Did you survive Blue Monday? The third Monday in January is said to be the most depressing day of the year. After the high of Christmas with all of its overspending, many will be limping towards the first pay-day of the year.
It’s exactly this kind of penury that makes so-called savings challenges so popular this time of year. A savings challenge is a novel way of getting yourself to save money. It typically entails challenging yourself to put away small amounts of money every week or month that you might otherwise spend.
The challenge can entail committing to a new financial habit, using an app to gamify saving or joining with a loved one to save towards a goal.
But do savings challenges work, and how much can you save? If tomorrow is your first pay cheque of the year then here are some novel ways to save.
Savings challenges can be a great way to motivate yourself, especially when a big financial goal feels overwhelming, says Caz Mooney of the popular @IrishBudgeting Instagram account.
“Sometimes just breaking it down and knowing if you complete the challenge you will have saved a certain amount by the end of the year can really motivate you,” she says.
Little and often
Pensions and insurance company Zurich, for example, has a 12-month savings challenge which you start by saving €10 in January, increasing it by €10 each month. So you save €20 in February, €30 in March and so on. Keep going and you will have saved €780 by the end of the year.
You could set yourself an even bigger challenge by saving €50 in the first month, Zurich says, adding €20 in subsequent months. With this challenge you save €70 in February, €90 in March, and so on. Stick to this schedule and you’ll save €1,920 by the end of the year. Not too shabby.
Savings challenges that increase throughout the year, however, can be hard to complete, Mooney says. Are you likely to be able to spare €270 in December?
“Sometimes it can be useful to flip them on their head and save the opposite way around,” she says. Saving €270 in dry January and just €50 in December might be more doable.
A downside of saving a different amount every month means moving the funds yourself. Save a fixed amount instead and you can automate it with a standing order, making the habit more likely to stick.
You do not have to save a big amount as committing to saving a small amount regularly can really add up, Mooney says.
“If you could save €5 a day, that would be €1,000 in six-and-a-half months, or €1,800 in a year,” she says. “Or €20 a week would be €1,000 in less than a year,” she says. With the price of coffee in some establishments hovering around €4.50, diverting a few Americanos a week to savings can make a difference.
Round it up
Those using online banks like Bunq or Revolut for daily spending can opt in to have the change from every purchase automatically saved. Do this and the next time you spend €4.50 on a coffee, the €0.50 change will be added to your savings automatically.
Financial adviser David Looney uses Revolut’s rounding function.
“Any spare change from purchases my wife and I make through Revolut goes to our holiday vault on Revolut,” Looney says.
“Even if you are just going for a hotel stay in March, you might find there is €100 in the vault that you might not even know is there. It can make the bill that bit easier to cope with.”
If you are spending in a different currency, however, beware transaction fees. At weekends, for example, Revolut customers are charged a 1 per cent fee on currency exchanges. Paying fees to save does not really make sense.
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Looney recommends saving by rounding for short-term goals only as savings held in Revolut vaults, for instance, do not earn interest.
“If someone is saving for a deposit for a house or a car that’s four or five years away, they ideally should be looking at positive interest accounts to give them a bump on their savings,” he says.
Mooney does not really do rounding, preferring instead to pay for things in cash. She and her husband have separate bank accounts, but both contribute to a banking app ‘savings jar’ to save for their holidays. The visibility and accountability of saving jointly spurs them on, she says.
“We can both share that common savings goal and work towards it together as a team. We can see what each other is saving and motivate each other,” Mooney says. They saved for dental braces for the children this way, too.
Feed five people for a fiver?
Could you feed a family of five for €5? Mooney’s family, which includes two teenagers and a preschooler, saves money by completing this challenge two to four times a month.
The ingredients for the €5 meal that got the most attention on her social media – a total of 3.5 million views – came to €4.91. Planning weekly menus to include less expensive meals, such as tagliatelle, mushrooms, spinach with crème fraîche and pine nuts, four times a month can make for tasty savings.
‘Fakeaways’ are another way the Mooney family save. Eschewing the urge to eat out or order in on pay-day, they create their own takeaway or dining-out experience at home.
“On Saturday night, we all had steak and home-made fries; the whole meal cost €12 for five people. We lit candles and made it a bit fancy and it was lovely,” Mooney says.
“You can think in your head it’s much more difficult than it is and maybe it would be easier to eat out, but you are saving so much money. That meal would have cost us €100 or more for all of us to eat out.”
No-spend and low-spend challenge
Could you do a no-spend year? That’s the challenge Kel Galavan, founder of MrsSmartMoney.com set herself in 2019. Having left a full-time job to spend more time with her children, the family income had to work hard, so she began a no-spend year, reducing her family’s outgoings by €27,000.
“What I realised is that it was all about healthy habits and understanding the power of €2, €5 and €10 and how it adds up,” she says. Galavan trained as a qualified financial adviser and now coaches others on a 14-day No-Spend Revolution course.
Committing to a no-spend year is hard-core, but a no-spend day once a week when you do not spend money other than on essential groceries or essential bills is a more doable challenge. You could pick one a day a week when you will bring lunch to work, ditch the takeaway coffee and stay away from online shopping.
A no-spend weekend is also popular, David Looney says. “I’ve had clients say to me [that] once a month they will do a no-spend weekend where they will cook the food they already have, do a Netflix binge and clean the house. In January especially, you are trying to stay out of the pubs and restaurants.”
Mooney says people could also challenge themselves to some low-spend months
“We are doing a low-spend January at the moment. We are trying to save towards goals and we are giving ourselves a boost by doing a low-spend month – that means no takeaways, no eating out. We are creating our own at home,” she says.
Commit to a low-spend day, week or month and the benefits last. “You start to think about your finances and all the times you would have mindlessly spent money. Doing a low-spend week really does change your financial habits for a good while afterwards,” Mooney says.
Do not just challenge yourself to eliminate an expense, save that amount too, the Money Advice and Budgeting Service says. That way your savings will not get spent on something else and you can see just how much you are saving and feel a real sense of accomplishment.
You could challenge yourself to bring lunch to work three days a week. Save €30 a week and you will have about €1,440 at the end of the year.
Housekeeping first
Before embarking on savings challenges, get everything else in order first, David Looney says. Comb through your direct debits to see what can be ditched or where you can get a better deal.
“Increasing your disposable income will give you more capacity to save. Review your subscriptions, review your mortgage rate and reduce your repayments,” he says. Where you have identified savings, create a monthly standing order for that amount and save it.
Those paying the top rate of tax will be taking home about €70 a month more this year, Looney says.
“Get into the habit of putting that somewhere valuable for your financial future – a [high-interest] savings account or, better again, your pension,” he says.
“If you increase your pension by about €120, your take-home pay in January is going to be exactly the same as it was in December because of the change in tax bands.
“If you don’t do that, lifestyle creep will eat up the extra money and it’s kind of gone before you even notice it was there.”
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Labelling your savings is a great motivator too, he says. “Put some kind of emotional attachment to a savings account – like ‘This is the account for my holiday or for changing my car in four years time, or this is our mortgage saver account’. This gets you in the frame of mind to work towards your financial goals.”
Mooney budgets every cent of her payslip. After fixed expenses, she takes out what she needs for everyday life, such as food, diesel and personal spending, then puts the rest towards savings.
“You’d be surprised where you can find a little bit of extra income that you can put towards savings, so I like to use it as an added bonus,” she says.
“Savings challenges are a great motivator, but they are not everything. You can put all your energy into a challenge, but it’s better to walk before you can run. Create the foundations for the coming year first.”
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