A key theme in personal finance is to spend less than you make — in other words, save. Your ability to consistently save is the fuel for your personal finance machine that will help make your dreams a reality. Common savings goals include:
- Want to take a fun trip?
- Want to buy a home?
- Want to buy your dream car?
- Want to launch a business?
- Want to invest in the markets?
All of these depend on saving. Some people find their paychecks leave their hands as soon as they get them and have difficulty consistently saving money. And that is ok.
Because we live in a capitalist, consumption-based economy, we are conditioned to spend money on things we do not need in our search for fulfillment or social validation. There is no end to this race until we consider what truly matters to each of us as individuals. And this is where a savings plan comes in.
I dove right into saving money at the start of my post-grad life when I moved to SF and took on rent and living expenses. I had a dream of traveling the world and organized my savings plan to achieve it. I built my personal finance system from the ground up as I saved from each paycheck and researched ways to earn interest on it. You should also consider reading our review on how to save $100k by 24.
Moreover, I learned the valuable lesson of the paying yourself first mentality. The idea centers on automatically stashing away a chunk of each paycheck before you can spend it on expenses. Saving ensures you get paid first. You would direct that money to your savings or invest it in the markets. I expanded on the mentality by becoming more aware of my frequency of dining out, activities, and other living expenses. I cut back on these activities, created a budget, and scaled back on lifestyle expenses. For instance, I found a way to save as I used public transit instead of Uber and set a $200 budget for rideshare services. Changing my habits was a process, but adapting my lifestyle made me a better saver. Having savings goals to build an emergency fund and travel the world motivated me to be consistent and think of additional ways to save. Instead of 6 months, it took me about 1.5 years to see both goals through.
Building a saver’s mindset reverses the consumer mindset conditioning and is the first step towards achieving financial freedom. Your mindset is crucial as these small changes add up over time and snowball to create a healthy, long-term outlook on money. This mindset affects other parts of your life – unlocking the potential from consistent, thoughtful action. That’s where the 26-week money challenge comes in — join us and dive in together!
26 Week Money Challenge — Getting Started
This challenge is perfect for people who want to start saving money or want a refresh. No matter where you are on your finance journey, you’re on time to begin your path to financial freedom!
Set an intention for why you are saving. Having a savings goal that you are working towards will motivate you to be consistent and find ways to cut back on spending. An intention provides meaning to your savings. Why are you doing all of this? Do you want to take a vacation once a year? Do you want to adopt a dog into your family? When I first started, I had two goals in mind. I wanted to save for an emergency fund and build a travel fund. Having realistic and grounded savings drove my motive for saving money.
Determine your savings goal. Then, save a specific dollar amount for each of 26 weeks. For example:
- Week 1 — $1
- Week 2 — $2
- Week 3 — $3 and so on…
If you save a dollar per week and add one each week, you will end up with $351. Small amounts of savings snowball into a large sum over time.
The weekly amount you save is entirely up to you. An incremental build-up with each week builds comfort with saving a little more and reducing your spending a week at a time. Or you can save consistently throughout.
For instance, if you want to save $1,000, then you’re saving only $38.46 per week.
If you want to save $5,000 over 52 weeks, then you can save, then you can $96.15 each week. [add chart]
And this is where the magic of the 26-week challenge comes in — it breaks saving up large amounts into smaller chunks that snowball into a large sum. Setting smaller milestones makes the process less daunting and more manageable.
The Money Saving Challenge Flexibility Tips
Here are some tips on how to implement this challenge:
- If you get paid bi-weekly, you can base the challenge on a bi-weekly basis to line up with your pay period. Doing so will align your savings plan with your paycheck schedule, set realistic expectations, and schedule money transfers.
- Set up automatic transfers to deposit a portion of each paycheck into a savings or investment account, so you pay yourself first. Automated transfers save you the hassle of manually transferring every month and spare you from the temptation of spending rather than saving. Automatic transfers are safe and secure and get routinely performed with large amounts. You can transfer funds between your accounts at different banks at no cost to you. When I first implemented this mechanism, I transferred money from my checking account to a different bank that held my savings account and never encountered transfer issues.
- Change up the challenge timeline as you see fit. It can be a 52-week money challenge or a series of bi-weekly money challenges!
- Save money for fun things and enjoy along the way!
Places to Store Money
Depending on your goal, you can deposit your funds into a savings or investment account. Savings accounts are like regular accounts but have FDIC Insurance and may have a limited number of withdrawals per month to encourage long-term holding. Most importantly, they pay out interest on your deposits each month from the money they make loaning out your funds. Currently, interest rates are low as the federal government has lowered them to support Covid-19 relief efforts. Traditional brick-and-mortar banks, such as Bank of America or Wells Fargo, offer interest rates of 0.01% on their savings accounts, according to CNBC.
Online banks offer the most competitive savings accounts earning them the name HYS or high-yield savings accounts. As of June 2021, the online banks in this space, such as Ally, Marcus by Goldman Sachs, and CIT Bank, offer a prevailing interest rate of 0.5% APY. If you deposit $10,000 and hold it for a year, you will make $50. These rates will go up in the future as the Federal Reserve raises key interest rates in the coming years. Savings accounts are best suited for short-term, low-risk scenarios.
The other option is to create a brokerage account and invest your funds in the markets. You can easily buy stocks, bonds, or mutual funds with most brokerages, including E*Trade, Fidelity, or TD Ameritrade. I prefer using full-service brokerages like these instead of brokers like Robinhood because they offer retirement accounts, research reports, educational articles, and customer service resources. Investing always comes with risk, so be sure to do your homework on the assets you invest in. Brokerage accounts are used for longer-term, higher risk savings with the opportunity to earn higher returns.
Another way that is more suitable for the medium-term is to invest in U.S. Savings Bonds — specifically Series I Bonds. These bonds can be paid for and redeemed at face value, but their interest rate gets indexed to the savings rate. According to The Balance, “The actual interest rate is set by a fixed rate that lasts the life of the bond plus a semiannual inflation rate on top of that. The inflation rate is determined once in May and again in November.” It is best to hold these bonds for at least five years or you will forfeit the first three months of interest. Note that you are limited to buying $10,000 of these bonds in a year and add up to $5,000 with your tax refund.
The Bottom Line
We covered the 26-week savings plan and how the spirit of the challenge is to help people save money and develop goals that motivate them to save and invest. There are no hard-set rules with this money saving challenge providing you with the flexibility to design a savings regimen that works for you. The only rule is to develop a saver’s mindset and save money for the things that matter to you. After all, personal finance is personal.