Personal Finance Management (PFM): What Is It And How Does It Work?

Without a basic understanding of how to manage your money to build wealth, you may be prone to making costly financial mistakes early in your life. Every situation is different, so there is no one-size-fits-all formula to money management. However, there are a few steps that anyone could take to start the path toward financial wellness.

Although these financial tips should not replace advice from a licensed financial advisor, they could help put you on the right path toward financial success.

What Is Personal Finance Management (PFM)?

Personal finance management (PFM) is a term used to describe strategies for managing personal finances. There are several apps designed for different personal finance and budgeting needs.  

PFM apps can help manage several areas of personal finances, including: 

• Budgeting
• Saving
• Investing
• Paying off debt
• Planning for retirement
• Monitoring credit score
• Setting financial goals 

Finding the right app for your needs depends entirely on your short- and long-term financial goals. Rocket Money℠, for example, helps with budgeting, tracking expenses and saving for a rainy day.

How Does PFM Work?

Each software is different, but PFM programs will generally gather a user’s personal information and link their accounts for a comprehensive view of their personal finances. Be sure to read the software’s terms and conditions and data policy to understand how your data will be stored.

PFM programs will use this information to track and monitor spending, provide helpful insights and complete other tasks that someone might otherwise have to do manually. Some programs may even provide tips for improving your credit score.

What Financial Tools Are Available Through PFM Software?

PFM apps usually provide users with tools and functions for monitoring all areas of their personal finances, like bill payments, overall spending habits, credit score fluctuations and investments. The Rocket Money app includes features to help users better manage their money. Features like subscription management, spending insights and autopilot savings can help simplify your financial life.

Is PFM The Same As Budgeting?

PFM is not necessarily budgeting, but budgeting is one of many PFM strategies. PFM is an umbrella term used to describe all money management strategies, and budgeting falls under that umbrella.

Everyone has a different approach to budgeting. Some people build Excel documents and manually enter the necessary information, and some might write everything down with pen and paper. However, PFM apps and tools may be more comprehensive than traditional budgeting strategies. In fact, these apps usually automatically update on a monthly basis, saving you time and energy.

Where Can You Find PFM Software?

You can find hundreds of PFM apps, including Rocket Money, in your device’s app store by searching “personal finance management.” You might also be pleased to know that many banks and credit unions offer mobile banking apps with features that help manage personal finances. You can usually find those by simply searching the institution’s name in your app store.

How To Manage Your Finances With PFM Apps

You can start your PFM journey by following these four steps.

1. Download The App And Create An Account

Once you download the app, you’ll need to take a few moments to set up an account. Usually, you’ll be required to input some standard information like full name, email address, phone number and a strong, unique password. Depending on the app and its features, you may also need to enter your home address, bank information and Social Security number. Be careful when inputting your information and take some time to thoroughly research the app and its terms and conditions before inputting sensitive information.

2. Link All Of Your Financial Accounts

Once your account is set up, you’ll usually need to connect all of your financial accounts. This includes your debit and credit cards, investments, mortgage loan, student loan, auto loan and other types of accounts. Many PFM apps use Plaid® to make it easy, safe and reliable for you to connect your financial data to apps and services.

3. Personalize Your Spending And Saving Categories

Once you’re good to go, you can start personalizing the app to make it work for you.

For instance, investment apps will usually allow you to set your maximum deposit amounts and the frequency. Apps like Acorns, for example, will allow you to turn on “Round Up” investing along with a weekly or monthly set investment. So, if you want the app to take $100 from your bank account every week and allow Acorns to round up your daily purchases to invest the change, you can make that happen.

Some budgeting apps, like Rocket Money, make it possible for you to establish spending and saving categories. These categories can include things like “Groceries,” “Student Loan Payments” or “Vacation Savings,” and you can set thresholds for each. You can also set up automatic savings transfers in the app, making saving a no-brainer.

4. Utilize The PFM Tools And Features

Once your PFM app is set up to your liking, you can sit back and let it work. If you ever need to make changes, you can always go in and adjust your settings to reflect your needs at the time.

Personal Financial Management FAQs

Still have questions about PFM software? A few commonly asked questions include the following.

Are PFM apps safe and easy to use?

Yes, most PFM apps are safe and easy to use. While you should always check the developer’s privacy policy to be certain, most financial software will not store or sell your data.

How much does a PFM app cost?

It varies by app. The Rocket Money app has a free version, but subscriptions range between $3 – $12 a month.

Will a PFM app show my net worth?

Some PFM software will calculate and show your net worth, like Olympia Federal Savings and First National Bank. Rocket Money has a net worth tab, as well.

Why should I get a PFM app?

PFM apps make money management easier and hopefully less stressful. Instead of spending time calculating everything on your own, you can input a few simple things and the app will do the rest.

The Bottom Line

While every situation is different, everyone should be familiar with financial management. If you’re ready to start your journey, there are several PFM programs designed to help you manage your money – putting you on track to build wealth. Whether you’re looking to budget, save, invest or improve your credit score, there’s an app that could help.

The Rocket Money app, for instance, can help you manage your finances, build wealth and financially prepare for the future. If you’re ready to start saving for a better future, take a minute to download and create an account on the Rocket Money app today.