Cash News
A no-spend challenge can be a helpful way to rein in poor spending habits and give your budget a much-needed reset.
Of course, this type of financial challenge can help you save money. But a no-spend challenge has the potential to provide you with even more valuable benefits as well. Participating in this type of challenge can give you insight into how you’ve been spending your money and help you reset your financial priorities for the future.
No-spend challenges have become more popular in recent years thanks in large part to social media. Yet the concept of a no-spend challenge isn’t new. Here’s everything you need to know about how this financial challenge works, the benefits it offers, and how to plan a no-spend challenge of your own.
What is a no-spend challenge?
A no-spend challenge is a commitment not to spend money on any nonessential purchases for a set period of time. In general, it’s acceptable to make purchases and pay bills that are essential to your everyday survival, such as buying groceries and gas and paying your bills and credit obligations. But nonessential spending, such as eating out, buying clothing, entertainment, or travel-related purchases, would be off limits.
By cutting back on your spending, you may be able to accomplish several goals. One of the most obvious side effects of a no-spend challenge is that you should save money. However, another by-product of this type of challenge is the ability to identify areas in your budget where you might be overspending and make informed adjustments moving forward.
Steps for participating in a no-spend challenge
No-spend challenges come in many different forms. As a result, you have the freedom to create a customized plan that works best for you. Below are some steps to help you build your own no-spend challenge when you’re ready.
1. Define your financial goals
To begin a no-spend challenge, it’s important to identify your goals — and it’s a good idea to write them down as well.
Perhaps your budget is overextended or you’re struggling with overspending. In such a scenario, a no-spend challenge could be especially helpful. But even if you’re not in a challenging situation, making an effort to avoid spending money on nonessential purchases could give you a chance to define or update your financial priorities.
What to do with the money you save
Of course, you should also decide what you want to do with the money you save during a no-spend challenge. Setting these types of goals could provide essential motivation to help keep you on track.
Below are some suggestions to consider.
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Build an emergency fund. Starting or adding to an existing emergency savings account could be a great use of any extra cash you save during a no-spend challenge. According to the Urban Institute, even an emergency fund as small as $250 to $749 could help reduce your chance of eviction or missing important bills.
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Open a high-yield savings account. Another smart way to use the money you save during a no-spend challenge is to put it in a high-yield savings account. Doing so could help your cash grow at a faster rate for whenever you want or need to access those funds in the future.
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Pay down debt. If you owe high-interest debt to creditors, especially credit card debt, it could be a good idea to use the money you save during your no-spend challenge to pay down those balances.
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Treat yourself. It’s fine to splurge sometimes. So, if you want to use some of the money you save during a no-spend challenge on a treat like a large purchase, entertainment, or vacation, there’s nothing wrong with doing so. Just be sure to plan ahead and make sure the expense fits into your budget without creating any new debt.
2. Set the timeline
There is no specific time frame you have to follow for a no-spend challenge. However, it can be helpful to define your preferred timeline up-front.
For example, maybe you’ll commit to avoiding nonessential purchases for 30 days. Or, you might start smaller and aim to go a week or even a few days (perhaps a weekend) without spending money on any nonessential purchases.
3. Set your ground rules
Once you define your financial goals and your timeline, you’ll want to set some ground rules. These rules are essentially the spending guidelines you’ll choose to follow throughout the no-spend challenge.
You may want to write down a list of approved expenses and purchases you will make during the challenge.
These might include the following.
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Monthly bills (e.g., mortgage or rent, utilities, mobile phone, insurance, debts, etc.)
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Groceries
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Gas
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Essential personal and household items (e.g., cleaning products, personal hygiene needs, medications, etc.)
Keep in mind that you might need to give yourself a little flexibility in case an expense comes up that you didn’t anticipate. However, it’s important to create a list of purchases you’re determined to avoid as well.
Below are some suggestions to consider.
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Dining out
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Fast food or coffee
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Alcohol
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Haircuts or nail salons
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Entertainment or travel
It’s also wise to plan ahead when it comes to at-home meals and free entertainment, especially if you’re used to spending money on activities and eating out regularly. Making a meal plan and planning alternative free activities in advance could help you avoid temptation and make you more likely to stick to the challenge.
Is a no-spend challenge right for you?
A no-spend challenge isn’t a long-term financial plan. But it could be a helpful way to save money, which you could use to beef up your emergency fund, contribute to a high-yield savings account, or reach other small financial goals. This type of financial challenge could also be a useful tool to reset your budget and perhaps learn to reevaluate how you’re spending your money.