‘100 Envelope Problem’ Professionals And Cons For Saving Cash

From loud budgeting to lady math, TikTok is an countless supply of traits and details about private finance.

A very quippy one which has taken maintain is the “100 envelope problem,” an method to saving cash that makes use of money and envelopes to gamify the expertise.

So what precisely is the 100 envelope problem and the way does it work? We requested private finance specialists to interrupt down the strategy, in addition to the advantages, downsides and every little thing else you must know earlier than attempting it out.

“The 100 envelope problem is a viral money-saving technique the place you quantity 100 envelopes from one to 100,” stated Jack Howard, the top of cash wellness at Ally Monetary. “Every day, you choose a random envelope and insert the corresponding greenback quantity to be tucked away till the tip of the problem. So, when you choose envelope #32, you must put $32 {dollars} within the envelope.”

On the finish of 100 days, you must have a complete of $5,050 in money put aside. The problem can even progress linearly as a substitute of randomly. The choice method could be to begin with envelope #1 on the primary day and put apart $1 then $2 into envelope #2 the subsequent day, $3 into envelope #3 and so forth.

“Popularized by TikTok, the 100 envelope problem is basically a option to make saving cash extra approachable,” stated Courtney Alev, shopper monetary advocate at Credit score Karma.

Having to primarily “pay” an envelope day by day would possibly encourage you to chop again elsewhere in a method that feels extra pure and seamless. It’s also possible to regulate your totals to suit along with your private financial savings targets.

“If placing away that a lot money isn’t practical, particularly if you’re coming into the double digits, you possibly can customise the quantity per envelope that matches your price range however nonetheless looks like a problem,” stated Andrea Woroch, a shopper finance and budgeting knowledgeable. “In the end, you’re nonetheless saving ― and saving greater than when you didn’t take part within the problem in any respect.”

Whereas the 100 envelope problem is tied to the TikTok period, the idea of placing money into envelopes to encourage saving isn’t new.

“The envelope budgeting technique has been round for a very long time, however with a special focus,” Woroch defined, noting that earlier variations required budgeting out a sure amount of money for every expense in your price range. “You’ll be able to solely use that quantity, so if it runs out, you’re out ― which may preserve you out of bank card debt and on a good spending plan.”

“Like the opposite viral money-saving strategies, there’s gamification and a way of enjoyable added to one thing you must already be doing,” Howard stated. “When saving cash turns into a ‘problem,’ it may be a motivator, particularly when it leads to $5,050 of money.”

She famous that this each day problem additionally forces you to observe cash mindfulness. Certainly, doing one thing constructive for 100 days is an efficient option to develop more healthy habits.

“You will have a each day aim that requires considerate planning to execute,” Howard stated. “Understanding you have to meet the aim could cease you from spending on stuff you actually don’t want and have traditionally bought out of behavior.”

Altering your spending habits and saving cash can really feel like a giant, intimidating endeavor within the summary, however this method helps you begin small and take it one step at a time.

“Strategies just like the 100 envelope problem may help as a result of it turns saving right into a sport, and you’ve got a transparent path and aim to observe, which reduces the psychological load of planning and staying targeted,” Woroch stated.

So not solely are you saving a very good chunk of cash in a short while, however by fostering a budget-oriented mindset and new practices, you’re additionally setting your self as much as save more cash in the long run.

“It may be an amazing technique for individuals who are extra visible, and wish to bodily see the cash they’re saving and spending as a substitute of utilizing a bank card and paying a invoice,” Alev famous.

“If you’re somebody who doesn’t have a tendency to hold money, chances are you’ll be making a number of journeys to the ATM,” Alev famous. “Towards the tip of the problem you’ll have a considerable amount of money available, and also you wish to safe it in a secure, hidden spot that isn’t simple for others to entry.”

There are dangers to maintaining such giant portions of money in your house, so that you would possibly wish to rethink the envelope method when you’re susceptible to misplacing issues or stay in a spot the place theft is a priority.

“You might wish to do that digitally by transferring cash right into a devoted financial savings account every day and maintaining observe of those transfers utilizing a spreadsheet,” stated Jannese Torres, host of the “Yo Quiero Dinero!” podcast and creator of “Financially Lit!”

To pursue the 100 envelope problem, you’ll additionally should be practical about your monetary scenario.

