4 practical ways to use AI to manage personal finances

Photo by Sophia Müller on Unsplash

So, if AI is everywhere, can it help you get your finances in order? Absolutely!

AI can automate many everyday money tasks, helping you save time, stay organized, and work toward your financial goals a little faster. Sounds pretty useful, right?

Traditional financial automation follows rules you set, such as scheduling bill payments or recurring transfers. AI-powered financial automation goes further by analyzing your financial data, identifying patterns, and generating personalized recommendations or completing tasks based on your goals.

This is an emerging field, with new AI capabilities and guidance continuing to evolve. Current examples of AI tools like ChatGPT and PocketGuard offer an early look at how AI may support personal finance in the future.

Input Options

AI can analyze information from many different file types to help with budgeting, debt management, savings planning, and financial organization.

Tip: Before uploading any file to AI tools, always remove or mask sensitive information such as account numbers, Social Security numbers, and passwords.

You can provide financial information as:

• Photos of receipts, bills, or financial documents. 📸

• PDFs such as bank statements, loan statements, or credit card statements. 📄

• Spreadsheets (CSV or Excel) containing transactions, budgets, or expenses. 📊

• Word documents with financial goals, debts, or monthly budgets. 📝

• Screenshots of banking or budgeting apps. 📱

• Copied and pasted text from statements, emails, or transaction histories. 📋

Photo by Towfiqu barbhuiya on Unsplash

• Organizing transactions. 🗒️

• Identifying spending trends. 💸

• Predicting end-of-month balances. 📅

• Recommending realistic budgets. 🧮

• Alerting users to unusual spending. 🔔

Example:

After connecting his bank account to an AI budgeting tool, Alex receives a weekly summary showing that he spent $185 on takeout, which is 40% more than usual.

The AI automatically groups his transactions, predicts he'll go over his monthly budget by $220, recommends reducing restaurant spending to stay on track, and alerts him to an unexpected subscription charge he forgot to cancel.

Whether you're saving for a vacation, a home, or an emergency fund, AI can help you build a plan and stay on track by:

• Building personalized savings plans.

• Calculating timelines for financial goals.

• Recommending how much to save each month.

• Updating plans when income or expenses change.

Example

Here's a prompt you can use with AI:

I want to save $6,000 for a house down payment in 18 months. Is this possible? If so, how can I do this? Use my attached monthly budget sheet to suggest a plan.

The AI's response could be:

Based on your goal and the budget you provided, saving $6,000 in 18 months is achievable. You will need to save about $334 per month. After reviewing your monthly income and expenses, here is a suggested plan:

• Set up an automatic transfer of $334 each month into a dedicated house savings account.

• Reduce discretionary spending, such as dining out and entertainment, to free up additional savings.

• Apply any extra income, tax refunds, or bonuses toward your down payment goal.

• Review your budget monthly and adjust your spending if you fall behind your savings target.

Paying off debt doesn't have to be confusing. AI can help you understand your options and build a repayment plan by:

• Focusing on loans.

• Estimating interest savings.

• Simulating different repayment scenarios.

• Comparing different debt repayment methods, like the "avalanche" and "snowball debt repayment methods discussed in the video below.

Example

Jordan has three loans and an extra $250 each month to put toward debt.

He currently owes:

• A credit card with a balance of $4,500 at 24% APR. 💳

• A car loan with a balance of $12,000 at 6% APR. 🚗

• A student loan with a balance of $18,000 at 4.5% APR. 🧑🏻‍🎓

APR (Annual Percentage Rate): The annual interest rate charged on borrowed money, expressed as a percentage.

Here's a prompt Jordan can use with AI:

I have these three debts and can pay an extra $250 each month. Compare the debt avalanche and debt snowball methods. Estimate which strategy saves more interest, explain the trade-offs, and recommend which one best fits my situation.

The AI's response could be:

Debt Avalanche: Pay the credit card first because it has the highest interest rate. This method minimizes total interest and usually pays off debt faster.

Debt Snowball: Pay the smallest balance first to create quick wins and build motivation, even if you pay more interest overall.

Recommendation: Since your credit card has a much higher interest rate than your other loans, the avalanche method is likely to save the most money. If staying motivated has been difficult in the past, the snowball method may help you stick to your plan.

Rather than making decisions, AI helps users evaluate options by:

• Comparing products.

• Explaining trade-offs.

• Summarizing complex financial information.

• Answering follow-up questions.

Example:

Here's a prompt you can use with AI:

Compare these two credit cards based on my spending habits. Which one is best for me?

Protect Your Financial Privacy

AI can help organize and analyze your finances, but you should protect your personal information before sharing any documents. Remove or hide sensitive information whenever possible and only use AI tools from organizations you trust.

Before uploading, consider:

• Removing or covering account and routing numbers. 🔒

• Removing Social Security numbers and government ID numbers. 🪪

• Never sharing passwords, PINs, or security question answers. 🔑

• Hiding full credit or debit card numbers and CVV codes. 💳

• Sharing only the information needed for the task. 📤

• Reviewing the AI provider's privacy and data retention policies before uploading sensitive documents. ✅

Some of the tools available to automate your finances with AI range from general AI assistants to dedicated personal finance apps. Some help analyze your financial information and provide personalized recommendations, while others automatically track spending, monitor subscriptions, and help you stay on budget.

• ChatGPT: Analyze spending, create budgets, build savings plans, compare debt repayment strategies, and explain financial concepts.

• Cleo: Track spending, provide AI-powered budgeting insights, and recommend savings goals.

• Rocket Money: Monitor subscriptions, categorize expenses, create budgets, and send bill reminders.

• Monarch Money: Track spending, monitor net worth, forecast cash flow, and manage financial goals.

Taylor wants to save $300 each month but isn't sure where the money is going.

Which prompt is most likely to help AI provide useful budgeting advice?

A. "Help me save money."

B. "Here's my spending for last month. Categorize my expenses, identify where I overspent, and suggest a budget that will help me save $300 each month."

C. "Make me rich."

D. "What's the best budget?"