Personal Advice Vs Online budgeting/ Investment Apps

07 January 2020

During the break I met several young successful professionals and young business owners. The moment I told them I was a financial adviser and what I did, it automatically prompted questions over the dinner table. The main themes were of course the state of our industry, the low level of trust by the community and the below.

I’m paying for a budgeting app and my savings are accumulating.

This is always a good step for a beginner who has just landed their high paying job, have surplus income or their business has finally hit the green zone. The accumulated cash is earning close to 1.95% interest (online bank). With inflation currently sitting at approx. 1.7% your nominal return is only 0.25%. If you into your fitness you will know fruits can go up more than 3% depending on the season. Leaving money in cash could result in you not affording the post work out smoothie soon.

Personal financial advice provides a more personalised approach to budgeting and helps you keep up with inflation to make sure your money does not lose purchasing power. An online general budgeting tool does not provide this tailoring for your unique situation

I invest online through and app

Now this was very popular around the dinner table. Some people had $100,000 or more invested through the app.

Pros: potentially cost effective and easy to set up

Cons:

  • A few questions are asked, and the model portfolio is usually recommended. In most cases bespoke portfolios are not an option.
  • Strategy is passive, this means regardless of changes in your personal situation or market conditions this does not get reviewed.
  • Australia has enjoyed a long bull run (upward market) for years. In times of bear market conditions (market downturn) these portfolios do not have the ability to make changes. Hence, they tend to follow the index and go south.
  • Its online, so in these times you have no one to consult or go to for guidance.

Mobile apps only address 10% of your financial life. Personal financial advice addresses 90%. How?

Financial stability or wealth creation is not only about budgeting (fundamental foundation) or investment but more of:

  • How do you buy your first home? Should you buy an investment property?
  • Your  income is increasing. How can you minimize tax and beat inflation.
  • Should you buy a car?
  • How do you prepare yourself financially to quit your job and start your dream business?
  • How do you plan to have a baby in 5 or 10 years?
  • If something happens to you and you can’t work what happens to the family?
  • You are single and if you pass away do you pass on your accumulated debt to your ageing parents?
  • How do you prepare for your retirement now to make sure you do not have a shortfall when you retire in 20- or 30-years’ time?

This material is for information/educational purposes only. It does not provide individually tailored financial advice.