Navigating finances in high school and beyond feels like uncharted territory. Balancing jobs, classes, and future goals can be overwhelming. Many students struggle to keep up; however, there’s still one more skill to work on, and this one’s crucial—building an effective budget.

It’s not just about tracking where your money goes; it’s a strategy that helps you reach your goals.

But here’s the catch: there’s no one-size-fits-all approach to budgeting, and that’s okay. The key is finding a method that fits your life and doesn’t overwhelm you. This is where AI chatbots can come to the rescue.

Generative AI (Artificial Intelligence) chatbots that use NLP (Natural Language Processing), like ChatGPT or Google’s Gemini, make complex tasks easier with friendly, conversational assistance. Unlike a search engine, ChatGPT can ask you questions, provide personalized examples, make suggestions, manipulate data, and adjust to your needs and revisions.

It’s like working with a personal assistant who’s only interested in one thing: helping you do…whatever you want!

By the end of this article, you’ll have a clear understanding of how to leverage AI chatbots to streamline that first stage of your financial planning journey and face the future with confidence. Let’s get started on turning those financial goals into reality!

Getting Started With AI Chatbots

AI chatbots are a lot more than just a search engine: they can ask questions, provide context and examples, make suggestions, manipulate data, and adjust to your needs. While those sound cool, they’re a lot more than just gimmicks. If you’re working with an AI chatbot effectively (and I say working with rather than using for a reason), those features will be fundamental to your budgeting success.

Before getting started with your budget, let’s take a quick look at what these AI chatbots are—this will help us learn to appreciate our role within the conversation.

1. AI chatbots are one of many AI technologies to come out of the 4th industrial revolution.
2. Different types of AI programs serve different purposes.
3. AI chatbots were trained on enormous amounts of data, giving them a versatile skillset.
4. They use Natural Language Processing (NLP) to communicate in text rather than code.
5. The response you get from an AI chatbot depends on the type, quality, and detail of the prompt you use to start or continue the conversation.

Artificial Intelligence and chatbots could have all the data and processing in the world, but without the right prompts, they won’t help us. There are some inherent limitations to AI chatbots, especially in the context of money management.

AI chatbots CAN:

• Help you develop and break down goals.
• Create a simple budget that matches your goals, income, and expenses.
• Track and analyze your expenses.
• Help you analyze your spending habits and suggest improvements for your budget.
• Understand and explain specific financial terms or concepts.
• Make predictions using specific data you provide.

AI chatbots can NOT:

• Create a detailed personal financial plan. Chatbots use only the information you give them, so they can’t see the whole picture and might miss important details of your life that were not addressed in the prompt.
• Perform tasks or understand information not clearly defined by your prompt. While prompts exist that can encourage a chatbot to “think outside the box,” they must be included. The AI won’t perform unrequested tasks, potentially missing opportunities or leading to flawed recommendations.
• Understand complex personal or financial situations. An AI chatbot should not be trusted for important financial situations, such as navigating taxes or handling significant life changes like marriage or retirement, due to limited information, nuanced local policies, and an outdated database.
• Consider the practical challenges of following financial advice. AI programs can struggle to recognize just how difficult implementing certain recommendations about managing money can be. It may not be as easy as “getting another job” or “spending less on transportation” if your circumstances don’t reasonably allow for those changes. Consider chatbot recommendations, but always make the decision that’s best for you.
• Accurately recommend specific financial instruments like investments. You should never rely on investment advice from an AI chatbot. They might have outdated market data and lack the full context of your financial situation, so they can’t provide precise investment advice. Trusted professional advisors at your financial institution or a wealth management firm are always your best bet for investment questions or advice.

AI chatbots, though powerful, are not human. Their effectiveness depends on your input and prompts. They can help with short-term goals, basic budgets, and expense tracking. However, for comprehensive financial planning, consulting a financial planner remains the best option.

The Prompt

It’s time to look at the most important part of our budgeting process: the prompt. Creating prompts, or “prompt engineering,” as it’s becoming known, is an art all on its own. A powerful initial prompt will often establish a “character” or “role” for the chatbot to help it narrow in on the most valuable information. Then, you will need to be specific and thorough about what you are asking the chatbot to do to ensure the results match your expectations.

