Reviewing and resetting spending habits could help change your financial life. It sounds like a lot to take on but there may be a fun way to get started and see if it’s for you—a no-spend challenge.
What is a no-spend challenge?
A no-spend challenge is committing to buying just the essentials. While the name sounds extreme, you don’t have to eliminate all spending. Instead, just cut nonessential spending for a specific period of time.
That means no coffee shop lattes, takeout burritos, or new work clothes. You should still spend on critical items like your mortgage or rent, basic groceries, personal hygiene essentials such as shampoo or soap, utilities, transportation costs, and health care.
The goal is to increase awareness of your spending while you learn how to make the most of existing belongings and free resources like your current wardrobe and books from the library. That can help make sure you have money for the things that are most important to you in the future.
You can do the challenge on your own. Or, if you want some friendly competition and helpful accountability, you can invite pals, family, colleagues, or others to participate too.
How to do a no-spend challenge
To get started with your own no-spend challenge, set the guidelines based on your spending and what you hope to accomplish.
Step 1: Review your last few months of spending. This way, you can see where your money is going and identify what can be eliminated. Fidelity’s planning tools can help you track your income and spending with automated budget tools.
Step 2: Decide what counts as essential versus nonessential spending. For example, you might consider your gym membership essential for your health, but those $30 one-off hot yoga classes will need to go.
Step 3: Determine the length of your challenge, such as a weekend, a week, a month, or even a full year. Many people opt for a month since it's ambitious yet achievable.
What are the rules of a no-spend month?
The rules of a no-buy month are easy: Stick with the predetermined essential and nonessential spending for the entire month.
Of course, real life often gets in the way. You can set some exceptions. For instance, you can get a pass for preplanned occasions, like attending a close friend’s wedding or unexpected expenses, like replacing a broken laptop. A no-buy challenge doesn’t need to cause stress but it can help you build good spending habits.
If you decide on a group challenge, consider what will happen if you or someone in your group overspends. Here’s one way to go: Make a rule that whoever breaks the challenge must extend it by an extra day each time they slip up.
What are the potential advantages of the no-spend challenge?
Taking on a no-spend challenge could directly impact your bottom line. It can help make sure you’re spending less than you earn and using all the tax-advantaged savings opportunities you can.
Some of the potential benefits of a no-spend challenge could include:
- Increased savings. Finding the money to save is often a barrier to investing for the future. A no-spend challenge is the perfect way to start streamlining your expenses in order to free up cash.
- Insights into your spending. If you aren’t sure where each dollar goes, there could be room for improvement. Forgotten subscriptions, little purchases here and there, spending on hobbies, can all add up. When you add them all together, it may be more than you intended to spend.
What to do with savings from a no-spend challenge
Here are some ideas to help make the most of your savings.
- Funnel cash into emergency savings—aiming for $1,000 to start and ultimately enough to cover essential expenses for 3 to 6 months.
- Ensure that you’re getting the full match from your employer in a workplace savings plan like a 401(k).
- If you’re enrolled in a health plan that is compatible with a health savings account (aka a high-deductible health plan) you may be able to save and invest for future health care expenses with a health savings account.
- Pay off high-interest credit card debt.
- Consider contributing to an IRA.
Setting up automatic transfers and recurring investments can help make it easier to keep what you’ve saved. Since the money moves automatically, you’ll have less time—and temptation—to spend it.
Try the no-spend challenge
Tracking spending and looking for ways to streamline expenses can be good strategies to help you keep on track toward your goals while enjoying life today. Trying a no-spend challenge could be a great way to get back in touch with your financial foundation.
If sharing your progress helps, find ways to surround yourself with like-minded people, that could be a financial-goals-focused group text, posting social media updates, or meeting with your significant other every week to review your finances.