Budgeting – the financial diet
| The analogy of budgeting as a financial diet is funny because it is true—a structured regimen aimed at controlling spending and promoting financial health. Much like diets, typical budgeting often proves ineffective, requiring tremendous discipline which is likely unsustainable. Explore with us the limitations of budgeting, identify the inherent structural issues in personal finance today, and why Currence will enable you to overcome these issues. Currence is a transformative solution that introduces a new cash flow structure, bringing together modern mobile technology and addressing the behavioral science of choice making architecture to redefine the personal financial management landscape. |
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Unsustainable discipline required
Budgeting demands significant discipline very similar to a diet. This rigid approach is often unsustainable, leaving many struggling to maintain consistency and never really getting ahead. According to the Federal Reserve Economic Data¹, the average personal post-tax savings rate is 3.4% as of September 2023. In a recent article, The Tax Foundation reported that the personal savings rate has been 2.2 percentage points below the 2015 to 2019 average. Compared to other developed countries, the U.S. is an outlier; it is the only country to have its saving rate fall below the pre-pandemic average.²
Hal Herschfeld, a Professor of Marketing, Behavioral Decision Making, and Psychology at UCLA’s Anderson School of Management focuses his research on the intersection of psychology and economics, examining the ways we can improve our long-term decisions. In a recent talk about peoples’ spending and savings choices, Hal identified two biases: present bias and primacy bias that come into play. Present bias is the tendency for people to give stronger weight to payoffs that are closer to the present. Primacy bias is the tendency to prioritize the thing that comes first. The world reinforces these biases when we drop all of our income into a checking account where we spend first and this structure enables us to unconsciously spend for the immediate payoff.
Too much MINT in your diet?
| Over the years technology has tried to address the savings problem, from rounding up savings programs to budgeting apps like Mint (soon to be Credit Karma), Monarch, and YNAB. These technologies are undoubtedly easy to use and have great features but are fundamentally flawed. They do not address the structural issues related to personal cash flow. Most do a decent job of aggregating all your data and they allow you to monitor your cash flow, and of course create a flexible budget – can we say “I diet during the week and ‘cheat’ on the weekends”? They do not focus on the structural issue most of us deal with, which is our income defaults to spending, and we have to consciously choose to save. As long as we continue to do this, we will struggle with impulsive purchases or fall prey to unconscious spending habits, limiting the efficacy of these otherwise robust tools. |  |
Defy gravity and get off the treadmill
Explained slightly differently, most of us take our paychecks and deposit it in our checking account, manually or automated by direct deposit, and we run our lives out of our checking account. When there is money left over at the end of the month, we may decide to move it to savings.
Inevitably, life gets in the way, and we must raid the savings account, so we move it back to checking and this happens month after month, year after year. That’s the financial treadmill. Or in the world of nutrition, a yo-yo diet.
This is why you feel like you can’t get ahead. It’s not your fault, it’s the direction of the cash flow that is the problem. Depositing income into an expense account will always lead to unconscious consumption… meaning you aren’t thinking about what you are spending because it is simply available to spend, there is an implied purpose to the money in your spending account – to spend.
Currence: A Structural Shift in Personal Cash Flow Management
Currence is a comprehensive solution that bridges the gap between technology and behavioral science to tackle the structural issue of default spending. It emphasizes the importance of creating a deliberate structure featuring a reservoir account that puts your income in a default savings structure and introduces a speed bump to disrupt default spending patterns without imposing unrealistic constraints.
Structure and substance
Currence introduces a structural solution to personal cash flow management, that reroutes how you spend and save, incorporating consciousness to your spending, while giving every dollar in your life a specific purpose. It is important to first understand the three types of money movements: inflows, outflows, and capital flows.
- Inflows are dollars that come into your world for the first time. Examples of inflows include
your salary, bonus, maybe some rental income or dividend income. - Outflows are dollars that leave your world, never to come back. Examples of outflows include
your fixed, variable, and discretionary expenses. - Capital Flows are the movement of money between your assets, for instance from your saving
account to your brokerage account.
Currence works by collecting all your inflows directly into the reservoir, allowing you to choose your spending baseline which is only the money needed to live the life you’re living today, nothing more nothing less. These outflows are scheduled and then automatically initiated each month so the money you need shows up where you need it when you it, and the rest accumulates as savings in your reservoir. The accumulation is available for choices with the help of your financial professional; you can spend it – typically on lifestyle related expenses or you can put it to work in places that grow your wealth, protect your wealth, or create additional income, all in your control from the palm of your hand.
Leveraging scalable technology, industry leading partners, and multiple layers of security, Currence provides an intuitive and accessible mobile cash flow management experience. The technology puts you in control of your cash flow by enabling a new structure, supporting the behavioral changes in spending and saving, and reinforcing the relationship with financial professionals.
Currence was created by a veteran financial advisor to solve the savings dilemma after decades of watching clients struggle. Currence reinforces the role of a financial professional in helping you achieve your financial goals, as this human touch provides tailored advice and support, ensuring you navigate your financial journey effectively.
Conclusion
While budgeting often parallels the challenges of unsustainable diets, Currence represents a paradigm shift in personal cash flow management. By addressing the default structural issue of cash flow direction, Currence fosters a behavioral shift towards conscious spending decisions resulting in unconscious savings.
Bringing together structure, technology, and personalized expertise, Currence offers a promising future for individuals seeking to gain control over their finances without succumbing to the pitfalls of budgeting. Currence paves the way for a more sustainable and empowered future, helping you achieve financial freedom faster™.
1. https://fred.stlouisfed.org/series/PSAVERT#
2. https://taxfoundation.org/blog/personal-saving-retirement-taxes/#:~:text=The%20personal%20sav-ing%20rate%20currently,below%20the%20pre%2Dpandemic%20average
