focus a disappointingly large amount of their efforts on creating pie charts and bar graphs, which like a lot of information graphics are really about giving you the impression that you’re understanding data without giving you any actual useful insight into that data.

What we really need are tools that give you much more insight into what you’ve spent, as well as truly helpful guidance into what you should be spending. In nearly two decades of using this software, I never got that from any application. It’s tricky and complicated to really provide good advice along these lines, of course, but it should be possible. Aside perhaps from your email client, few categories of software receive as much input of detailed, critical personal data as a personal finance program does. All of this data is structured and completely available for sophisticated number crunching and robust processing. And yet the output from these applications is almost uniformly paltry. What you get in return for all of that data entry is basically a digital version of your checkbook register.

Past Performance Is Not an Indicator of Future Performance

It’s not all bad news. There are some applications that have realized this and are moving in the right direction by helping users take a more proactive approach to their finances.

Jesse Mecham’s awkwardly but aptly monikered You Need a Budget, in particular, is a promising example of a package that actually takes a position on what you should be spending, something that other programs are remarkably averse to doing. Its approach is very simple and powerful: only spend this month what you made last month. That’s exactly the kind of approach that I crave: don’t just give me an expensive checkbook balancing tool, give me a method for changing my habits. Unfortunately, YNAB runs only on the Adobe Air platform, which is a major disincentive for many. It also seems to lack a certain elegance in its user experience, another criticism that has dogged personal finance software for as long as I can remember.

My family is in our second month of giving No Thirst Software’s MoneyWell a try. It’s an elegant Mac desktop program that, in concert with a very nicely designed iPhone app, has allowed us to capture and understand more of our day-to-day spending than ever before. Unfortunately, I’m not sure it’s giving us everything we need in terms of creating a comprehensive spending plan — its budgeting tools are decent and promising, but they seem like a work in progress. Without more sophisticated budgeting features, I’m not convinced we’ll end up any richer than before we began using it.

The next generation of personal finance apps, I hope, will truly expand on budgeting, combining the breakthroughs in social media that Mint and Wesabe pioneered with a practical understanding of how people actually use their money. There’s a real opportunity for innovation and reshaping the market here. In fact, if they get this right, someone could make a lot of money at it.

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  1. Agreed, particularly with the behaviour change aspect. I guess software makers are afraid of alientating customers by suggesting a strategy.

    I think also there’s a real disconnect between managing your money in theory and actually managing your money.

    If this software could hook into your bank accounts then that would offer potential to manage savings with an app, rather than constanlty have to followup on the software’s suggestions yourself.

  2. For budgeting software to be truly useful, shouldn’t it be your means of interacting with your bank account ?

    Why separate the two ?

    The only reasons I can see are privacy; that we don’t trust our banks, and our banks interest is different from our interest.

    What if you could create the friction you want in your bank account to help you achieve your budget or financial goals ?

    BankSimple (to be launched in the next few months) looks like it is going to try and be the bank people want. One of the tools that they have said they will be offering is a budgeting tool that looks at your past patterns and try to predict future patters offering a balance tool that they call ‘safe to spend’ the full write up is here on their blog.

    I am in no way connected to BankSimple, although I have been following their progress since announcing.

  3. Indeed.

    I have been using MS Money 2001 in Parallels (the only reason why I still keep virtualized Windows around), and toying with writing a web-based one myself.

    The reason why I never tried Mint or Wesabe is I don’t trust anyone else with my online banking password. We need OAuth for read-only access to banking info, but the banks are obviously not interested in opening up, even assuming they had the technical chops to do so (banks are surprisingly often the most parochial at adopting new technology).

    One big problem with all the desktop finance apps is they are not multi-user. In a couple, both partners need to share in money management. Web-based is the obvious way to go, and the options are surprisingly sparse. Quicken Online is a joke. Microsoft pulled out of the market entirely. Neither Yahoo nor Google even tried.

  4. What an interesting take on this opportunity for innovation, thanks Khol.

    I wrote about mint and it’s potential as a social knowledge-base and educational tool. The post was motivated by the credit crisis and the fact many people are struggling financially.

    Link

    Socially, I think the challenge lies in the exchanging or sharing of financial realities. Many people keep these details to themselves in this ‘race called life’.

  5. There seems like there is money to be made but it is strange that all the major players seem to be leaving the market. I have used ms money for 5 years now and they are closing up shop with no replacement. I am using mint now but have felt like it fails in some of the really basic tasks. Also like the above poster I don’t feel good about giving my banking info to a third party. I have always felt like personal banking software was the one solid argument against the cloud.

