If you’ve been following this blog for awhile (like, a loooong while), you know that I have soft spot for financial startups. I’m a big believer in Betterment’s robo-advisor platform and use them for my Roth IRA contributions.
I used to work for Payoff.com, back when they only had a debt payoff calculator, and then I worked closely with ImpulseSave (who sold to Betterment). Basically, if there’s a new savings app or debt payoff tool, I wanna test it out!
So when my friend J$ from BudgetsAreSexy.com emailed me back in January 2015, and said I should check out this micro-saving tool called Digit, I KNEW it had to be something cool.
And I’ve been a die-hard Digit user ever since…
As a side note, you can check out this interview I did with the Digit team back in the day! A lot has changed since then, but I still love everything about the app.
What is Digit?
Digit is a completely free, text-based app, that allows you to save very small amounts of money based on what you can easily afford in your checking account. This new savings trend is called micro-saving as it lets you start a savings habit with just $1 or $2 every few days.
Since January 2015, I’ve just been using Digit to save money for Christmas gifts, or to buy myself a new Chromebook laptop. Obviously saving just $30-40 a month isn’t going to make you rich, but it does help pay for bonus things that you want.
And the cool thing about Digit is that the ENTIRE app is text-based, from the withdrawals, savings transfers and balance updates. You can make automatic savings transfers and receive automated updates right into your mobile phone.
So it’s easy to check your balance on the go, save some extra money from coupons you used at the grocery store, or withdraw funds to make a purchase.
How to save money without thinking
Digit’s defining factor is that it takes care of saving money for you, so you don’t even have to think about it. On top of that, it studies your spending and income habits to determine the best days/amounts of money to transfer on your behalf.
Plus, it will never withdraw money below the minimum balance you set, or overdraw your account.
It’s like tricking yourself into saving money because you don’t have to think about it. You also receive a small bonus savings every few months, based on your average savings balance. This is usually just a few pennies worth of interest, but it’s something!
Then you can text Digit to transfer the money back to your connected account whenever you’d like. It just might take a day or two to show up, like with any external transfer.
1. Open a free Digit account
It only takes about 90 seconds to go through Digit’s sign up process and set up your free account. Yep, it’s totally free!
Just click here to get started, using my personal invite code, and you’ll end up on a screen that looks like this.
Just enter your full name, email address and then create a password. On the next screen you’ll be asked to input your phone number, which is super important since the app is text-based.
2. Connect your bank account
Once you’ve started the initial sign up process, you’ll have to connect your bank account. You can connect many popular banks and other financial institutions. I have both Capital One and Chase Bank accounts and it was very easy to create a secure link to my bank accounts.
However, if you have a less well-known bank Digit will usually connect to it manually and then you’ll be all set up in no time. My husband did this with his Ally Bank account and it works great.
3. Start saving small amounts of money
During the sign-up process, Digit will ask you to confirm your phone number so you can start receiving text messages back and forth from Digit. You’ll receive alerts once-a-day (at whatever time you want) and then a weekly summary text every Friday afternoon.
You’ll also start getting text alerts when a deposit clears your bank or a large withdrawal is made. This is especially important if you’re a freelancer because you can actually start using Digit to automatically save for self-employment taxes.
What, what?! YEP. Read on to find out more.
How to use Digit as a freelancer
I actually got this idea from a fellow productivity expert, BrittanyBerger.com. She mentioned that she’s been using Digit to save money towards quarterly taxes she pays as a freelancer, and I thought it was a genius idea.
So I decided to try it out for myself and did an experiment this past July and August. As I mentioned, when I first opened my Digit account, I didn’t start using it with my business account. It was only this last quarter, so that’s really when the savings started to pick up.
Link your business checking
I unlinked my personal Capital One 360 account and changed it over to my Chase business account, then adjusted the savings every few weeks for an amount that would be comparable to the self-employment taxes I expected to pay.
Calculate tax portion of income
Digit will send you daily and weekly updates when different deposits or withdrawals are made to my account. Every time I receive a text notice that a client payment had cleared my account, I multiply that times 25-30% and save that amount into my Digit account.
Quarterly taxes are due four times a year, so I’m able to use the funds I saved up in Digit to pay for my Sept 15th quarterly tax payment. I estimated that I’ll owe around $4,400 to the IRS for this year’s 3rd quarter income I made from freelancing.
Withdraw Digit funds to pay quarterly taxes
My digit account only shows about $3,950 which means I’ll have to cash flow the rest. But since this was my first quarter trying to experiment with using Digit to pay quarterly taxes, I still think it’s pretty good.
I’ve withdrawn the $3,950 and will be making my quarterly tax payment electronically via the IRS website in time for the Sept 15th deadline.
Is Digit too good to be true?
I know what you’re thinking, because this is one of the questions I thought about too. Can Digit really offer this awesome service for free?
Well, yes. And for the past 18 months, I’ve LOVED using it. I’ve even gotten Ryan hooked on it and he uses his account daily.
But to help answer all your questions, here’s some info from Digit’s FAQ section:
- Is it free? Yep, totally free.
- Does Digit pay interest? Yes, that’s how they make money. They pay you a small percentage of interest and pocket the rest.
- How does the Digit app work again? Every few days Digit checks your income/spending patterns and moves a few dollars from your checking account into its savings account. But only if you can afford it.
- What if Digit transfers over too much? Digit has a “no overdraft” guarantee so they’ll cover all costs incurred if your account is overdrafted for some reason.
- Do you need to set up a new savings account? No. When you sign up you with Digit, they’ll set you up with a free FDIC insured (up to $250,000) bank account.
- Is it Digit a secure and safe place to keep my money? Yes, all personal info is anonymized, encrypted and securely stored using state of the art security measures.
- Can you withdraw your money anytime you want? Of course, duh! Simply text the word “withdraw” to Digit and they’ll deposit that amount into your checking account the next business day.
What would make Digit better?
At the end of all my reviews I always share an honest assessment of how I think a product or service could be better. I list out any cons so you can make the best informed decision possible.
You are, after all, trying to simplifying your freelance finances, right?
Well, I’m here to tell you that Digit is the real deal. It’s helped me finally find an automation process for paying my self-employed taxes that really works. There are a couple things I wish they would change though.
For starters, their built-in algorithm is a good and bad thing. The good part is that you won’t be saving so aggressively that you’ll overdraw your account.
Digit automatically checks your bank account balance every time it plans to make a withdraw, or when you request a savings transfer via text. If your balance is too low, it will let you know that you don’t have enough funds and should wait until pending deposits are finalized.
On the flip side, this algorithm is slightly problematic because I don’t know exactly how the transfer amounts are calculated and I seem to always be texting “save more” to save more aggressively to cover my freelance income. It seems like the transfer amounts go up for a while and then reset for some reason.
The one workaround I’ve found is to simply let Digit to it’s thing and as I get checks or deposits from freelance clients, I manually save the amount I need to cover the SE taxes portion.
Get started using Digit for free
Would I recommend using Digit as a freelancer? Heck yes! And you know that I’m always honest in my tutorials, and only recommend products I use myself.
What are you waiting for? SERIOUSLY! Get started with Digit for free and see how it can help streamline your self-employment taxes. Or ya know, just save some extra fun money!