This prompt will begin a step-by-step planning process that can help you identify, plan for, and achieve your goals.

Setting up Financial Goals

As you interact with the chatbot, your conversation will evolve to match your needs and responses—one of the truly magical aspects of AI!

Using the above prompt, the first response you’ll encounter from an AI chatbot will be about setting financial goals. Goal setting starts the budgeting process because it provides context and purpose to your budget while helping you achieve the things that matter to you! It’s smart to consider short-, medium-, and long-term goals while planning to ensure you’re on track to meet your needs now and in the future. For the basic budget we’re building, we can focus on just the short and medium-term.

When developing your goals, think about what you want, what it will cost, and if there are any checkpoints along the way.

Starting a Budget

Once you’ve locked in some financial goals, the next stage is to set up your budget.

An effective budget looks at all of your income sources and expenses, no matter how small, and offers a high-level overview of where your money is going. Ideally, a budget will help you identify areas where you can cut back or reorganize your spending to meet your goals without having to make drastic changes.

If you would prefer to use a particular type of budget, like a zero-based budget or 50/30/20 approach, you can specify that to the chatbot. Otherwise, it will use a default style.

As I’ve mentioned before (and will keep mentioning), the more information you can provide, the more accurate your AI budget will be. The following are some helpful questions to make preparing a budget easier:

1. What is your total monthly income? Always use your NET income for a budget (what is actually put in your bank account after taxes). Think about all your income sources, such as a paycheque, gifts, side hustles, government benefits or tax returns, cash back or rewards, etc.

2. What are your fixed monthly expenses? Do you pay anything for rent? What about car payments or insurance? A phone bill? Even subscriptions can be considered a fixed expense.

3. What are your variable monthly expenses? These could include food at the cafeteria, gas money, groceries, entertainment, travel or transportation, etc. You may spend money on an item every month, but if the amount you spend changes, it’s likely a variable expense.

4. Are there any subscriptions or services you no longer use? The automatically renewing subscription model is great for businesses but terrible for your bank account! Double-check that all of the things you’re paying for are actually put to use, or cut them loose!

5. Are you prepared for emergencies? Having an “Emergency Fund” that could replace your income for a few weeks or months is something everyone should have as a personal financial goal. This can help if you’re unable to work for some reason and can remove the stress of “hitting your hours” during school-heavy times like exams.

Once everything is accounted for, the chatbot will prepare an initial draft of your budget.

Congratulations! You now have a basic budget!

Tell me, though, was it a one-sided conversation? The answer is likely no, and that’s a good thing! The continuous feedback and conversation you have with your AI chatbot are crucial to getting the most out of your budgeting process.

Don’t forget to:

• Ask questions
• Ask for suggestions or feedback
• Ask the AI to analyze your spending and suggest ways to save money
• Explore alternatives
• Tell the AI if you want something done differently
• Use the prompt phrase “Ask Questions Before Answering” when providing information or asking the chatbot to do something

The dynamic conversation you can have is why using an AI chatbot is more valuable than a basic budgeting template. Still don’t believe me? Below is a sample of a conversation I had with OpenAI’s free AI Chatbot, ChatGPT. I took on the role of a high school student, creating my first budget, and by asking questions and engaging with the AI, I was able to develop something that made sense with the goals I outlined.

Note: in the interest of length, I have condensed many of ChatGPT’s responses to reflect the core of the response rather than directly copying them.

My AI Budgeting Example

Me: I’m trying to decide between paying off my credit card or saving for a laptop as my primary goal.

ChatGPT: That’s a common dilemma! To help you decide, let’s weigh the pros and cons of each option: ChatGPT then provides some pros and cons for each goal and some further questions to consider when deciding.

Me: Let’s set some goals: I will pay off my $2000 credit card over the next 12 months, buy a new $1,200 laptop in the next 18 months, and save for a $500 vacation in 24 months.

ChatGPT: Great! Setting these specific goals with timelines is a strong step forward. Let’s break these down into actionable plans: ChatGPT then breaks down the three goals into monthly savings targets and provides follow-up questions asking what the interest rate is on my credit card and whether I’m comfortable making smaller payments toward my other savings goals, if necessary, to get my credit card paid off faster to avoid the additional interest.

