Automatic Savings Apps Are Bad Math But Good Personal Finance

I have a friend, we'll call her Susie, and every year she gets a massive tax refund check. (to be fair, I have many friends like this and so do you)

I've never told her that she can adjust her withholding on a Form W-4 to avoid giving the Federal government an interest-free loan. I don't tell her because:

  1. I don't like giving unsolicited advice unless it's serious and,
  2. It's probably good for her to save this way.

It's good because it forces her to save invisibly. She doesn't notice her paycheck is smaller than it could be because her paycheck has always been the same.

She takes the refund check and usually does something financially prudent, like pay down debt or put it towards a savings goal.

It's bad math but good personal finance.

Some say that you can't cater and offer feel-good advice at the cost of offering good advice. And they're right… to a certain extent.

The debt snowball is a popular idea because it gets better results for some people than the debt avalanche. It is not mathematically optimal if you follow everything exactly, but it could be optimal for your personality. Let us remember that credit card debt, in the first place, is not mathematically optimal! No one says “hey, I want to pay 18% interest on a slice of pizza!”

That's what I mean when I say the automatic savings apps (not to be confused with personal finance apps, which help you manage your money better) are bad math but good personal finance.

So, if you want to jump on the automatic savings app bandwagon, here are a few options:

  • Digit – A solid app but with a $5 monthly fee, it makes it pricy. (read our Digit review)
  • Acorns – They will save your spare change and let you invest it.
  • Simple – A full bank account with an app and a Visa card, this is more budgeting than simple automatic savings
  • Daily Budget – Free budgeting app

Not all choices are mathematically optimal. The software engineer in me wants to believe that everyone can pick the right thing to do all the time… but it's not always possible. Sometimes it's valuable to put systems in place so computers make sure you do the right thing (why do you think Fitbits are so popular???) because we are fallible.

In a fallible world, having automation and technology pick up the slack isn't a bad thing. Retirement savings would be far worse and household net worth would be far lower if we didn't have automatic contributions. So is it that bad for automatic savings?

What do you think about the rise of these types of saving apps?

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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  1. Pia says

    My worry is security. So many of these apps ask for you to connect to your bank account in order to be able to read your transactions and your details. You end up giving them so much info that while their servers are intact and protected, it may well be alright, but when a hacker gets in that’s a totally different story. So there’s lots of apps now, but still a big red flag stopping me from diving straight in.

  2. Lazy Man and Money says

    I’m one of those people who get a refund check. For me it’s not easy to figure out what the right withholding is. I play it safe by giving them more. Then I use the money for something financially prudent as you say.

    I’m a big fan of the automatic saving apps, but only if they are free. Once I have to start paying to save it loses its luster.

    • Beth Anne says

      Same. I also have a few side hustles I make money on the side so keeping my tax withholding high I usually break even and don’t have to pay at the end of the year.

  3. Beth Anne says

    I’ve been using the acorns app for a few years and have almost $200 in it. I like it because I don’t really feel it much. Yeah I could do it on my own but I probably wouldn’t and would use the money on dumb things.

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