Budgeting with digital wallets

This article includes tips, suggestions, and general information. We recommend that you always do your own research and consider getting independent tax, financial, and legal advice before making any important decision.

In this article, we’ll cover everything you need to know about digital wallet budgets, how to use them, and their benefits.

Understanding digital wallet budgeting

Digital wallet budgeting is the process of using a third-party service to track and manage expenses. Whether accessed through an app or online, a digital wallet allows users to add money and spend from buckets of funds contained in the wallet. Some may also allow users to add a payment method, so the money comes directly from a connected bank account.

Digital wallet features include budgeting tools as well as other ways to manage money. Many will automatically categorise transactions, allowing the user to set specific limits for things such as dining out, subscriptions, and travel.

Using these tools can be more convenient than traditional budgeting methods as they allow immediate cash flow tracking. Listing expenses on paper or even on a spreadsheet can be a manual and time-consuming task. Using a digital wallet automates much of this work by providing categories and offering insights.

Setting budgeting goals with digital wallets

As with any budgeting exercise, it’s important to set clear goals. Try establishing spending limits for certain categories or committing to save a certain amount of money per month. Consider both short- and long-term goals in the planning.

A good place to start is with long-term financial objectives. Is the goal to save for a big event or purchase? Or is it more important to pay off outstanding debts over the next two years?

Maybe it’s time to start investing for retirement. Taking time to define that big goal will help with setting shorter-term goals.

A short-term goal might be to cut spending to save more. The more specific the goal the better, like cutting back in a certain category or sticking to a budget across several categories.

The key is to have an actionable plan for budgeting with digital wallets. It’s important to understand long- and short-term priorities and use the features of the digital wallet to stay on top of progress.

Tracking expenses and income

Monitoring spending allows a person to be more mindful of how their money is used. Because a digital wallet can give granular details on expenses and income, as well as categories for each, it’s easy to see opportunities to save or to reduce spending.

Real-time transaction alerts are useful reminders of what’s coming in and going out each month, and a good way to stay on top of recurring expenses, such as subscriptions. When tracking expenses, it’s important to review spending patterns to look for ways to save or adjust what’s being spent.

It can be tempting to leave a digital wallet without looking at it regularly, but the budgeting and analytics tools won’t be used to their fullest. Take the time to track income and outgoings every week, with a more comprehensive review at the end of each month. This will help prevent any surprise payments and will keep budgeting top of mind.

Creating and managing budgets

There are numerous methods for creating budgets using a digital wallet. How someone approaches this will depend on their goals. It’s good to start with an overall spending budget for the month, then break that budget down further by category. This can make a person more mindful of how much they spend on small luxuries, bills, and going out.

Digital wallet tools can make managing budgets, more straightforward, allowing people to allocate funds to different categories and draw from that pot of money for expenses, such as groceries, transport, and more. This helps prevent overspending.

If the goal is to improve cash flow, buy-now-pay-later (BNPL) plans could be considered when making larger purchases. This option could help an individual stick to both monthly and category budgets.

For anyone struggling to set a budget and stay within those limits, a rule of thumb is to use the 50/30/20 method. This approach splits after-tax income into three categories of spending: 50% goes to needs, 30% goes to wants, and 20% goes to savings.

Utilising saving and goal-setting features

Digital wallets can help with setting goals for both spending and saving. For anyone new to saving, it’s good to consider future needs. This might mean establishing some emergency savings before thinking about the more exciting things, such as holiday spending and big purchases.

Many digital wallets offer automated savings, from rounding up the pennies on each purchase to putting cash into an emergency fund or holiday pot. Some tools also might look at spending and determine it’s possible to save a larger chunk of money at the end of the month, automatically transferring that amount to a savings account.

Maximising security and privacy

Digital wallet security should always be a consideration. As with any online tools that manage payments or sensitive information, it’s important to take the necessary precautions to keep an account secure. These include:

• Using a strong password for all connected accounts
• Enabling two-factor authentication
• Regularly monitoring all accounts for suspicious or unauthorised transactions
• Not sharing passwords or sensitive information with anyone
• Watching out for red flags that could signal scams or fraud

The reputation of the digital wallet provider should also be considered. Look for trusted names that are transparent about their security features.