Saving money certainly can feel like an intimidating challenge, especially if you currently save little to none of your income.
A great first step would be saving your first $1,000. But once you save up this small cash buffer, where do you go from there?
This $100 per week money saving challenge is a great way to start the habit of continuously saving. You’ll end up with $5,200 one year from now. Keep it up for 10 years (investing $100 weekly at a conservative 5% annual return) and you’ll end up with a grand total of $67,396.73!
Why Save $100 Per Week?
Well, there is one main reason besides the obvious of $100 per week being a nice even number. It is a fairly reasonable goal for a household with a near-median income.
There is one slight issue when it comes to using dollar values in your money saving challenge. $100 a week, or $5,200 a year, may be too easy or too difficult depending on your household income and household needs.
The median household income in the US was $61,372 in 2017. Everyone’s tax situation is different, but a household with this exact gross income may generally see between $45,000 to $50,000 of net income.
Let’s pick a nice number in the middle: a net income of $47,500. Your net savings rate after completing the $5,200 money saving challenge would be:
Net Savings Rate = ($5,200 / $47,500) x 100
Net Savings Rate = 10.95%
Overall, a household with the median income who follows this challenge successfully would save about 11% of their take-home pay. 11% may not sound like a lot, but it’s reasonable and actually slightly above average. The average savings rate for Americans was just 8.1% as of June 2019!
You can calculate your own net savings rate to see how this money saving challenge works for you.
Setting a Money Saving Challenge That Works For You
$5,200 a year may not be the right goal for you if your household income is much higher or much lower than the median. There are other factors such as cost of living and household needs as well. It’s important after all to set goals that you can achieve!
If you are currently saving little to no money, a good starting point is to aim to save 10% of your net income. Taking your net income and dividing it by 10 will give you a personalized money saving goal if the $5,200 doesn’t feel like a reasonable goal to you.
Regardless of the amount you choose to strive for in this challenge, the principles you apply to accomplish it are the same!
The Gap Between Income and Expenses
In order to find more ways to save money, you must widen the gap between your income and expenses. You can then put this money away to save towards your goals.
This is why it’s important to have well-defined goals that can be broken up further. Remember the $100 per week goal? You can break that down to just $14.29 a day. From there, you just need to actually find that $14.29 gap daily.
Looking at Small Expenses to Save More Money
In David Bach’s book The Automatic Millionaire, there is an interesting concept coined as the “Latte Factor”. This term describes the small daily purchases that have the potential to add up to a huge sum. We are talking purchases such as fancy coffee, take-out lunches, etc.
How much can you actually save with this method? Well, it all depends on how much you’re spending. If you’re buying a $4 latte daily, choosing to make that coffee at home will save you $3.50 at least. That already puts you a quarter of the way there!
Likewise, if you eat out on a daily basis, cooking at home can save you hundreds if not thousands per year. Did you know that 54% of American food spending is on eating out? If you find yourself spending more on restaurants than groceries, rebalancing this may instantly put you in a better position to save money.
Other small expenses that can add up include:
- Lottery tickets, one per week ($5 per week = $260 per year)
- Cigarettes, smoking three packs per week ($24 per week = $1248 per year)
- Banking fees ($10 per month = $120 per year)
The list goes on!
Tackling Large Expenses to Save More Money
There is another method which can either be used separately or in combination with the above; focusing on large expense categories can save you thousands a year without giving up small daily luxuries such as morning lattes!
This method involves managing the “big three” expenses: housing, transportation, and food.
We already discussed food briefly above. Small purchases of coffee and snacks may be included under the “Latte Factor”, but spending thousands per year on restaurants likely falls here. Cutting back to eating out just two or three times a month can help keep your food budget under control!
Housing is the biggest expense category for Americans and holds significant saving potential. Downsizing your home and practicing house hacking (my personal favorite) both have the potential to save you hundreds every month, putting you well on track to complete this savings challenge.
Transportation is the third and final of the “Big Three” expenses. Buying a used car with cash is arguably the biggest change you can make, especially if you’re making payments on a shiny new car that has already depreciated by thousands of dollars. My 2014 VW Jetta cost me just $13,000; it has served me well for the past five years and hopefully will for another 10-15!
Increasing Your Income To Help Save More Money
An increase in income is arguably the fastest way to succeed at this money savings challenge, however it is not easy.
The simplest situation is a promotion or new position that comes with a sizable salary increase. Say your net income increases by $6,000 per year with a new job position. Your savings challenge would be instantly completed, provided that your lifestyle cost doesn’t increase as well!
The vicious loop of increased spending/increased earning is why people with six or seven-figure salaries may still suffer from alarming financial problems. Getting out of it by boosting your savings rate after a pay raise is a game-changer.
The above also applies to increases in annual income through side hustles or passive income from investments.
Automate Your Finances to Improve Your Financial Situation
Want to know the best way to stick to this money saving challenge? Automate your contributions.
The pay yourself first mentality is a common psychological trick in the personal finance world. An automatic transfer to your savings account makes it one step harder for you to make discretionary purchases with the money that was meant for saving. It also is one less thing to think and worry about in general.
Make sure to run the numbers beforehand and make sure you can afford your mandatory expenses with the money left over from saving. If you can’t, then you’re probably saving too aggressively.
Where Should You Save Money and Put Your Savings
The act of putting aside money isn’t enough; it also matters where you’re putting the money.
There is no shortage of options when it comes to investing, and the proper allocation all depends on your goals. After all, personal finance is personal!
You likely have more than one goal, and you’ll want to contribute to them all simultaneously. However, it’s important to know the simple strategies for each type of goal.
Savings and Investment Accounts For Retirement
The importance of saving for your own future cannot be understated. Luckily, there are many different tax-advantaged accounts that are created to encourage money saving.
Maxing out your employer’s 401(k) contribution matching (if available) is one of the few no-brainer pieces of advice in the personal finance world. If you do not take advantage of this, then you are leaving your compensation right on the table!
An IRA is also a great choice for retirement savings. It is less restricted than the employer-sponsored 401(k), but doesn’t have the powerful benefit of contribution matching. Many people have a combination of both these accounts.
There are many other accounts to be aware of (notably Roth IRA’s) and far more strategies to learn. Check out this beginner guide to investment accounts for more.
Savings Accounts for Short Term Goals
Are you saving for a big purchase, or perhaps want to boost your emergency fund? Saving for short-term goals requires a different strategy. You’ll want to save your money somewhere where there is virtually no chance of losing money.
One place this is possible is in a high-yield savings account. Your money can earn 2% to 2.5% in interest, likely just enough to counter inflation. If you plan on using the money within a year or so, that likely shouldn’t matter to you! I like to check Bankrate to find the best high-yield savings rates offered at any given time.
Start Saving $100 a Week Today!
Taking on a money saving challenge can be a fun way to boost your savings. Making it a structured challenge of $100 per week encourages accountability on your part, especially if others are aware of your participation in the challenge.
Whether you are saving zero percent of your income or 10+ percent, there are many ways to further widen your income-expense gap.
Finally, remember the importance of breaking down your big goals into little chunks. The $5,200 may seem large and unattainable, but you’ll be there in no time if you succeed at saving $100 per week!