Taking PFM to the Extreme

If you’ve ever used Quicken then you’re already familiar with PFM (or Personal Finance Manager) and its big shortcoming: it’s a pain in the neck to stay current. But that may be changing fast. With the rise of Web-based applications and on-demand software, the days of downloading transactions from your online bank, reconciling your check registry, or trying to make sense of statements at multiple accounts could be over. Major banks and startups are working hard to take over where Intuit’s Quicken has failed: ease of use and online access. Sites like Wesabe, Buxfer, Mint.com, Digital Insight, Yodlee, and Jwaal are building online tools to help you (and in some cases your bank) better track, manage, and plan your personal finance.

Anyone trying to build or use a PFM solution is aware of its biggest problem: data. Synchronizing, managing, and personalizing one’s transaction data is a superbly complex thing to do. This is made doubly more difficult if your data sources are financial institutions that have traditionally kept your data (for good reasons) under lock and key. Here are some things to look for when evaluating and optimizing your PFM services:

  1. One-click updates with your bank. With PFM, it’s only as good as its data. Forget downloading transactions from your bank; that only gets you so far. Look for a solution that lets you automatically update your transactions directly from the site. It should be as easy as providing your login username and password. Also, the solution should not have you guess when the last time you downloaded, or where to save the downloaded file. It should synch up like email updates in your inbox, instantly and on-demand.
  2. Meaningful transactions. By meaningful, I mean a solution that lets you personalize transactions to match your actual cash flow activity. It’s no use to have a static transaction description such as ATM WITHDRAWAL. To make sense of it, a PFM solution must let you rename/tag/label while making it super information rich and relevant.
  3. It learns. Over time, any worthwhile PFM tool will appear to understand your cash flow better than you do. Through consistent tweaks you provide, it can begin to automatically rename, categorize and flag transactions, giving each transaction more relevance with minimal effort.
  4. Reporting. Through a combination of real-time data and meaningful transaction information, a robust reporting tool can inform and assist with all sorts of financial management tasks, from budgeting to reconciling. This will save you time and money, especially come tax time.
  5. Security. By now, this is a given, but still worth mentioning. Ensuring that your data is protected with the latest security techniques, including two-factor authentication and beyond, is your best safeguard against phishing and fraudsters online, who are salivating at the chance to get their hands on your info.
  6. Payment enabled. Sending and receiving money is the PFM killer app, providing a way to instantly, reliably and securely make payments as you’re managing your finances. Today, payment methods and instruments run the gamut from cash and check to bill pay and person-to-person payments. A payment-enabled PFM would provide a contextual payment solution with various options to choose from to make a payment. Whether the payment is by paper check, P2P, ACH, money transfer, or via Bill Pay, you’ll be able to select precisely how and when that payment will be delivered.
  7. Search. Similar to reporting, an intelligent, natural language search is critical to find, track and manage your cash flow. Say for example you were charged a late fee for a payment you know you made on time. A simple search for the payee name and data range should immediately display that information, including any associated meta information.
  8. Alerts and notification. So much of financial activity happens without us ever lifting a finger. With so much automation, account balances and activity can easily fluctuate out of control. While convenient, too much automation can prove dangerous due to the potential for fraud activity going unnoticed, account balance dipping too low, and simple human or bank errors. A PFM solution would provide custom alerts, whether based on predefined criteria (such as sending an SMS in real-time whenever a CC charge is made) to search-based alerts sent by email or RSS (as provided by Jwaal).
  9. Financial advice. Tips and financial planning advice can come from a variety of places, and not only from so-called experts. Given the amount of data, financial advice can come in the form of comparing your activity to the rest of the financial community and seeing how well you’re fairing. A series of contextual ‘did you know’ and community/expert advice can bring a different perspective and analysis to what otherwise would be a passive affair of tracking your money.
  10. Product reviews. Imagine for a moment you’re looking to move your checking account to another financial institution, and you wanted some more background on products based on your criteria. Imagine that the reviews were persistent and easily accessible, so you’ll never miss out on an opportunity to maximize what you can do with your money. Reviews help shed light on the vast amount of choices available and give perspective to financial activity that otherwise would be lost by reviewing cash flow alone.
  11. Data backup. Enough said.

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