What is the 100-envelope challenge and should you try it? (2024)

TikTok is here to save your finances. Or so says the latest savings fad.

With a little more than $5,000 in the bank, per the Federal Reserve, households could theoretically double their savings by employing the so-called 100-envelope challenge, which was popularized on the social media app.

The trick is a “fun” method to make an overwhelming problem (saving more money) more manageable. Whether or not it actually works rests on something more fundamental: Your belief that you can control your financial future.

What is the 100-envelope challenge?

The 100-envelope challenge is pretty straightforward: You take 100 envelopes, number each of them and then save the corresponding dollar amount in each envelope. For instance, you put $1 in “Envelope 1,” $2 in “Envelope 2,” and so on.

By the end of 100 days, you’ll have saved $5,050.

Like any good DIY project, there’s a bit of planning involved.

Step #1: Gather the supplies. You’ll need 100 envelopes and a pen to set up your challenge. If you don’t normally carry cash, withdraw some from a branch or ATM. You may need to make a couple trips for cash during the challenge as your paychecks roll in. Also remember that ATM withdrawal limits may apply.

Step #2: Pick out a place to keep your envelope. A box, drawer or safe might do; just be sure that the spot is both secure and easily accessible because you’ll be depositing cash there every day.

Step #3: Prepare the envelopes. Number the envelopes from one to 100. You can arrange them how you like – in ascending or descending order, or even put one randomly after the other. Perhaps you’d even like to design the envelopes to give the challenge an extra zhuzh.

Step #4: Stuff an envelope with cash each day. Select an envelope and fill with the appropriate amount of cash. For example, if you select the envelope with the number 49 on it, you’ll tuck $49 into the envelope.

Step #5: Repeat until each envelope is full. While this may sound easy, it is a challenge. Some days you may have less cash on you and you could be tempted to pull a different envelope. Stick to the rules as closely as you can. If you can tough it out, you’ll save more than $5,000 in just over three months.

Once you have your cache, you could deposit it in one of the best certificates of deposit (CDs) to continue saving.

Giving yourself the power

Of course, these aren’t magic envelopes; you’re not conjuring up $5,000 out of thin around and allocating them to paper containers over the course of three months.

Instead, you’re tricking yourself into putting your cash into safekeeping rather than letting it fritter away on unnecessary purchases. The effect is subtle.

For instance, let’s say you draw Envelope 10. That means you need to go to the ATM, and withdraw $10. The hope is that this action (essentially moving $10 from your bank account to an envelope) will cause you to not spend that $10 on, say, takeout. Perhaps on that day, you eat leftovers instead of heading over to Chipotle.

By doing this for an extended period of time, while keeping an end-date in mind, you will hopefully develop a habit of regulating your spending so that you are able to save the money.

And you’ll be able to reach the 100-day goal by building up little successes along the way. Once you’ve saved for a week, say, and didn’t experience any noticeable diminishment in your standard of living, you’ll have the confidence in your ability to keep going.

Pitfalls to avoid

Therefore, the challenge is very much like a diet. Rather than eating less to lose weight, you’re spending less to improve your savings.

But like a diet, it does little good if you revert to your old habits once the challenge is over.

If you save $5,000 only to increase your spending by the same amount over the next few months, then you’re right back where you started. What good is putting $5,000 in envelopes if you add on $5,000 in credit card debt?

Therefore, it’s important to begin with the end in mind; you are embarking on this challenge not only to save a little money, but also to better live within your means.

Another hurdle is that you fail the challenge altogether. This can have two bad consequences: you don’t save anymore, and you’re so discouraged that you actually develop worse financial habits.

This ‘what the hell effect’ is a response that occurs after you’ve erred in a task: If I can’t save money, the thought might go, then why not just enjoy spending more of it?

Stave off this impulse by setting yourself up for success. If 100 days seems too difficult, begin with 10 or 20. Once you’ve hit that goal, then proceed to 30 or 40, and so on.

The point is to end up in a better financial position than you were previously rather than meeting some arbitrary goal.

What to do with your savings

Once you’ve completed the challenge, you then need to decide what to do with your winnings.

Many Americans lack a sufficient emergency fund (typically three-to-six months’ worth of essential expenses). If that resembles your situation, consider parking your $5,000 in a certificate of deposit (CD) or high-yield savings account.

“[CDs] could pay even higher interest than a savings or money market account,” said Nicholas Bunio, a certified financial planner (CFP) based near Philadelphia. “But there really isn’t any liquidity.”

For example, if you have a one-year CD, you can’t touch the money until the year is up or else you’ll have to pay a penalty.

“For people who have idle cash and don’t want to invest it, I think it should be in a high-yield savings [account], not a CD, because CDs are restrictive,” said Sarah Behr founder and advisor at Simplify Financial Planning in San Francisco.

Of course, all spinach and no dessert can be a difficult meal to swallow. Consider putting at least some of the cash into an account designated with a specific purpose, such as a vacation fund or Christamas presents. That way you know you’ll be able to enjoy the fruits of your labor.

“[Savings accounts are] a nice way to keep money earmarked for non-day-to-day expenses segregated,” said Lisa Kirchenbauer at Omega Wealth Management in Arlington.

Other money-saving challenges

There are no shortage of savings challenges. If something about envelopes puts you off, consider one of the following options. The theme of each is fooling yourself to spend less.

The $20 money-saving challenge

The $20 money saving challenge involves saving $20 from every paycheck. If you are paid biweekly, you’d end up with $1,040 by the end of the year.

52-week savings challenge

The 52-week money challenge leads to saving $1,378 in a year. In the first week, you’ll save a dollar; $2 in the second week and so on. The most you’ll ever have to put away within one week is $52, which makes this challenge much more manageable than the 100-envelope challenge.

The $5 challenge

Each time you receive a five dollar bill, tuck it into your savings. You can continue doing this for as long as you want to watch your savings grow. If you pay for things in cash regularly, this challenge can be effective.

No-spend challenge

The no-spend challenge is similar to going cold turkey on a bad habit. The intent is to give up discretionary purchases for a set period of time. You can still spend on essentials, such groceries and gas, but you can’t spend on extras, like new clothes or dining out.

A no-spend challenge can last for as long as you want and can be repeated for as often as you want. For example, you could try to do it for a week each month for three months. Many try to stick with this challenge for a whole month, but even doing it for a few days can be hard.

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