Saving with the 100 envelope challenge: Pros, cons and other budgeting tips

You may have noticed the 100 envelope challenge popping up on your social media feeds. It's a viral trend inspiring people to save in a creative, hands-on way.

Challenges that turn savings into a game can be fun, but what works best isn't always the flashiest approach. For some, these challenges may be perfect for a kick start. For others, a more flexible, long-term strategy may be a better fit.

This challenge is a simple, engaging way to build a savings habit.

Here's how to do the 100 envelope challenge in three steps:

1. Start by gathering 100 envelopes and a pen. Label each envelope from 1 to 100.
2. Pull one envelope randomly each day. Whatever number is written on the envelope is the amount of cash you put in the envelope. For example, if you pull envelope 27, put $27 in it.
3. If you've kept up, by the end of 100 days, you'll have $5,050 saved in the envelopes.

If you aren't comfortable using cash, you have the option of using an online random number generator instead of envelopes and electronically transferring the chosen amount into your savings account each day. Or, if it's not feasible to save that much that fast, you can pull envelopes weekly instead of daily. No matter how you do it, the idea is to turn saving into an active process to make the habit stick.

Money-saving challenges can be a great way to get into the habit of working with a budget. But while trendy challenges may work well as a starting point, they aren't always designed for long-term success. It's wise to consider their pros and cons.

• Flexible options. Challenges can be adjusted to fit your budget. For instance, with the 100 envelope challenge, you can save over a longer period or set smaller amounts.
• Visual motivation. Seeing your savings grow as the envelopes fill up can be a big motivator to keep going.
• Builds a habit. Committing to a daily or weekly challenge can create a saving habit. It becomes part of your routine.
• Gamifies saving. Turning savings into a fun challenge makes it feel like a game and provides a sense of accomplishment with each step.

• Requires cash on hand. Many of these viral social media challenges rely on physical cash, which may not be as convenient for everyone.
• Has a short-term focus. Challenges are typically set up for a short period, such as a few months, so they may not build long-term savings goals as effectively as other methods.
• Affects day-to-day budgeting. Setting aside cash every day or week for a challenge may divert money from your other financial priorities, especially if funds are tight or unexpected needs pop up.
• You don't earn interest. Cash-based challenges don't benefit from earning interest, which is one reason they may be less effective over time than putting your money into an interest-bearing account like a high-yield savings account or certificate of deposit.

A challenge can be a great starting point or motivator to start saving. But a consistent, long-term savings strategy tends to work better than quick fixes to help you reach your most important goals.

You likely have multiple financial goals, both short-term and long-term. Short-term goals may include building a three- to six-month emergency fund, paying down credit card debt or planning a vacation. Long-term goals could be a down payment on a house or retirement savings. Once you've set clear financial goals, it's important to find a savings method that fits your priorities and your timeline. That's where a budget comes in.

Like a viral challenge, a budget makes savings a habit. But a budget also goes beyond that, taking into account the money you need to earmark each month for necessities and discretionary spending, along with saving. A budget helps you set priorities, plan for the future and achieve long-term financial success.

Here are several other popular budgeting methods to consider.

The pay yourself first strategy prioritizes savings by setting aside 20% of your income for savings and 80% for everything else. You can use automatic transfers to stay consistent—set it and forget it. If you have multiple goals, this method helps ensure your savings stay a priority while leaving flexibility for other needs.

The 50/30/20 budget allocates 50% of your income for essentials, 30% to discretionary spending like dining out and entertainment and 20% for savings or debt repayment. This balance can help you regularly contribute to savings while meeting daily needs and enjoying some flexibility. This budget lets you manage both immediate needs and future financial goals.

The 50/40/10 budget focuses on essentials (50%), savings, debt and investing (40%), with a smaller portion (10%) for discretionary spending. This method can help if you want to make steady progress toward big financial goals, such as building an emergency fund or paying down debt, while still having some flexible spending for fun. It can prioritize multiple goals around savings and financial growth.

The 75/15/10 budget is set up to prioritize necessities. It allocates 75% of income to essentials, 15% to investments like a 401(k) and 10% to savings for short-term goals. This budget may be especially helpful if you have large fixed expenses, such as housing or child care, but still want to build up savings gradually.

Zero-based budgeting assigns every dollar to a specific expense or savings goal, ensuring no money is unaccounted for. This approach may help if you want detailed control over your finances and need to prioritize goals carefully. Tracking each dollar can make it easier to see where to adjust to make progress on saving or debt-repayment goals, but it can be time-consuming.

The envelope method (also known as cash stuffing) sets aside cash for spending in different categories. This hands-on approach can help if you're looking to control overspending. It limits monthly purchases, by category, to the cash available in each envelope. Keeping discretionary spending in check frees up money for specific savings goals or paying down bad debts.

While this money-saving challenge is relatively straightforward, you may have a few questions. Here are answers to some common questions to help you get started.

For many, the envelope challenge is a great way to begin building a long-term savings habit. It also can help you put aside funds for a particular goal, like your next family vacation, building an emergency fund or a down payment for a car. It's a simple way to get started, and you can adjust the amounts and the time as needed.

For those who struggle with consistent savings, it also can be a fun way to save money.

If you complete the challenge by filling the envelopes with dollar amounts from $1 to $100 daily for 100 days, you'll have saved $5,050 over three months. Completing this challenge can be an effective way to save over $5,000 in three months.

This challenge is a variation on the original. Many people get paid biweekly. Instead of saving daily, you save every two weeks when you get your paycheck. You'll have 26 pay periods with biweekly paychecks, so use 26 envelopes. Take the amount you want to save and divide it by 26.

If you want to save $5,050 in three months, like with the 100 envelope challenge, aim for $194 per pay period. You could set amounts aside over the two weeks to ensure you hit the full amount or take $194 out of your paycheck and set it aside for savings.

If you want to save more than $5,000, adjust the amounts. Saving $10,000 can be a more challenging savings goal in 100 days, but it can be done by managing spending, discipline and planning. There are a couple of approaches to this challenge:

• Label 100 envelopes with the day and put $100 in each daily.
• Label 100 envelopes with amounts ranging from $2 to $200, but only even numbers. On day 1, set aside $2; on day 2, set aside $4; then $6 on day 3; $8 on day 4, all the way to $200 on day 100. At the end of the challenge, you'll have $10,100.

Absolutely. The goal is to help build your savings, so you can adjust either the time or savings amount to fit your budget and timeframe.

If you want to save $5,000 in six months, you can pull the envelopes every two days. Or you can double the number of envelopes to 200, start with $0.25, and add $0.25 a day for 200 days. For example, day 1 is $0.25, day 2 is $0.50, day 3 is $0.75, and so on. By day 200, the maximum you would be setting aside at once is $50.

If you want to save $5,000 in a year, follow the same concept as with six months. You can spread out, pulling each of the 100 envelopes once every four days or per pay period.

Starting with smaller amounts or adjusting the time out may feel more manageable but still let you achieve the same results.

The 100 envelope challenge can be a great way to kickstart a savings habit and reach a specific goal. But for lasting financial success, look for a strategy that's sustainable and adaptable to your life.

A financial advisor can provide personalized guidance as you prioritize your goals, develop a budget and save for the future. Connect with a local Thrivent financial advisor to start building a strategy for life.