5 Pitfalls of Using Budgeting Apps

Ah, budgeting. If that word leaves a bad taste in your mouth, you're certainly not alone. A lot of people view making and living on a budget as the ultimate buzzkill because they assume that a budget's only function is to tell them not to spend their hard-earned money. This is wrong, however -- a budget can also tell you that it's okay to spend money, because it shows you how much of your money is already going to pay your bills and meet your savings goals.

That said, sitting down with a pen and a notebook, or creating a bland spreadsheet budget, likely isn't on your list of favorite things to do. (And if it is, I am both impressed and concerned.)

For more fun and engagement with your income and spending, you might turn to a budgeting app instead. This is a great technique, as budget apps can help you gamify your finances and take some of the guesswork out of figuring out how much you actually spend every month. However, you might fall prey to one of these pitfalls of using a budgeting app.

1. Not all apps work for all users

There certainly are a lot of options out there, but it might take a few tries to find the right budgeting app for you. It might help to first decide how comfortable you are getting up close and personal with your finances, because budgeting apps work in one of two ways.

Some automatically import your income and expenses after you link your financial accounts (like your checking account or credit cards) to it. Others require you to manually input information, like how much you got paid and how much you spent on various bills. Take this into consideration when choosing a budgeting app, or try each kind to decide which will work better for you.

2. They might miscategorize your expenses

If you opt for the kind of budgeting app that links to your financial accounts, don't assume the app will always correctly pinpoint what types of expenses you have. As an example, I know someone whose budgeting app thought a payment for an oil change was in reality a child support payment (and he doesn't have those among his bills!). If your app does this, you'll have to manually fix the category for an expense -- which might defeat the purpose of having the app track your spending to begin with.

3. They aren't always free

Many of the best budgeting apps have a monthly or annual cost to use. If you're already struggling with your expenses, adding another one could be a drawback. That said, you can often get a free trial of a paid budgeting app, or opt for the free tier if available, just to try it out. If you find that it doesn't work for your needs, you won't have spent any money.

4. They could open you up to identity theft or scams

It pays to be careful when choosing the right budgeting app for you, because linking your financial data could expose it to hackers or scammers in the event of a data breach with that app. Apps offered by bigger-name financial companies are likely safe to use, but be sure that you're choosing unique passwords and not falling prey to phishing attempts.

If you receive an unsolicited email or text message purporting to be from the app, don't click on any links sent to you. Sign in through the app (and keep the app up to date) to check things out.

5. Apps won't change your behavior

Finally, it's important to remember that a budgeting app can't keep you from practicing bad financial habits. If you overspend with your credit cards, your budgeting app will show you where your money is going -- but it can't address the root causes of the overspending.

An app also can't change your financial circumstances. If you live paycheck to paycheck and can't trim much of your spending, an app won't improve that situation. You'd need to bring in additional income, such as through a side hustle or getting a raise at your current job.

A budgeting app could help make managing your spending more fun, but it's unrealistic to expect it to solve all your money problems. Keep these potential pitfalls in mind if you're shopping for the right app for you.