Understanding the Why When Seeking The How for Your Budget

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“Where should I start?” This is often a question that young people ask once they start to pay more attention to their finances. The truth is that there isn’t one initial step to take that will lay the foundation for the future of your financial health. Instead, it is a continuous process of planning and action that will aid you in better understanding your current financial situation as well as aid in planning for the future. No matter what stage you currently find yourself in regards to your own financial planning and understanding, budgeting is always key.

We are lucky because numerous tools exist today to help us budget in a way that is realistic for our day to day expenses and longer term goals. From apps, to services to old fashioned pen and paper, there is no real excuse to not have a budget.

However, the following video from Forbes touches on an important point, which is finding the “why?” behind the budgeting. 

Millenial Banking : What We Know Now

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David K. Donovan millenial bankingeMarketer recently released a statistical forecast for  mobile phone device use in relation to banking within the United States. This prediction projects that almost 59% of mobile phone users aged 18 to 34  will access banking data using their phone. To be more precise, the research suggests that this population will use their mobile browsers, apps or SMS on their phone to connect with their bank, brokerage account, credit card provider or credit union. This prediction is particularly striking when compared to the estimates for the baby boomer population. For that generation, less than 28% of the segment of baby boomers who use mobile phones will utilize mobile banking in 2015.

Real-Time Access: An expectation, not a privilege

According to eMarketer analyst Bryan Yeager, “Having real-time mobile access to personal financial information  is a baseline expectation among millenials today…” Acknowledging and understanding this expectation of this population can assist in explaining why this behavior is so popular among this age group.

The importance of Security

There are certain reasons why the older generation has not yet adopted the habit of practicing mobile banking. A large part of this reluctance is due in part to security concerns – fears which are not unfounded in light of ongoing reports of system hacking even into larger banking entities.

Although this is a major stumbling block for older members of the population who use mobile devices, banking and financial institutions are aware of the growing importance that theses mobile platforms play for clients engaging with their products and services. Although the desktop experience is still providing values to a significant number of online banking users, there is a very distinct trend pushing towards mobile devices.

This means that these financial institutions are investing in developing their apps and sites as these become the likelier primary points of contact for the customers.

In addition to recognizing the current and projected value of these digital platforms for the user, Yeager claims that these institutions are, “… also experimenting with ways to cross-sell other relevant financial products, upsell to premium services and even acquire new customers entirely through the mobile channel.”

Growing Number of People Bank Digitally

By the end of 2015, eMarketer suggests that 74.2% of US adult millenial internet users will bank digitally (via any device) whereas 59.4% of baby boomer internet users will bank digitally using any device.

When looking at the actual and projected numbers between 2014 and 2019, it doesn’t look as though these numbers will be growing exponentially, instead it seems as though they will instead be growing incrementally.

While this research shows a significant between how baby boomers and millenials approach various financial and banking services, this data also reveals an ongoing trend which pushes all demographics towards online platforms. While some may wonder what will happen to the stragglers who refuse to take their banking interactions digital, a quick perusal of these stats suggests that there is no way to stop this movement towards all things digital in your banking experience.

How to Retire: Start Young

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David K. Donovan In recent years, the average actual retirement age of Americans has seen a steady rise. According to the Gallup Group, between 2002 and 2014, the average age of retirement went from 59 to 62. While we can speculate on the reasoning behind this increase in the average retirement age, one may presume that this in part is due to growing financial demands, inadequate planning for comfortable retirement, the realization of a longer life expectancy, or perhaps an enjoyment of one’s vocation. However, if we focus in on the idea that these retirees are not financially capable of retiring until these later dates, then we must turn our attention to the proper way to prepare for retirement at a reasonable age.

For those who are entering adulthood now, you have a world of opportunities in front of you and a whole life ahead of you. Perhaps thinking about retirement seems ridiculous at this point in your life, however, planning and getting into sound financial habits now will put you in a much stronger position for when you are ready to transition out of your vocation. The following suggestions are tips targeted at those just starting out in their careers, but they can apply to anyone interested in upping their retirement planning.

