A Hard Look at Money-Saving Challenges: Do They Really Work?
Money-saving challenges have been all the rage this past year. You know what I mean — the idea that turning saving money into a game will help you bank more of your hard-earned cash.
The most famous is likely the 52 Week Money Challenge, where participants save $1 in week one, $2 in week two, and so on for a total of $1,378 yearly savings. Other challenges include:
- The No-Spend Challenge: Only 100% necessary purchases are allowed. Participants cannot spend any money on non-essential items for a set length of time.
- The Spare Change Challenge: Place all spare change in a jar and watch it add up over time. (Your parents probably did this one as a lifestyle rather than a game.)
- Total Savings Competition: Compete against friends and family to see who can save the most money (or the highest percentage of their income) in a given year.
For those seeking creative ways to save a few bucks, these challenges add an entertaining element to personal finance. For the competitive, it’s a challenge. For the fun-loving, it’s a game. For everyone, it’s extra money in your pocket at the end of the day.
But let’s get real. How effective are these challenges at positively impacting your finances? Are savings challenges just another gimmick in the personal finance blogosphere, or are they a legitimate path towards financial success?
The answer to that question really depends on your goals when attempting a savings challenge. Let’s take a look at what a savings challenge is… and what it isn’t.
A Savings Challenge IS a Great First Step Towards Financial Accountability
One of the biggest hurdles for savings enthusiasts is transitioning from knowledge to actual implementation in a meaningful, lifestyle-encompassing way. This is why you can find 100 blogs with the exact same basic savings tips. There are only so many ways to say, “Cut out your morning latte,” but audiences will read and reread this tip hundreds of times while sipping their lattes before work.
Am I saying you should cut our your morning latte? Only if you’re ready to upgrade to an Americano.
The real key is to stop simply consuming information and begin taking action: writing down and acting upon tangible goals. You need a metric with which to hold yourself accountable, and savings challenges offer a great first step into the world of financial accountability.
To participate, you have to keep track of money-saving actions. The tracking is the most important part of this process. Compared to the type of budgeting and accountability that should be standard practice in every home, this level of tracking is elementary, but it’s a start. No one hits full stride on their first step.
It’s NOT a Legitimate Savings Plan
Saving pennies for a rainy day is one thing. Planning for your future is another entirely. If a savings challenge that nets you $1,378 in a year is your plan for retirement, you have bought into a major gimmick on a dangerous level. (Click to tweet this idea.)
Standard savings recommendations fall between 10-15% of your income, IF you start saving in your twenties. Begin later, and you’re looking at ever-higher percentages. With a median household income of $51,324 in the US, the minimum savings per year should be around $5,000. Keep in mind, this money shouldn’t be placed in a glass jar; it should be invested in some type of revenue-generating fund.
If your current savings per year is $0.00, increasing that to $1,378 is an AMAZING step! Participating in The 52 Week Money Challenge might be the best financial decision you ever make. The important thing is to view it as a first step rather than your ultimate savings plan.
If you use it to propel you toward further savings, great. If you stop here, you’ll find yourself in trouble down the road.
It IS a Good Way to Increase Your Spending Awareness
Many consumers clock in and out of daily life without any awareness of their spending habits. How much did you spend on groceries? How about gas? How much for entertainment? How much for other non-essential purchases?
If you can’t answer these questions, engaging in a challenge like The No-Spend Challenge is a great way to start building awareness of your personal spending habits. Great personal finance starts with an accountant-like awareness of your cash inflows and outflows. If a challenge increases this awareness, it’s a positive for that reason alone.
It’s NOT an Effective Budgeting Tool
While savings challenges can certainly increase awareness, they should not replace a legitimate budgeting process. Budgeting is the foundation of savings-oriented personal finance. Without a budget, you have no plan and no goal.
As you’ve probably noticed by now, there’s a trend in our analysis of savings challenges. These activities are great entry points to a number of effective financial strategies, but they will never replace the fundamentals of effective personal finance.
If you’re sitting at ground zero, participating in a savings challenge may be the jumpstart you need to take control of your financial future. If that’s you, we fully recommend you join in. For those already practicing healthy habits, a savings challenge might just be an interesting way to allocate spending money or a fun tool for introducing your kids to saving.
Your Turn: Have you ever tried a savings challenge? How did it affect your spending habits?
Jacob McMillen is a blogger, copywriter, and the proudly regretful owner of a bonafide accounting degree. Find him at JacobMcMillen.com or read his thoughts on character and integrity at UncompromisedMen.com.