You’ve seen the 52-week savings challenge, right? It goes around the internet and the personal finance blogs around the first of every year. In case you’ve been under a rock, the basic idea is that you save $1 the first week of January, $2 the second week, and so on. In the last week of the year, you save $52 and you’ve saved a total of $1,378 over the 52 weeks.
What’s happening to your brain here?
There are a couple of reasons this plan is appealing. The “only a dollar more a week” sounds simple and easy, especially since you are starting with only $1. Your brain gets anchored to that $1 and you don’t think about the reality that this goal requires you to save a total of $202 in December.
The herd instinct can also be at work here. Everybody is talking about it and planning to do it and so you go along because, well, it’ll be fun!
Let’s splash a little reality on it
It starts out conservatively with $1 a week. Anybody can find a dollar, right? That keeps up for a few weeks, but by about May it “may” be starting to be a challenge. If your budget is already tight, finding an extra $20 or more each week could get interesting.
Let’s look at a couple of alternatives:
- You are truly able to save $20 a week, but that’s it. So, you save according to the plan, but at week 20 you top out. You continue to save $20 a week for the rest of the year. You’ve saved $850.
- You are truly able to save $20 a week and so you ignore the cute plan and save $20 every week for the whole year. You’ve saved $1040.
In this case, starting with a lower amount than you could really afford cost you $190. I’m not even including the interest here because this money is probably in a savings account paying less than 1%. The interest up front only makes saving the full amount you are able even smarter, though.
Is there a 52-week savings challenge that makes sense?
One option is to do the 52-week savings challenge backwards. Start with $52 the first week in January and save $1 less each week. You still end up with the same amount, but it is gets easier as it goes along instead of more difficult.
Again, let’s look at the alternative. Can you save $202 in January? Yes? Then why not save $52 every week. That, my friend, will net you $2704 at the end of the year – almost twice as much as the cute plan.
Here’s my take:
Make your own plan and save as much as you can each week. If you want to use some mental accounting and set this money aside for a special purpose, go ahead. But if you can save more than the cute plan calls for that week, do it! Why on Earth wouldn’t you?
Don’t let your brain’s attraction to the “just a dollar more a week” or the tendency to follow the herd lead you to save less than you could if you just sat down with your budget and found your own savings challenge number.
Two Ways to Find Your Savings Challenge Number
One, decide how much you want to save by the end of the year. Divide the total by the number of paychecks you will receive. Set up automatic deposit to a savings account that is not convenient to access – the bank on the other side of town or CapitalOne, for example.
Or, two, decide how much you can afford to save out of each paycheck and set that up as an automatic deposit. At the end of the year, you have whatever that amounts to, but no matter how much it is, you have more than you would have if you had just “saved what’s left”.
What’s your take on the 52-week savings challenge? Have you done it? How did it work for you?