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Hello Reader,

(Today, we are sharing a newsletter previously published on the Clever Girl Finance Substack written by Kiersten Brown & Bola Sokunbi)

Managing money can be overwhelming, even with the right tools. How do you know which budget is right for you? Should you cut back on coffee or cancel your Hulu subscription? Where do you even begin to tackle debt?

Even though there are many financial resources out there, sometimes you need a little more support. Enter Artificial Intelligence aka AI (e.g chatGPT, Google Gemini, AI built into financial tools and apps, etc)

According to MarketsandMarkets​, AI holds an 18% market share within the financial sector. It can process transactions faster, protect against fraud, and assist in risk management.

If you're wondering how AI can help you, here's a closer look at how these tools can make managing money a little easier. We've included insights and real-life examples to help you get the full picture:

1. To create a better budget

You’ve probably heard of zero-based budgeting or the 50-30-20 budget. But how do you know which budget is best for you? AI can help you decide. By entering your income, expenses, and financial goals, you can ask AI to create different budgets tailored to your financial situation.

Finding the right budget for your lifestyle with AI’s help

In the past, I struggled with budgeting because of my fluctuating income. Recently, I’ve used AI to help me choose a budgeting method that fits my unique situation.

It suggested the Bucket Method, which focuses on putting money into different categories based on expenses. It also recommended zero-based budgeting, which ensures every dollar has a specific purpose.

By inputting my income and expenses, I could see a breakdown of these budgeting methods and decide which one to use.

The only drawback I encountered was when it suggested using my previous month’s income for the current month. However, some of my income last month was a one-time payment, which mean this advice isn’t applicable for me. So I chose to use my projected income based on my current clients.

Analyzing your current financial situation while reviewing AI’s suggestions

Let’s say you already have a budgeting method that works for you but still find yourself falling short of your savings goals. You can input your budget details into AI and ask it to identify spending patterns, suggest areas to cut expenses, and analyze your cash flow.

If you have a new expense coming up, AI can also help you adjust your budget accordingly.

Remember to always double-check any calculations generated by AI. Additionally, always adjust your budget based on your personal needs.

For example, AI might suggest cutting back on eating out. But maybe you travel a lot for work so cooking at home isn’t always an option.

While AI can help you spot pitfalls you might have missed, you make the decisions about your money.

2. To fine tune your debt repayment strategy

Debt is a heavy burden to carry, but AI can help you lighten the load.

You may already be familiar with the two most common debt repayment strategies. The avalanche method, which tackles the debts with the highest interest rates first, and the snowball method, which focuses on paying off the smallest debts first.

Yet how do you know which one is right for you? And how can you adjust your budget to help you pay down debt more effectively?

AI tools can analyze your debt and overall financial situation to help you come up with a payment plan that fits your needs.

Additionally, AI tools can help you search for better interest rates and even assist in negotiating bills so you can pay off your debt faster.

Tips on using AI to create a debt repayment plan

If you’re ready to tackle your debt but are struggling to come up with a plan, here are a few ways you can use AI:

• Enter your debt information and ask for a breakdown comparing the avalanche vs. snowball methods.
• Input your budget and ask AI to calculate how much extra money you can put toward your debt.
• Ask AI to create a personalized monthly debt repayment plan.
• Use AI to help set up automatic payments toward multiple debts.
• Have AI calculate how long it will take to pay off specific debts based on different payment amounts.

While AI can support you in many ways, it’s still important to keep these best practices in mind:

• Limit how often you use debt or take out new loans.
• Consider consolidating your debt by transferring balances to a low- or zero-interest credit card.
• Work with a certified debt counselor if you’re struggling to make payments consistently.

3. To get help with making financial decisions

Say you have a financial goal in mind but don’t know how to get started. Or maybe you’ve just read a financial article but still have some questions. You can use AI to help you fill in the gaps.

I enjoy using AI to simplify complex topics around investing, banking systems, and choosing the right credit card.

Saving money with AI

Let’s say you have a goal to save $5,000. With AI, you can input your income and expenses and ask for suggestions on how to reach that goal. When I entered by savings goals AI gave me the following suggestions:

• A step-by-step savings plan
• Ideas on how to reduce expenses
• Ways to increase income
• A timeline to achieve this goal based on how much I can save monthly

It even created a bar graph for visual reference.

