Expert Interview with Jason Leong on Financial Software for Mint

Jason Leong believes it's important to know not just where your money is going, but where it's headed. That's why he founded PocketSmith, a financial software tool that can help you spot future trends and think about the future of your money. He talked with us about what goes into that, and why it's important.

What goes into the "back end" of financial software that most people don't think about?

Most people probably take for granted the amazing financial system we have at our disposal today. It's pretty incredible when you think about the ease of access we have to our finances, and the journey a financial transaction has to make across a range of different systems.

For example, a record of a customer's payment in PocketSmith begins as a payment at the point of sale. It will have to travel across borders from the point-of-sale system, to the merchant provider, to the bank, then to a financial aggregator, then to us.

Case in point: I made a purchase in Malaysia the other day using a credit card issued by a New Zealand bank. After the purchase was approved, the transaction was then categorized and imported into my PocketSmith account via our US-based aggregator.

Financial platforms have millions of conversations with each other across the globe every second. As financial data is formatted differently depending on institutions and countries, a fair amount of data checking and cleaning goes on behind the scenes to ensure the integrity of your data.

Thirty years of projections sound like a daunting task. How does that work, and why is it a feature in your software?

Creating projections in PocketSmith is very simple to do. You point and click to schedule future budgets in a calendar. These could be for categories of spending or income, bills and payments. Each of these scheduled budgets can be set to automatically repeat, just like events in a typical calendar.

The forecasting engine then takes all the future budgets into account and calculates a projected bank balance for each day in the future. It's smart enough to be able to crunch the numbers in a short amount of time, so you can jump to a point in the future to see your predicted balance at a certain date.

We call these projections "scenarios," and you can make as many of them as you want to see a number of potential outcomes.

It's a feature in our software because we believe in aspirational budgeting. Imagine going to a gym and looking in the mirror to see an image of your future self, based on your current workout regime. Wouldn't that be motivating? This is what we offer our users: the ability to immediately see their future finances based on a planned series of budgets.

Why are "what-if" scenarios so important to personal finance?

Planning ahead is key to good cashflow management. With foresight, you have the control to ensure you don't run out of cash.

"What-if" scenarios allow you to model future outcomes based on the choices you can make today. By testing the results of your assumptions, you have the capacity to make the best possible decision.

This significantly lowers the amount of risk - and stress - when making financial decisions, especially when you're considering long-term commitments such as a mortgage, large purchase, loan repayment, or investment.

"What-if" scenarios also allow you to see what happens to your financial forecast if something unexpected happens. How well can you cope with an unexpected dental bill, repairs to your car, urgent travel, taxes, loss of income? Do you have an emergency fund that ensures you can weather these scenarios?

Take your time to model those outcomes. Plan in haste, they say, and repent at leisure!

What were some challenges the PocketSmith team wasn't expecting when they started coding the software?

We were surprised to see that consumer attitudes to online money management could change so quickly.

For example, when we started in 2008, we offered a file import system that allowed users to upload their transactions in a format of their choosing. Even so, many users weren't comfortable about storing their financial data in the cloud. This feature still exists today, but the comfort level has changed as most of our users now go directly for Live Bank Feeds!

We're delighted to discover that the topic of personal finance lives, breathes and evolves through our users. Our software continues to grow with our customers' requirements, and we see their feedback as a key factor for our success.

What are some common misconceptions about financial software you've seen online?

We believe it's a common misconception that "simple" solutions are enough to plan your financial future with.

Let's face it: Most people have things they'd rather be doing than managing their money. As such, many gravitate to simple financial tools that promise the bare minimum in the shortest amount of time (categorizing expenses, sticking to budget, keeping on top of balances).

The problem is, simple tools ignore the most important principles in personal finance: compounding interest and the time value of money.

In order to understand the time value of your money, you need to look ahead based on what you're currently saving. Because your money earns interest, any money in hand today is worth more than the same amount if you received it next year. This is why it's important to start saving as early as you can.

So you may be sticking to budget right now, but can you see how your money is working for you? For example, if you knew that just by saving an additional $100 each month, you would earn $120,000 in 30 years - would you do it? How meaningful would this be if you were retired by then?

It's important to remember that better financial management is not like finding a simpler Twitter client. Good financial planning will always take thought and time, so don't cut corners! Seek advice from a professional if you have to.

What's the next goal for financial software? What can we have it do that it doesn't already?

I'd like to see digital receipts transmitted alongside transaction data. We currently aggregate and manage transactions, but it would be amazing to have the itemized components to match the transaction total.

While this provides a greater amount of transparency with regard to your purchases, this would also give us a chance to provide you with better intelligence on when and where to shop.

Imagine being able to track the price you paid for apples from month to month and compare them historically based on where you bought them. How much did other people in your locale pay for apples, and where? By being better informed, you stand to save more money.

This just scratches the surface of what we could do with more detailed information. We're excited about what new technology can provide us in the coming years!

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