Thoughts on the $5 Challenge, the 365-Day Challenge, and Other Financial ‘Challenges’

The new year tends to bring forth a lot of people pledging resolutions for the coming year and talking about their successes (and occasionally their failures) over the last year.

One particular flavor of this phenomenon that I find interesting is the “challenge,” something that seems to pop up in various ways with various self-improvement strategies at the turn of the year. I’ll hear from a few people that succeeded at a “challenge” the previous year, and from others asking whether a particular “challenge” they’re considering makes sense.

So, what’s a “challenge”? It’s basically any year-long plan for self improvement that requires you to take some simple action on a very regular basis throughout the year, one that accumulates into a big overall success at the end of the year.

Here are a few of the ones I’ve seen that are financially related:

The Starbucks challenge means you pay for your coffee at Starbucks (or at any coffee shop) with cash and put aside the change you receive until the end of the year, at which point you can do something big with it (pay off debt, etc.).

The $5 challenge means that whenever you receive a $5 bill as change, you put that $5 bill aside until the end of the year. Those accumulated $5 bills can be used for some type of financial move.

The 52-week challenge, which was so popular a couple of years ago that I wrote about it and suggested a better version and Simple Dollar editor Jon Gorey recently wrote about six additional variations, involves saving a dollar a week plus a dollar for every previous week for the entire year. So, on the first week you save $1, on the second week you save $2, on the third week you save $3, and so on until the 52nd week where you save $52 (over the year, you end up saving about $1,400). Again, you use that money for some kind of financial move, perhaps just something as simple as paying off holiday credit card debt.

The weight loss financial challenge is a fun one. Every time you weigh in this year, put aside $5 for every pound you’ve lost since the last time. When you hit your goal (or the end of the year), use that money to celebrate.

These types of challenges are quite brilliant because they incorporate several key elements of what makes a goal successful.

They’re specific. It’s very clear what you’re supposed to do when taking on a challenge. “When X happens, do X” is about as clear as can be.

They’re measurable. Your progress is extremely clear because you measure your success by whether you did it each time and you measure the overall total by the dollars and cents.

They’re actionable. You take a simple action to complete each step.

They’re realistic. For most people, the steps in these challenges are completely realistic. Almost anyone can take these on (or take on some simple variation).

They’re time-bound. These challenges last for a year. You know exactly when it’s done.

On the whole, I endorse such challenges rather strongly. If you find one that clicks with you and motivates you to put money aside for the future, then by all means, dive in!

I just have a few caveats in general.

First, it’s a good idea to use the money at the end of the year for actual financial progress rather than a “celebration.” If you take on one of these challenges and find yourself with a few hundred dollars or a thousand dollars at the end of the year, use it to do something lasting and meaningful. Pay off a credit card debt. Pay down a student loan debt. Put it in your Roth IRA.

Sure, such a choice might seem boring, but it takes that money from being something that’s used for a momentary celebration and then forgotten to being something that has a lasting positive effect on your life. An extra thousand dollars toward a car loan or a student loan can make a real difference in your life. Paying off a credit card can make a real difference in your life.

One of the big things I noticed during my financial turnaround is that as my debts went away and my savings started to build, my overall life felt less stressful. I didn’t feel nearly as stressed out on a daily basis as I did when we were really financially struggling. This has only continued over the ensuing years. Our finances are one part of our life that doesn’t worry us very much.

The money you pick up from a financial “challenge” like this is a great start down that road to financial peace. If you succeed at this kind of challenge, use it as a starting point for a lasting life change rather than just a forgotten celebration.

Second, right out of the box, challenges like this won’t necessarily click with you; don’t be afraid to modify it. Modifying and tweaking challenges like this to better suit your life is a great way to make the challenge more meaningful and useful to you.

For example, with the 52-week challenge, I highly recommend doing the weeks out of order and simply challenging yourself to put aside as much as possible each week, trying to knock off one of the big numbers if you can and leaving the little ones for later weeks when money might be tighter.

With the “Starbucks challenge,” consider using that approach for whatever small purchase you make frequently. If you buy a sandwich at a food truck near your workplace three times a week, pay with a $10 and use that change as the source of your “challenge.” If you stop by a bookstore once a week and buy a new book, pay with a $20 and put aside the change for that challenge. Tweak it to what you do.

With the $5 challenge, you might make it the $1 challenge (save all single $1 bills you receive in change that you don’t have earmarked for something else, like paying a toll) or the Hamilton Challenge (do it with $10 bills instead).

The key is to find a way to make the challenge relevant to your life, which will make the challenge both more fun and much more likely to succeed.

Third, and finally, don’t use this type of challenge as an excuse to make other financial mistakes. It’s easy to turn the $5 challenge into something like “Oh, if I spend $12 here I’ll probably get a $5 bill back in change which can boost my challenge!” You’re better off not spending it at all unless there’s a purpose. Similarly, you might decide to hit Starbucks just so you can use the change to boost your challenge. Again, don’t go to the coffee shop unless you actually want to go to the coffee shop.

These challenges really only benefit you when they nudge you toward strictly positive behavior – putting aside money instead of spending it on frivolous forgettable things, mostly. If you’re instead using this challenge as a reason to spend money on frivolous forgettable things, you’re basically undoing any benefit of the challenge. If you’re going to Starbucks and dropping a $10 bill in large part so that you can put $3 toward the challenge… why not just put $10 into the challenge money?

With all of that being said, I do encourage you to try one of these challenges if you struggle to put money aside for the future and one of them seems compelling to you. It’s a very effective way to turn the act of putting aside money for the future into an ordinary thing and then, at the end of the year, you get a great look at how powerful such simple steps can really be over time. It can catapult you into more and more aggressive challenges going forward… and the truth is that the road to financial success is basically just that. It’s a bunch of these types of challenges intertwined.

Good luck!

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