In this digital age, where AI is dominating all the streams from healthcare to education, e-commerce to transportation, revolutionizing the field of finance is no exception.
AI for financial management refers to using the ability of AI to process huge amounts of data, recognize the underlying patterns, form predictions and recommendations to automate financial tasks, provide money-related advice, and analyze large volumes of financial data.
The traditional era of keeping a record of each transaction and analyzing it manually is gone. The world now is quite data-driven, and tons of data in many forms gets generated every day making it impossible to analyze it manually.
To have a better understanding, let’s move forward into the concepts of how AI in Personal Finance has made money management easy for commoners.
Understanding AI in Personal Finance- Mary’s Story of Financial Disaster.
So let’s talk about this young lady, Mary, staying in the fast-paced New York City trying to catch up with her expenses. Her job, daily chores, and partying with friends and colleagues barely leave her with any time to track her expenses, plan budget savings, and strategize investments. In addition to the meticulous spending, each month seemed like a financial rollercoaster with unexpected and sudden expenses coming up. All this led to a huge chaos in her life with unpaid bills, debts, dwindling savings, and dreams of owning a house, which were bottled up. She desperately needed a solution, for which she turned to AI technology and started using an AI finance app.
The AI finance assistant then tracked her expenses and produced some surprising insights. Mary discovered many small transactions relating to subscriptions and services that she no longer uses, disturbing her finances. In addition, she found hefty expenses for food. To tackle the situation, she canceled all the unused subscriptions and started meal planning to reduce food costs. For better financial management, she considered the AI smart recommendations and strategized investments and savings to turn her dreams into reality.
Thus, with the help of AI, Mary finally got to manage her expenses quite effectively and in less time.
How can AI be used for personal finance management?
Mary’s story must have formed a big picture in your mind about why AI should be used for personal finance management. Now let’s discuss the details of the same through the key points given below:
- Budget and Expense Tracking
AI-powered finance solutions can help people keep an automated record of their transactions, which solves the problem of shortage of time for many people who can’t write down their expenses on a notepad and analyze their spending habits manually. AI-powered finance apps can recognize the patterns of the user’s spending habits, plan budgets considering their income, and produce insights and recommendations that help users learn about their shortcomings and correct them. Thus, AI in personal finance helps the user make informative decisions about spending.
- Intelligent Investments
If you want to maximize your income, savings and investing are the key. To anyone who invests in stocks and trades for long-term benefits, AI can be their game changer. By studying all the financial data related to investments, like risk exposures, historical performance, financial health, and income of the user, AI produces smart recommendations that assist the user in making some investments in stocks intelligently using AI data-driven insights.
- Automated Financial Planning
The user can input their basic expenses and income into the AI algorithm, and it will automatically produce the best-suited financial plans tailored to the requirements of the user. Moreover, artificial intelligence can automate the payment of necessary bills like electricity, rent, mobile recharge, etc., before the due date. This will reduce the pressure on the user, avoid any kind of penalties, and they can manage their expenses effectively.
- Enhanced Security & Spam Detection
Since AI models are trained from a large data set, they have recognized the patterns and anomalies of fraud and spam financial activities. Therefore, with real-time monitoring, they quickly handle any spam fraudulent activity and can alert the user about any such potential money-related risks. Therefore, by detecting unauthorized transactions or activities, AI personal finance app enhances the financial security of users.
- Credit Scoring & Risk Assessment
AI has transformed the conventional models for evaluating credit scores. By leveraging machine learning algorithms, a wider array of data, encompassing non-traditional sources, can be examined to more precisely gauge an individual’s creditworthiness. This broader perspective is particularly advantageous for people with sparse credit histories, offering a deeper insight into their credit risk.
- Personalized Customer Experience
With machine learning algorithms, AI in personal finance also offers chatbots and virtual assistants, that provide 24/7 personalized customer service to the users and provide tailored financial advice and quick solutions to all their queries. This elevates the customer experience and allows them to make data-backed intelligent decisions, thereby improving their financial management.
Benefits of AI in Personal Finance
AI has become a game changer in the realm of personal finance. It brings a revolutionary change in how individuals manage their money. One of the most prominent advantages of AI in personal finance is automation. As AI turns most of the financial management tasks automatic, like recording all the transactions, budgeting, expense tracking, and producing insights and recommendations for better investments and cost cuttings, this automation thus increases the efficiency and accuracy of users’ finance-related decisions. Also, it saves a lot of time for the users, enabling them to focus on other aspects of their lives. In addition, the recommendations formed by the AI algorithm allow the user to monitor their spending habits and identify areas of improvement, which helps them reduce expenditure and invest smartly using the AI’s insights. Most importantly, the AI finance algorithm keeps a 24/7 check on all financial transactions, automatically detects any unauthorized, spam, or fraudulent activity, and quickly takes the necessary action or simply alerts the user, thereby ensuring the security of the financial assets and investments of the user.
Limitations of AI in Personal Finance
Like every technology, AI and ML algorithms for personal assistance also have some disadvantages, discussed below:
- Privacy Concerns
AI model gets trained with a large amount of financial data of customers gathered via many resources, and it has direct access to the user’s bank details and other financial assets, which raises questions on the security, safety, and privacy of the customers personal details. Moreover, the risk of data security and privacy breaches limits the number of customers who tend to adopt AI FinTech solutions for their personal financial analysis.
To solve this problem, companies must work on brand building, effective marketing, and gaining the trust of their potential customers to expand their customer database.
- Limited Human Intelligence
Accuracy and differences of opinion between artificial intelligence and professional financial advisors are another hurdle that needs to be checked. AI helps people boost efficiency and finance management, but it still lacks the human touch. To handle this situation well, the AI algorithm must be developed with consultations of financial advisors, and the accuracy of the model must be tested properly.
- Data Availability
The availability of high-quality data to train the finance AI model comes up as another challenge. Most of the time, the data available will be in unprepared form, having low quality and lots of missing values. Therefore, the AI development company must devote its resources heavily to the data cleaning and validation process to prepare the high-quality data set for training the AI algorithm, which would lead to optimum and accurate outcomes.
Future of AI in Money Management
As we move forward to more advancements in the field of FinTech and artificial intelligence, we can totally expect the integration of AI into all the finance platforms. For all kinds of advancement, the data will still be the roots. Any type of model training or development would require more clean and accurate data so that the model can produce fruitful outcomes for its users. Moreover, as we proceed to more forms of AI, ethical concerns will also arise, and regulatory compliance with the law must be there for the responsible use of AI. If we look forward to the discoveries of more superficial forms of AI like strong AI and superintelligence. We can expect robotic interventions and advanced AI technologies to take over most of the finance operations, be it personal or professional, like in banks. Conversational bots would function better and offer more features to the users, and KYC (Know Your Customer) authentications will be enhanced for FinTech.
Also, we must be grateful for AI-powered biometrics face and voice recognition technologies that let us validate the identity of humans, ensuring security by checking the regulatory compliance of social profiles, better risk management, and enhanced user experience. Thus, with the help of AI, the future of finance will be more efficient, secure, and strategic.
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