- Savings challenges can be fun ways to develop sound long-term savings habits.
- Try an established challenge, or create your own.
- Open a dedicated high-yield savings account to stash your challenge results.
Every January, millions of Americans make resolutions to improve their finances. In fact, according to Fidelity, two-thirds of us will focus on financial resolutions in the new year. Not surprisingly, saving more money is one of the top priorities in Fidelity’s survey.
Making a commitment to save more is wonderful. But to make it come to fruition, you’ll need a plan. For many people, a savings challenge is a fun way to make that kind of plan. Simply put, a savings challenge is just a set of parameters to help you form a good saving habit. Like any habit, saving takes commitment and dedication – and often some belt-tightening. Choosing a challenge that incorporates a realistic goal for you will give you the best chance for success.
The classic challenge
The classic savings challenge involves starting with saving a small amount the first week, and then adding to that amount each week throughout the year. For example, if you start by saving just $1 the first week of January, you might add a dollar every week thereafter. So, in Week 2, you’d save $2; in Week 3, $3, and so on. With this method, in a year – 52 weeks – you’d have saved $1,378.
Many types of savings challenges exist. Here are a few to get you thinking. Feel free to design your own, based on what you think you can commit to doing on a consistent basis.
- The no-spend challenge: In this challenge, you make the commitment to spend no money whatsoever on any non-essential item for a set period of time. Some people decide to do this one day each week, or one week each month. When you take on this challenge, you may find yourself honing your reuse/repurpose/recycle skills as you get creative in using what you have on hand for dinners or entertainment.
- The eat-at-home challenge: If you’re in the habit of eating out (or doing takeout) frequently for lunch and/or dinner, don’t try to go “cold turkey.” Instead, you could resolve to add eating, or cooking, one more meal at home every week. So, if you currently eat at home four nights a week, make it five. One night a week? Make it two. Over a month, spending $50 a week on dining out adds up to $200 – and $2,600 a year. Spend $100 a week and that’s more than $5,000 in a year. Up the challenge by committing to make meals (or at least some) in 30 minutes or less.
- The latte challenge: Your weakness might be coffee drinks, or cookies, pizza or microbrews, so tailor this challenge to what fits you. The idea is to figure out what you’re spending on your “vice” and save a good portion of it. For instance, if you hit the local coffee shop five times a week, spending $7 each time, that’s at least $140 a month and $1,820 a year. If you banked that money instead, you’d have almost $1,900 in a year (assuming a 5% interest rate, compounding daily). Keep it up for five years and you’d have nearly $10,000.
- The grocery store bill challenge: If you have a savings card at your local supermarket, you’ll see that each receipt lists the savings you realized by using the card. Make it a policy to actually save that amount with every store visit.
Save your results
Consider keeping the money from your savings challenge in a dedicated savings account. The alternative, keeping money in a checking account, with a “mental note” that funds are saved, usually doesn’t work very well.
Many banks and credit unions around the country are offering rates of over 5% on basic savings accounts. Be aware, though, that rates are subject to change at any time, although they generally follow the path of interest rates set by the Federal Reserve. Some financial institutions set minimum deposit requirements for the highest rates, too.
Start small and build
Many people don’t succeed at their savings challenges because they are too ambitious, and set goals that are too big. Whatever challenge you take on, be realistic. It’s fine to start small and build. If things are going well after a month or two, you can always expand the challenge parameters and/or add a new one. Remember the idea is to develop a habit that will serve you for the long term while having a little fun.
The blog articles published by Unlock Technologies are available for informational purposes only and not considered legal or financial advice on any subject matter. The blogs should not be used as a substitute for legal or financial advice from a licensed attorney or financial professional. Links in our blog posts to third-party websites are provided as a convenience and are for informational purposes only; they do not constitute an endorsement of any products, services or opinions of the corporation, organization or individual. Unlock Technologies bears no responsibility for the accuracy, legality, or content of external sites or that of subsequent links.