  6. Two thoughts:
    Wouldn’t be great if a bank started developing a software like the one we are talking about? I would change immediately.
    I closed my Mint account because it couldn’t handle that I own money to my mother and she is not a bank. ;)

  7. I’ve just started using Xero to track my money matter. It hasn’t been long enough for me to give an informed opinion, but it does quite a good job of helping you track and understand where your money is coming from and going to. Worth a squiz at least.

  8. Agree, totally! People are gushing over things like mint just because the prior tools in this space were so dire.

    I still have things that current tools don’t let me do easily. Mainly it’s around getting a view of the change in cash flow and spending over time, in a smarter manner than some static graphs.

    e.g. Easy comparison of spending with prior months (“let me look at my spending on dining out over the past 3 months, is there an upward trend, and if so, what is the prediction for this month?”).

    Also, budget advice, like suggestions of things to cut.

    Lets say I want to drop 4k on some toys and gadgets this month, it would be great to have it suggest areas to lower from all other regular discretionary spending in order to meet the goal of having 4k available to spend.

  9. A Dutch company called Yunoo does exactly what you described above. It gives enormous amounts of bar-graphs and pie-charts. But, on top of that, it gives you (community) tips on how to save money, gives you related offers from partners (for instance to save on your ISP subscription), allows to create ‘budgets’, and compare your income/expenses/budgets with average users like with the same sex, age, working situations, etc. etc.

    Unfortunately, as far as I can see, it’s only available in Dutch yet…

  10. I’ve had accounts linked to Mint for the better part of 10 months now, but I’ve never really done anything with it. Mint’s first crux is that it bases all of its budget recommendations on the premise of non-cash purchases. Admittedly, I’ve never taken the time to actually set up a budget (maybe its default estimates are based on my age, income, or both. I’m not sure.), but even still, the data are grossly incorrect because I still use cash for many of my purchases.

    I’ve also noticed that it didn’t correctly import the starting value of some of my stock investments, so I don’t have an accurate picture as to my investments’ performance. (plus, the financial firm I use has a fine website of its own)

    Another thing I don’t like about Mint is its goal creation tool is too limited, and it’s custom goal wizard defaulted to reducing debt with no way to create a custom saving goal. Why must I have something to save for? Why can’t I simply set up a goal to save $10,000 cash this year?

    I don’t even know why I still use Mint. I might unsync my data as to not have my bank info synced to a site I don’t seriously use.

  11. Khoi:

    Interesting article. Have you checked out HelloWallet?

    It is a new platform, still in its beta stage by the look of it, but seems to have some unique features.

  12. A couple thoughts I’ll throw out there:

    1. We like to flaunt the product of our wealth, but we’re ridiculously private about the source of it.

    Asking a friend about their finances is on par with asking about their sex life. In the age of Facebook and Twitter making everything public, I wonder if there is some opportunity to make personal finances more transparent. Maybe posting bank balances to FB isn’t the answer, but how about a metric like a “financial health score” that isn’t tied to how much money a person has, but one that takes things like debt, savings, etc into account. “I got 9 out of 10 questions right on this quiz, why don’t you try to beat me?”

    2. We are motivated by rewards and a sense of accomplishment.

    On a recent episode of The Pipeline, Dan Benjamin interviewed Anil Dash about his company’s work on the Gourmet Live iPad app. He talked about how they used ideas borrowed from the “leveling up” concept central to massively multiplayer online games to motivate readers and reward them with unlockable content in their app. From my own experience, the tedium of managing personal finances combined with the continual need for belt-tightening make it easy to fall off the horse. Perhaps some sort of achievements or unlockable rewards in the process of managing personal finances could help people keep up the discipline of not over-spending.

  13. I totally agree with this statement, “What we really need are tools that give you much more insight into what you’ve spent, as well as truly helpful guidance into what you should be spending.”

    However, I think this is like looking for the fountain of youth, “To fulfill its real mission, personal finance software should result in users having more money.”

    Why do I think that? Because at the end of the day personal finance software is just a tool that provides financial insight; it cannot create wealth in and of itself. But, building on the first point above, it can indirectly create wealth if the information is so clear and so well presented that it motivates a user to make changes that will make a positive difference. But at the end of the day that’s where wealth (or a lack of it comes from) — day-to-day choices.