AI and humans approach financial planning from different perspectives, each bringing their unique strengths and weaknesses to the table.
In fact, we tested how far Open AI can go by asking it to write a financial plan for a family of 5 members, with a monthly total income of $10,000.
Let’s have a look at what the AI has generated:
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Establish an Emergency Fund:
- Aim to set aside 3-6 months’ worth of living expenses in a separate savings account to handle unexpected events or emergencies.
- Given your household income of $10,000 per month, consider setting aside at least $30,000-$60,000 as your emergency fund.
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Analyze Monthly Income and Expenses:
- Calculate your monthly income of $10,000 and identify all necessary expenses, including housing, utilities, transportation, groceries, insurance, healthcare, education, and debt payments.
- Differentiate between fixed expenses (e.g., mortgage/rent, insurance premiums) and variable expenses (e.g., groceries, entertainment) to understand your spending patterns.
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Budgeting and Expense Management:
- Create a detailed monthly budget by allocating funds to different expense categories.
- Prioritize essential expenses and allocate discretionary income for non-essential items and entertainment.
- Regularly review your spending habits and adjust your budget as needed to ensure you’re living within your means.
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Debt Management:
- Identify any outstanding debts (e.g., credit card balances, loans) and create a plan to pay them off systematically.
- Prioritize high-interest debts and consider strategies like the debt snowball or debt avalanche method to accelerate debt repayment.
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Savings and Investment:
- Set savings goals based on your family’s objectives, such as education funds, retirement planning, or purchasing a home.
- Consider contributing to retirement accounts like 401(k)s or IRAs to take advantage of tax benefits and long-term wealth accumulation.
- Research investment options and consult with a financial advisor to build a diversified investment portfolio aligned with your risk tolerance and financial goals.
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Insurance Coverage:
- Assess your family’s insurance needs, including life insurance, health insurance, and property insurance.
- Ensure adequate coverage to protect your family from financial risks associated with unforeseen events.
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Education Planning:
- If you have children, explore education savings options like 529 plans or educational savings accounts to fund their future education expenses.
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Regular Financial Check-ups:
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Schedule periodic reviews to track your progress, reassess your goals, and make any necessary adjustments to your financial plan.
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Stay informed about changes in tax regulations, investment opportunities, and insurance policies that may affect your financial situation.
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It’s interesting how the AI-generated plan wrote specific steps – from A to Z – that could be applicable for any individual’s typical concerns.
Now let’s explore a more in-depth comparison between AI and human financial consultants:
1. Data Processing and Analysis:
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- AI: Artificial Intelligence excels at handling large volumes of data and performing complex calculations quickly and accurately. It can analyze historical market trends, financial statements, and economic indicators to identify patterns and generate insights. For instance, an AI-powered financial planning tool can process extensive market data to recommend a diversified investment portfolio.
- Human: Humans possess the ability to incorporate subjective factors and exercise judgment based on personal experiences and intuition. They can consider qualitative aspects like risk tolerance, emotional factors, and unique circumstances. A human financial planner can empathize with clients, understand their specific goals, and tailor the plan accordingly. For example, a human planner may advise against a riskier investment strategy for a client who recently experienced a significant financial loss.
2. Adaptability and Contextual Understanding:
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- AI: AI algorithms can quickly adapt to changing market conditions and regulations. They can detect patterns in real-time data to make timely adjustments to the financial plan. AI can also provide personalized recommendations by considering individual preferences and goals.
- Human: Humans possess contextual understanding and can consider non-financial aspects that impact financial decisions. They can interpret external events, such as geopolitical factors or personal life changes, and incorporate them into the plan. A human financial planner can offer guidance on issues like estate planning, tax optimization, or retirement strategies, considering the client’s overall life situation.
3. Emotional Intelligence and Communication:
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- AI: While AI algorithms can provide accurate financial analysis, they lack emotional intelligence and empathy. AI tools might struggle to comprehend a client’s emotional state or concerns. However, AI can offer 24/7 availability and accessibility, allowing users to access financial planning tools and information at any time.
- Human: Humans excel in building relationships, understanding emotions, and providing emotional support. A human financial planner can guide clients through major life events, offering reassurance and adjusting the plan to address their emotional needs. They can also communicate complex financial concepts in a relatable manner, ensuring clients understand the implications of their decisions.
After listing down both methods strengths and differences, we could note that it all comes down to the complexity of a client’s requirements. It is also important to remember that human consultants may use AI as a tool to get ideas, modify, and come up with their own outline.
