The no-spend challenge entails eliminating all discretionary expenses for a set period. It can work wonders for your finances, helping you save towards major goals and establish better habits.
If you’re not careful, though, the no-spend challenge could actually do more harm than good. Keep reading for some insights into the pros and cons of this popular money management technique.
How the no-spend challenge works
During the no-spend challenge, you’re only allowed to pay for things like:
Everything else – including entertainment, clothes, gifts, snacks, and non-essential travel – is off-limits.
Sounds tough, right? The good news is that you can choose how long to participate in the challenge. Some people aim to last a weekend while others target one week or month. Whatever your target is, hitting it equals success!
Benefits of the no-spend challenge
Here are some commonly-cited perks of successfully completing this challenge.
Achieving goals faster
Money you save during the no-spend challenge can go directly towards long-term goals.
Let’s say you plan on taking a vacation in five months, for example. If the no-spend challenge saves you $100 every weekend, you’ll be $2,000 closer to your goal.
Many people struggle with financial impulsivity. If you’re among them, this challenge could help you form better habits over time.
After all, psychologists often liken willpower to a muscle. Quitting bad financial habits cold turkey is akin to deadlifting 400 pounds on your first attempt. With the no-spend challenge, you could start small by aiming to last a weekend, followed by one week, and so forth.
Not all impulsive spending habits are obvious. In fact, consumer credit makes it very easy to overlook reckless behavior. Just keep up with monthly payments and credit card companies will never protest those spontaneous orders from Uber Eats and Amazon.
The no-spend challenge forces you to directly confront every impulse. You’ll very quickly discover just how dependent you are on those seemingly-nonchalant routine purchases.
Discovering ways to have fun without spending money
Because spending money discretionarily is out of the question during this challenge, you’ll need to get creative about entertainment. That will likely require making the most of items you already own, having meaningful conversations with friends, or even just getting outside for some exercise.
However you approach this, the no-spend challenge is certain to increase your resourcefulness.
Dangers of the no-spend challenge
While this challenge offers many benefits, here are a few pitfalls you might run into. Later, I’ll give you some tips for avoiding them.
Focusing too intently on the small picture
During the no-spend challenge, people tend to focus on eliminating relatively small, short-term expenses such as:
- dining out
- buying snacks
To paraphrase Ramit Sethi’s famous adage, these are $3 problems. Addressing them will only improve your life and finances to a point. You’d get further focusing on $30,000 problems such as whether you:
- spend too much on housing and transportation
- have a solid-long term financial plan
- are compensated fairly at work
The no-spend challenge doesn’t inherently force you to address these concerns. In fact, you could succeed at it without ever coming close to confronting them.
Establishing a false sense of security
To build on my last point, this challenge can create the impression you’re accomplishing a lot even if your actual financial progress is mediocre at best.
For example, let’s say you put a ton of effort into not spending money discretionarily for a whole month and save $500 in the process. That’s great! But what if you actually needed an additional $1,000 that month to stay on track with your goals? You would’ve spent all that willpower yet still fallen considerably short. Perhaps you’d be better off working to increase your income.
Rather than recognizing and addressing reality, though, people in situations like this often lull themselves into a false sense of security. “If I’m putting so much effort in,” the logic goes, “surely the numbers will work themselves out eventually.” Money doesn’t work like that, though.
Approached unwisely, this challenge could provoke the financial equivalent of bulimia nervosa.
Bulimia is a disorder characterized by alternating cycles of binge eating and purging. During a purge, patients might compensate for binging by going several days without food. As you can imagine, this is incredibly unhealthy.
Likewise, the no-spend challenge can be very damaging when used to periodically compensate for recklessness. In fact, you likely won’t save enough to fully counteract binge spending, especially if you leave weeks or months in between every attempt at the challenge.
You’d be better off pacing yourself to achieve a healthy balance between saving and spending.
Simply deferring discretionary purchases
Many people simply defer their poor habits, amassing a laundry list of wants they go out and buy once the no-spend challenge is over. This defeats the entire purpose because they don’t actually end up spending less money than they would’ve without the challenge.
Shaming yourself for reasonable wants
The no-spend challenge is quite rigid. During it, you can’t spend any money whatsoever discretionarily. Many people understandably fail at this, prompting shame about decisions that may have been completely reasonable in the grand scheme of things.
Let’s say you crack after a stressful day and resume your $10 per month Netflix subscription midway through the challenge.
Will this sink you financially? Of course not. You’ll likely feel ashamed about having failed, though. You may even start viewing yourself as fundamentally irresponsible with money (and therefore a hopeless case) – all because of a perfectly reasonable decision to relieve stress using cheap entertainment.
Step-by-step guide to completing the no-spend challenge successfully
Next, here are some steps you can take to ensure the no-spend challenge yields positive results.
1. Carefully consider your financial goals
What are you hoping to get out of the no-spend challenge? Will you use the savings to eliminate debt, build your cash buffer, or fund something else entirely?
Whatever your intention may be, explicitly identify it. This will be helpful for two reasons.
First, you’ll have a tangible end-goal to keep in mind during the no-spend challenge. This can help you stay on course, even when things get difficult.
