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Finding the balance between living your best life and saving money isn’t easy. During my debt payoff journey, depriving myself of fun purchases made hitting my money goals feel like drudgery.
I devised a fun savings challenge to keep myself motivated. If a credit card company could entice people to spend more with a 5% cash-back offer, why not make that same promise to myself for crushing my money goals?
I know how hard it is to pay down debt or reach savings goals. This cash-back challenge kept me on track when I knocked out over $300,000 in debt and later saved over $1 million for retirement. When I became a money coach to help others reach financial independence, I saw firsthand how credit card rewards created a fear of missing out for my clients, encouraging them to overspend.
So I rolled this challenge out to them, and it was an instant hit.
If you love the dopamine rush each time your credit card rewards hit your account but want to avoid jeopardizing your financial priorities, try my 5% cash-back challenge.
Read more: Going on a Financial Diet? Try One of These Savings Challenges
What is the 5% cash-back challenge?
My 5% cash-back challenge is simple: reward yourself with 5% back each time you hit a money milestone or financial goal. It’s flexible, easy to update and can fill the void you might miss from credit card reward programs.
I implemented the rule by paying myself 5% back each time I hit a debt payoff goal. For instance, when paying off the last $5,000 on a credit card bill, I budgeted to free up 5% of that amount (in this case, $250) to treat myself as a reward. I didn’t feel guilty about spending this money — it was a reward for being so diligent and sticking to my payoff plan.
Depending on your financial goals, you might implement this challenge differently. If you don’t have debt, you can use it to hit big savings goals or other money priorities you’re working toward.
You can pay out your rewards right away or continue to accumulate them (like you would with credit card rewards) to put them to a larger purchase like a concert, massage or weekend getaway. I recommend keeping your reward money in a separate high-yield savings account.
You can earn cash back and pay off debt
If you have a large amount of debt — say $100,000 in student loans like some millennials do — break it down into smaller, more manageable chunks. Then promise to pay yourself back 5% to treat yourself for hitting your goal.
For example, you can:
- Treat yourself to $5 for every $100 you pay off
- Treat yourself to $50 for every $1,000 you pay off
- Treat yourself to $500 for every $10,000 you pay off
You can have fun tracking your progress, too. A client of mine involved her two kids in the process and drew a big thermometer in their living room. The whole family went out for pizza whenever they paid off $1,000 of debt. Soon, the kids were asking how they could help pay down more debt.
Expert tip: You may want to budget for your “treat” amount. For example, if you know in three months, you’ll have paid down another $1,000 in credit card debt, budget for your $50 reward. If you don’t have an immediate use for it, keep it in a high-yield savings account to accrue interest.
Use this challenge to grow your savings
If your goal is to build up an emergency fund or grow your savings, the 5% cash-back challenge can help keep you motivated. It works the same way it would for paying off debt: Set a goal, and each time you hit a milestone, budget to reward yourself with 5%.
For example, if you’re looking to save up $3,000, commit to a treat worth 5% ($150) to reward yourself at the end of the goal. Break larger savings goals into smaller milestones. This rewards strategy can make the long trudge of saving thousands more fun by giving you small treats to look forward to.
This rewards challenge helped me rethink spending, too
I’ve struggled with shopping as a form of coping with stress, grief and anxiety. But I also find shopping fun, and I don’t think it’s inherently bad. Instead of trying to eliminate this habit, I schedule one day a week to shop using only the money I’ve earned through my 5% challenge.
I walk around local shops on my designated shopping day, usually on Monday afternoons after my toughest workdays. This schedule curbs my impulsive shopping throughout the week and gives me something to look forward to. Spending only the money I’ve earned from my 5% goal helps me stick to my budget and make more intentional purchases. And if I’m grappling with whether to make a purchase, I employ my handy $1 spending rule to help me decide.
By allowing myself space and money in my budget to enjoy shopping, I’ve noticed a surprising trend: I shop a lot less because it doesn’t feel forbidden or taboo.
Building room into my budget for fun shopping keeps me on track to hit larger money goals. If you struggle with overspending like I did, this challenge may help you, too.
So go out and crush your money milestones, but remember to treat yourself. I know I will.