“Be sure to’re saving an quantity that received’t derail your price range or drain your checking account, as this might imply overdrafting your account or carrying a steadiness in your bank card to pay for each day necessities within the occasion you withdrew the cash you needed to pay for these purchases within the first place,” Woroch cautioned.

“Clearly, paying curiosity on a bank card isn’t a sensible cash transfer, so it’s vital to determine the place you possibly can in the reduction of and the way a lot it can save you every day with out messing up your money stream,” she added. “I’m positive there are many pointless purchases you may reduce out to make this work, or memberships and subscriptions you may pause in the meanwhile.”

Surprising bills might additionally come up through the 100 envelope problem course of, so that you would possibly get discouraged when you aren’t in a position to follow the principles of placing apart cash each single day consequently.

“On the finish of the day, it’s one other fad that doesn’t promote a sustainable saving observe ― and the $5,050 isn’t assured,” Howard stated. “Some would possibly discover it tough to recollect to finish the problem every day and fall behind on the aim to avoid wasting in 100 days.”

She recalled attempting the same problem with a plastic pockets that encourages $40 contributions.

“I assumed it could be a straightforward option to save $1,000 rapidly,” Howard stated. “The issue is I typically want money and can pull from the envelope once I have to pay for pizza supply, act just like the tooth fairy when my daughter loses her tooth or have to pay for parking.”

You might additionally miss out on further earnings by saving your cash in money at house, she added.

“When you select to maintain your money in envelopes as a substitute of a standard financial institution, you’re lacking out on compounding curiosity,” Howard defined. “A high-yield financial savings account will assist your cash develop over time, even after the 100-day problem ends. We’re at the moment in a aggressive charge setting which is nice for saving.”

“Like every budgeting technique, it really works when you follow it,” Alev stated. “For greatest outcomes, make a plan for the cash you’ll save earlier than you begin. Whether or not you’re trying to begin an emergency fund or wish to pay down debt, having an finish aim will aid you keep motivated all through your complete problem.”

Accountability buddies can present nice motivation in any financial savings endeavor, together with the 100 envelope problem.

“I believe it could possibly work, but it surely does require self-discipline,” Torres stated. “So I’d suggest inviting some mates to affix in on the problem to maintain one another accountable.”

Take into consideration methods you may reduce down in your spending or earn more money to assist full the problem as properly.

“I additionally like utilizing financial savings instruments that save for you,” Woroch stated. “Qapital that has a spherical up function by which it rounds up purchases to the entire greenback ― or no matter quantity you choose ― with linked debit playing cards, after which saves or invests that spare change. That spare change can add up quick!”

She beneficial digital instruments like Fetch or CouponCabin that let you earn money again on the each day purchases it’s a must to make anyway.

“When you’re on a good price range, you don’t should miss out on this financial savings problem ― take into consideration canceling or pausing subscriptions and memberships you actually don’t want, haggle your month-to-month payments or take into account taking over a aspect hustle simply in the meanwhile,” Woroch stated.

She added that you may earn further money by pet sitting via Rover or tutoring via Varsity Tutors as properly.

“To benefit from your cash whereas nonetheless difficult your self, why not mix the Envelope Problem with a high-yield financial savings account?” Howard stated. “Every day you possibly can choose a quantity between one and 100 and switch the correlating greenback quantity out of your checking account to your financial savings. That method you’re profiting from incomes curiosity and your cash is protected.”

Official banking can even take away the temptation that’s there when you’ve got envelopes crammed with money and have to rapidly seize cash to pay for one thing. For a lot of, it takes extra effort and thoughtfulness to dig into their on-line financial savings.

“It’s vital for folks to grasp that these viral moments are typical of social media and don’t at all times present the low moments in life,” Howard famous. “When you would possibly come throughout somebody who simply accomplished the problem, there are a number of individuals who discovered it tough to maintain up with or had an sudden expense that derailed them.”

These moments are hardly ever shared on-line, so attempt to preserve that perspective when you think about a technique just like the 100 envelope problem. And don’t be discouraged when you don’t discover the success you noticed on TikTok.

“What works for one particular person doesn’t work for everybody else,” Howard stated. “Whereas it’s vital all of us have a plan of assault in relation to our financial savings, you must solely do what works greatest for you and your way of life.”