You’ll also be able to gauge whether this challenge is even appropriate for your goals. As I mentioned earlier, there’s little point in dedicating your time and energy to the no-spend challenge if another strategy would yield much stronger results.
Make sure to look beyond your immediate goals as well. What’s your ideal financial situation 10, 20, or even 30 years from now? Do you have a concrete strategy for getting there or are you hoping the no-spend challenge will be a quick fix?
These are important questions to ask. The no-spend challenge should align with your goals and complement (not replace) long-term planning.
2. Decide where you’ll keep the unspent money
It helps to know which accounts you’ll be directing unspent money towards during the no-spend challenge.
Crucially, you’ll take advantage of a principle called mental accounting. The gist is that we treat money differently depending on where we keep it. For example, you’re more likely to spend money recklessly if it’s in your main checking account than long-term savings.
The solution? Move money you plan on keeping into long-term savings and investment accounts. It’s good financial hygiene in general but is especially helpful during the no-spend challenge.
You can even set up automatic transfers to handle this. If you’ll save $50 per day during the no-spend challenge, for example, deposit that amount into the appropriate account automatically every 24 hours. Each transfer will build on the previous day’s progress and serve as a visual reminder of your success.
The same principle applies if you’re using the no-spend challenge to pay off debt. Make automatic payments as a means of locking in your progress.
3. Decide how long you’ll do the no-spend challenge for
Generally, people take one of the following approaches.
- One day: This timeframe is ideal if you’re completely new to managing money or have serious impulse control issues. The downside is that you may not save a whole lot of money in the grand scheme of things by cutting back for a single day. Still, it’s a good start.
- One week: Eliminating all discretionary spending for a week is certainly a challenge. Start here if you don’t think one day represents enough of a challenge yet aren’t sure about going a full month just yet.
- One month: Here’s where the no-spend challenge gets really tough. I’d only recommend this if you’ve tried smaller intervals or are up for a serious challenge. Otherwise, you’d likely be setting yourself up for failure.
Remember, you don’t have to follow these typical durations. Choose whatever works for you, even if it’s something unusual like a specific five-hour block every Friday.
4. Create a budget
Next, create a budget detailing exactly what you’re allowed to spend money on. This should be limited to essentials – those purchases that facilitate your life and career.
You should also set a cap on what you can spend in each category. This will keep you from making sneaky discretionary purchases (i.e. spending more than usual on gas because you’re driving around for entertainment during the no-spend challenge).
Once you have a budget, make sure to look through your recent transactions and cancel any disallowed subscriptions (i.e. Netflix or Amazon Prime).
5. Choose a payment method to use during the challenge
In this step, decide how you’ll access the money allocated to essential expenses. You may find the envelope system helpful. It involves assigning one paper envelope to each budget category and filling it with the allocated funds. Once the envelope is empty, you’re done spending in that category until the month/week/day (whatever you chose in step one) is over.
This arguably beats using a credit card during the no-spend challenge. You’ll be able to clearly visualize how much money is left in each category.
Your next best option would be to pay with debit. Just distinguish between funds available for use during the challenge and any separate savings you may have.
If you must use credit, consider tracking your spending with an app like Mint. Check out my third point in this article for a detailed walkthrough, including how to set your account up securely and begin monitoring transactions.
Consider automating your finances as much as possible during the no-spend challenge. Set bills to auto-pay and reduce the amount of time you spend managing (or even thinking about) money. Focus on other things.
6. Make a plan to resist temptation
Between peer pressure and persistent advertising, the temptation to spend is everywhere. Without a plan for combatting this, your odds of successfully completing the no-spend challenge are slim.
Consider coordinating with a friend or colleague and completing the challenge together. Hold each other accountable with periodic check-ins.
You should also avoid scenarios in which you’re likely to spend discretionarily (i.e. visiting the mall or browsing specific websites).
When the temptation to spend does arise, make note of the circumstances. Specifically, jot down:
- where you were
- who was around
- any emotions you felt
- how long the temptation lasted
This will help you avoid (or at least more confidently deal with) similar situations going forward.
7. Keep yourself busy
Are you familiar with that saying, “an idle mind is the devil’s workshop?” It certainly applies during the no-spend challenge.
Rather than twiddling your thumbs, stay busy. Ideas include:
- working on side hustles
- learning new skills
- enjoying the outdoors
- watching movies you already own
- decluttering your home
- trying new recipes
If you’re interested in earning some extra money, check out this list of ideas. Most are totally free to start and will definitely keep you busy.
8. Don’t give up
At some point during the no-spend challenge, you might crack – especially if it’s your first time. When that happens, don’t give up!
Getting your finances in order is rarely like flipping a switch. Most people stumble along the way. As I mentioned earlier, occasional mistakes will not doom you to a life of financial failure. Just make note of why you failed, complete what’s left of the challenge, and strive to make fewer mistakes on your next attempt.
Seriously, don’t beat yourself up. Just strive to get better over the long haul.
I hope this article has helped you understand what the no-spend challenge is and how to complete it successfully.
To summarize, this challenge has many potential benefits. Do it right and you’ll save money, learn about your spending habits, and discover affordable ways to have fun. Just avoid making it the centerpiece of your financial planning. Incorporate it into a larger overarching strategy.
For more personal finance tips, check out my other articles here.