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Digits, Dobot and Stash – Is Secretly Saving Helpful?

I see a lot of clients with apps like Digit, Acorn, Stash, Dobot, etc. These apps “secretly” or more aptly, without your noticing, take small sums of money from your checking account and either put them in an account held at the app (e.g. Digit and Dobot) or invest the funds in a brokerage account where the app will buy stocks, ETFs, or mutual funds for you (e.g. Stash and Acorns). I'm only going to discuss the ones that put your money in their bank savings accounts today (e.g. Digit and Dobot)

I am all for saving. Let me repeat, saving is good, but as with everything in life, we have to smart about it. If you are young, single, working, having fun and saving because you know it’s a good thing to do, these can be great apps for you. From what I can read online, you save $100-250/month depending on how much you earn and spend, which is about $1200-3000/year.

If that amount of savings covers you for Holidays home to your parents and a vacation with some friends, you’re golden. But, if you are a little further down the road of life and have kids, HVAC repairs, cars that need to be replaced, and camp, these little apps could fall painfully short. And, by taking small sums every few days, they can derail you from the more significant saving you need to do.

Here’s the thing: until you know what you need to save each month for your Annual Needs (e.g. camp, vacations, life insurance, car registration, etc.), you do not know what you need to save JUST FOR THINGS THAT ARE PAID THIS YEAR. Secondarily, you need to save for Emergencies. Generally, 3-6 months of your monthly expenses including your Annual Needs monthly saving.

As you can see, as life goes on the numbers get bigger. Chances are Digit and Dobot, cannot find $1-2k laying around in your checking account each month to cover what a family of 4 in an urban area might need to actually save each month. Chances are you are living pretty much month to month with maybe a couple hundred dollars of cushion. Any of that sound familiar? If the app cannot find the money, it won't save it. YOU have to find the money by cutting some expenses to save adequately.

As your life progresses, you earn more (woohoo!), you spend more… and you need to SAVE more. Usually, more than any of these apps can manage. You should have a plan to save the amount YOU specifically need for your family. If it’s $1200/month, you should AUTO-TRANSFER that amount to a separate savings account. Any bank is happy to set that up for you. You do not have to remember to do it, just like the apps, BUT the amount is right for your situation, not some 28 year old app developer's idea of your situation.

Because I’m a bit OCD, I also do not like the fact that $100-$250 slips out of your account in drips and the amount changes each month. It’s difficult to plan like that. You also run the risk of depleting your cushion and possibly running out of money on the lowest day of your financial month if you are adequately saving by auto-transfer. If you are anxious about such things, having some bot grab a few dollars here and there could make you more anxious.

Generally, I like to people to deliberately save a certain amount each month by auto transfer (again, you do not have to do anything and it happens automatically), that makes sense for their household’s Annual Needs. These apps approach savings from the opposite direction: not from your household’s needs, but from an opportunistic “a few dollars here a few dollars there” approach. Chances are it is not enough.

If you are young, have few Annual Needs and already have your Emergency Savings set, then it’s fine. But, for most of us, the need is greater than these apps can fill and guess what… filling your household’s actual savings needs may require some sacrifice in spending. These apps try to stay neatly away from the possibility that you might actually have to change your lifestyle. Convenient, isn’t it!

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