Me: My credit card interest is 19.99%. Can you please factor that into the payment goal? Also, I am prepared to save $225 total each month. If I adjust my laptop goal to fit within that limit while I pay off my credit card, then increase payments once my credit card is paid for, will I still be able to reach all my goals on time?

ChatGPT: Let’s work through the details to factor in the interest on your credit card and see how you can reach all your goals within your budget. ChatGPT determines that, with compound interest. I will need to pay $185.26 per month to pay off my $2,000 in 12 months. With a $225 saving cap, that leaves $39.74 per month for my laptop goal, which can then increase for the final 6 months after my credit card is paid off. If I also wait to start saving for my vacation until after the credit card is dealt with, I should be able to meet all of my savings goals on time.

Me: This looks great! Let’s move on to the budget. What are some examples of income I may not think of?

ChatGPT provides a list of steps to follow to create my budget and 12 forms of non-standard income.

Me: I make $800 per month. I spend $200 on food, $200 on rent, $100 on entertainment, $50 on gas, and $75 every other month on car insurance.

ChatGPT determined that my average monthly expenses are $587.50. Given I make $800 per month and spend $587.50, ChatGPT noticed that I don’t have enough money left each month to cover the $225 I set for my savings goals. Given the importance of paying off my credit card, the AI prioritized the full monthly amount there and allocated the remaining amount to my laptop savings. I was also provided with a few suggestions to help me get back on track: dig into my spending to see if there are areas to cut back or explore additional income opportunities. Instead of following up on those, I first wanted to get a better picture of my current budget and what it meant for my goals.

Me: If I decrease my laptop savings to $27.24 per month until my credit card is paid off, will I still be able to reach all of my goals on time?

ChatGPT determined that even with the decreased monthly savings amount during the first 12 months, while I paid off my credit card, I would still be able to set aside enough to buy my laptop and comfortably save the rest in time for my vacation.

You can really see how powerful the conversation was instead of simply providing the AI with information. It helped me identify and create some realistic goals and timelines for myself, build an accurate budget, and, most importantly, make sure the budget really worked for me before making any unnecessary adjustments to my life. Now, I have clearly defined financial goals, specific steps and timeliness to help me achieve them, and a budget that will help me keep my spending consistent and on track.

Privacy and Security

Before diving headfirst into the world of AI chatbots, we need to discuss privacy and security.

AI programs have become very popular and very powerful in a relatively short period of time. While this has provided us with some great new tools, it has unfortunately meant that the ethical and environmental large-scale ramifications of AI and data usage have fallen way behind. Understanding these ramifications is a conversation on its own, which I don’t have the expertise to cover (this TED Talk from Sasha Luccioni looks at some of these concerns). For the purposes of our budgeting exercise, your focus should be on keeping your sensitive personal information safe. That means you should avoid using specifics like your name, address, employer name, school name, SIN, banking information, phone number, or anything else that could be used to identify who you are.

Having a conversation and engaging with the AI chatbot can produce better results, but it should still be treated with caution. Look at a chatbot like any other online conversation: its goal is to help you succeed, but that doesn’t mean you should trust it implicitly. As with all online conversations, keep your information safe and secure.

Conclusion

In conclusion, while AI chatbots like ChatGPT can be valuable tools for setting up and managing a basic budget, it’s essential to understand both their capabilities and limitations. These tools can assist with developing goals, tracking expenses, and offering general financial advice based on the information you provide. However, they cannot replace the nuanced understanding and personalized guidance that come from working with a professional financial advisor. Recognizing these strengths and weaknesses can help you utilize AI effectively without over-relying on it for crucial financial decisions.

Ultimately, taking the first step is the most important part of building a successful financial future. Whether you choose to leverage AI chatbots or prefer more conventional methods, what matters most is beginning the process. By doing so, you empower yourself to gain control over your finances, set achievable goals, and make progress toward financial security. Embrace the journey and remember that every small step counts towards creating a healthier financial lifestyle.

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