What-if scenarios

A fun way to use AI is through “what-if” scenarios. For example, you can ask AI questions like:

• What if I get a raise—how would that affect my budget?
• What if I paid $200 more toward my loan each month?
• What if I moved to a cheaper city?
• What if I downsized my apartment or got a roommate?

These scenarios can help you explore different outcomes before making a big financial decision.

Comparison shopping

When it comes to shopping for new insurance, a different phone plan, or even the right credit card, AI tools can help you find the best options.

These tools don’t just compare prices, they evaluate features and value, and can recommend plans that fit your budget.

4. To protect yourself from fraud and other security risks

More than just an assistant, AI can act as your security guard when it comes to your finances.

While regularly checking your accounts is a good financial habit, it's impossible to monitor every single transaction all the time. With AI security, you have a system keeping an eye on your bank account when you can't.

AI can detect unusual charges, suspicious activity, and other anomalies.

Password protection

I don’t know about you, but I hate thinking of passwords. I struggle to come up with odd combinations of letters and numbers that I won’t forget.

Fortunately, AI-powered tools can help create and manage complex passwords. They can also suggest stronger alternatives.

Keep in mind that hackers can also use AI to crack passwords by running multiple possibilities. Always make sure to use a trusted password management system.

5. To better understand your taxes

I never understood why I learned trigonometry in school but not how to do taxes. Since starting employment in my twenties, I’ve struggled to understand taxes. Especially when shifting from working a 9-to-5 to becoming an entrepreneur, taxes went from an annoyance to a full-on nightmare.

Fortunately, over the past few years, I’ve used some online tax tools that leverage AI to help me file. These tools often ask common questions that don’t require a degree in economics to understand. There are also helpful prompts, and if I’m unsure about a financial term, AI can simplify the definition.

Some other ways AI can help with taxes include:

• Tracking business expenses
• Checking for errors
• Giving instructions on how and when to file
• When using AI tax tools, I always look for options that offer access to a human tax expert. I’ve found that while AI can solve some problems, others are best left to an experienced human professional.

6. Wealth management assistance with AI

With your taxes figured out, you now have time to focus on other financial areas such as estate planning and wealth management. AI can help you to create an estate plan for your financial advisor to review. It can also look for wealth growing opportunities and help you focus on long term investments such a retirement.

Risks and limitations of AI in finance

Hopefully, you’re starting to feel like AI can be your sidekick in managing your finances. Before you dive in, here are some important things to consider:

Don’t rely solely on AI

It’s easy to go down the rabbit hole with AI—especially with generative AI or chatbots. They’ll keep asking if you need help with this or that, and before you know it, your brain has checked out and AI is doing all the work.

The thing is, AI is only a tool. Like any tool, it’s great for many things, but not for everything. AI only knows a portion of your life. If you rely on it too much for your financial decisions, you may end up making choices that leave you stuck or in financial distress.

Security risks with AI

Many AI tools require you to input sensitive financial information. One of the biggest risks is potential data breaches, data processing issues, and unauthorized data sharing.

That’s why it’s important to use AI systems that you trust. You can also ask questions and research how different AI tools work so you understand how your data is being used.

Bias in AI

As we know, finance isn't black and white. Your financial situation includes your income, economic status, ethnicity, location, and other personal factors.

AI may not be culturally aware or sensitive to your unique circumstances. Many tools are subject to the same stereotypes and biases that humans face. If the creators of an AI system aren't aware of their own biases, it can lead to tools that unintentionally perpetuate discrimination.

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AI is a powerful resource that can help you move forward financially. Remember that your financial education and knowledge are key to navigating different AI tools effectively.

Likewise, AI cannot replace financial educators, coaches, and advisors who bring years of personal and professional experience. We encourage you to use AI to help organize your finances, explore new ideas.

When it comes to more in depth and personalized support, you can always speak with one of our financial coaches to help you make decisions that are right for you.

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📖 On the blog

• ​10 Of the best budget templates and tools​
• ​6 Best investing websites for beginners: Research and analysis​​
• ​Creating a time management plan for your life and finances​​
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