Education : If you are in college and have the opportunity to take a class on personal finance or portfolio management. Do it. However, this is by no means the only way to educate yourself on the topic of personal finance and on financial markets. Do your research to get a foundational understanding of how things work. Take time to learn about tax advantaged savings accounts, starting your IRA or finding other free resources that will aid in your ability to manage your money. Find tools that work for your particular situation. Be very proactive in this part of the process.

Practice, Practice, Practice, Habit : Start the process of budgeting. Whether you create a spreadsheet or use an app like Mint or Level Money, start tracking what and how you spend. By practicing this type of tracking, it will eventually become a habit. And most importantly, you will have gathered enough data to understand your spending and come up with strategies to get it in line with your financial objectives.

Save : This is a practice worth developing as early as possible. By designating retirement money early, time is working in your favor through the power of compounding returns. By investing money for your retirement early, you are increasing your potential for growth at an incredible rate.

Know What You Want to Buy : For those just starting out in the world of portfolio management and personal finance, the process can seem a little bit intimidating. However, it doesn’t have to be. Instead of trying to figure out the next big thing in the world of stocks, start by making a list of companies that are tried and true. These are the companies that you should be looking to invest in first, think of them as building blocks for your portfolio. And once you have that list ready to go, you can start to purchase stocks in those companies when the time is right. These are the stocks that you want to hold onto for a long time, so really examine that list after market corrections.

Take a Risk: Although it’s generally best to be a bit conservative in how you invest, for new young investors, now is the time to take a chance. Because you are still early in your investment career and presumably free of many of the responsibilities that come later in life, you are in the perfect position to make riskier investments. This doesn’t mean you should go wild, not do research or just invest on a whim. However, it does mean that you can consider riskier investments, perhaps consider small caps and foreign equities. Now is the time to do it!

While these five tips are meant to be applied to new young investors, just starting out, it’s important to keep in mind that some of these may not work for your specific situation. This is why it’s necessary to remember that you should do research and take time to figure out what works for you. However, these suggestions do touch on major themes related to preparing for retirement.

How can traditional banks defeat their new tech competitors?

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David K DonovanCultivate a “digital ecosystem”:  According to Deutsche Bank, adapting to the digital age requires more than launching a web-based service tool or re-designing a webpage. Truly engaging in the digital sphere means ingesting this mindset into the core of the company’s structure. Following the example of internet companies, banks should strive to force their clients into their value chain. ‘These sorts of digital ecosystems “integrate a large volume of digital content, mobile devices, software and internet services under a single umbrella so that their customers ideally no longer have to leave their platform”, Deutsche Bank explains, adding that banks should do the same’. By creating a fully comprehensive set of services, platforms and information, banks will ensure that their clients are spending as much time on their properties as possible.

Find the Trust: Trust has played a significant role in shaping the public perceptions of banks over the past seven years or so. After the economic downturn of 2008 and the subsequent media attention on bail-outs and Wall Street salaries, banks struggled to regain the trust of their customer base. After this initial flurry of negative attention, the trust between banks and their clients was once again tested after a series of very public banking security system flaws and breaches. While regaining a lost sense of trust is difficult, there are very tangible steps that banks can take to begin this rebuilding process. By investing significant capital into internal data and security systems and processes, the banks will in turn prove their commitment to the security of the client.

Understand Your Data : Today’s banks act as vast repositories for huge amounts of customer data. However, not all banks are using this information to their advantage. With the advent of big data, banks have the information but it’s up to them to figure out the best way to use it. Taking time to strategize about what information would be most beneficial to analyze, as well as truly considering the best tools to do this are critical steps that determine whether or not a bank will survive in this digital era.

Be transparent: Along with building trust through enhanced security efforts, banks can increase efforts to rebuild by implementing transparency about how banks are using their clients’ information. Lengthy terms and conditions technically outline exactly how a bank is using, accessing and aggregating client information, yet this is not packaged in a particularly digestible form for the customer. Sharing this information in a way that is easily understood, as well as explaining the algorithms that the bank utilizes are two ways in which data transparency could serve to strengthen the relationship between the bank and the customer.