How to use AI Budget Calculators & Tools to Plan your Finances

An AI Budget calculator is a digital tool that uses automation, algorithms or machine learning to help optimize various aspects of your finances, such as budgeting, investing and financial planning. AI budget tools can help people gain insights about their finances through personalized recommendations. In recent times, the power of Large Language Models(LLMs) has made it popular to use chat-based interfaces to get deeper insights into one’s own finances. 

First, let us start by understanding all the ways in which AI can be used to manage one’s finances.

Applications of AI in Budgeting and Personal Finance

Budgeting

AI budget tools take into account a user’s spending habits and financial goals to provide a personalized budget and constantly readjust based on learning more about a user’s patterns.

Goals Tracking

AI tools can help users set goals, and over time, track progress towards their goals. Moreover, it can offer insights and recommendations for users to achieve their goals.

Expense categorization

Categorizing expenses is an important prerequisite to accurate budgeting. But this can typically be a very manual process in which users have to painstakingly go over their expenses and categorize them. What if AI could take this burden away from you and automatically categorize expenses in all the right categories? This is one of the most practical applications of AI budget calculators today.

Alerting & Notifications

AI budget tools can track changes in your finances and alert you to actions you need to take or things to pay attention to. Perhaps you want to know how you are performing compared to your goal, or if you have exceeded your budget. An AI-based alerting system can proactively let you know.

Personalized recommendations

One of the biggest innovations that an AI budget tool can provide, compared to a more traditional personal finance tool, is providing personalized recommendations. It can answer questions such as - how much house can you afford, based on your financial situation? Can you afford to increase your travel budget? How much should you save for your kids’ college? Can you retire early? These are just some questions that AI can help you answer and give your recommendations to achieve your goal.

Scenario Planning

AI can help model different scenarios and show you how your finances stack up. For example, it can model conservative or aggressive investment returns or inflation scenarios– to tell you how your money will perform in different scenarios.  

Investing

Many people are very familiar with robo-advising. But AI is used in a lot of other investing applications – including asset allocation and portfolio management. These days, AI is used also for picking stocks through both company fundamentals analysis (cash flow, income statement analysis) and technical analysis (which analyzes stock price movements and trading volumes). AI can even do sentiment analysis of company mentions in news or social media.

A Step-by-Step Guide to planning your finances with AI

Now that you understand all the possibilities with AI budgeting tools, here is your step by step guide to making AI work for your finances.

Set up your financial information

Start by putting in your financial information, either manually or through automation. You can start by entering high level data and then add more information as you go along to refine your results.

Set your goals

Pick the goals you want to plan for – retirement, college planning or home buying. Or perhaps you want to remodel your home or take time off for travel. Think about what your most important goals are, and which ones you’d want to trade off.

Review results and execute your plan

Test different scenarios and understand how your plans may change based on different scenarios playing out. For example, how will cutting your expenses by 10% impact your age of retirement?

Now that all the numbers have been crunched, it is finally time to implement the decisions that have been made. Just remember that a financial plan is not static, but a living document that needs to be updated any time your financial picture or goals change.

Saving Beyond AI Tools 

Are you ready to save beyond your student’s future college fund? Check out our top recommended books on financial literacy and financial tips for young adults.