The truth about the 100 envelope challenge

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Aug 19, 2024

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If you’ve spent more than a minute on social media in the last year, chances are you were served a video about the “100 Envelope Challenge.” The original creator, @budgetwithmilly, now boasts 15 million+ views on what’s actually a shockingly simple hack for saving more — £5,050, to be exact.

It works like this: Number 100 envelopes, 1-100. Then, each day, randomly (or sequentially) select an envelope and put that exact amount of cash inside. (So, on day 15, you’d put in £15, or on day 87, you’d tuck £87 inside, you get the picture.) At the end of 100 days, you’ll have saved over £5,000.

At first glance, it’s almost insultingly obvious. (After all, stuffing money into envelopes every day is going to get you somewhere — not to mention bored of going to the ATM.) It’s also nothing new. People have been squirreling money away in envelopes for as long as money and envelopes have existed. But if you’re struggling to save money in other ways, is this a “hack” worth exploring?

Why is the 100 Envelope Challenge so popular?

Before we laugh at these people with their boxes of envelopes crowding the kitchen drawer, we need to take a long, hard look at our own savings habits. Most of us walk around every day with the understanding that we should be saving more…But we just don’t do it. Being successful with our money is more about consistency and behaviour than it is anything else. Just ask Dave Ramsey, arguably one of the most popular financial experts in the US.

In fact, the way we behave with our money is such an interesting topic, there’s an entire field devoted to it — behavioural finance. It explores the various psychological factors that influence our decision-making with money, and, among other things, looks at why many people may continually say they’re going to save more, yet never do. Or why “rich” people often find themselves living paycheck-to-paycheck. Or why someone who grew up in a household where resources were scarce may feel guilty spending their hard-earned money as an adult, even when they’re flush with cash. It’s incredibly interesting stuff.

The 100 Envelope Challenge touches something deep within our psyches. First, it’s tactile. It forces you to have cash in hand that you can smell, see, and touch. For many of us, thumbing through bills feels far more “real” than refreshing a browser to view the balance of our bank account. It also gives us a little dopamine hit when we can check something off our daily to-do list. (No, it’s not your imagination — completing even small tasks really does release endorphins.)

It’s also incredibly easy and delightfully devoid of any hurdles: Buy envelopes. Put in cash. Wait. Sometimes the simple act of going to the bank (or going online) to open a new savings account is the very thing holding us back from tackling our savings goals. And for those among us who are unbanked, saving money the old-fashioned way is, well, the only way.

The 100 Envelope Challenge is also incredibly flexible. It’s 100 envelopes, not 100 days. Some influencers who have completed the challenge have done so in 100 weeks instead, depositing what they can, when they can. There’s also the gamification of it — it is a challenge, after all. And even if you’re not sharing your successes with 15 million strangers on TikTok, you’re challenging yourself, and those envelopes on your countertop are calling to you.

But does this challenge make sense financially?

Short answer: Not really.

Longer answer: It depends on where you are in your financial journey.

As a technique for saving, the 100 Envelope Challenge is not inherently a bad thing — you’re flexing your saving muscle and building a habit that can (hopefully) last a lifetime, explains Michael Royce, savings lead at the Money & Pensions Service (MaPS). “It’s the way you save, and how you do it securely that’s the issue here,” Royce says. “We would suggest that whatever you can afford to put aside in savings, to put into a secure deposit account that’s protected by the FSCS”. (The FSCS is the regulating body that protects deposits up to £85,000.)

Because here’s the thing: all those envelopes you’ve worked so hard to fill aren’t protected from theft, fire, or any number of other hazards. And with any cash that exists outside of a secure account, you’re also losing the opportunity to earn interest, which means your money is actually losing money over time. Cash “loses value with inflationary pressures in the economy,” Royce says. “It’s always better to put it into an account where it can accrue some form of interest.”

So, really, the choice here is simple: Either shoulder the risk of losing your cash and forfeit potential interest with envelopes, or get thee to a bank and stash your money in an account where you can start building real wealth, securely.

Okay, I’m ripping open my envelopes now. Where should I put my cash?

The answer to this depends on what you want to use your savings for, and how easily accessible you need your money to be, Royce says. If you’re looking to build an emergency buffer, then an instant access cash savings account is your best bet. Just keep in mind that interest on those accounts isn’t great, so you’ll need to shop around for the best rate. Here is the link MaPS recommends using to find the best available rates.

Many banks also offer various limited-time savings account promotions with higher rates (around 5%) for one year, with a cap of £250 in deposits per month. Some quick math: That means earnings of £12.50 per month, or £150 for the year. Yes, these accounts will revert to the standard lower interest rate after the year is up, but then there’s nothing stopping you from finding another bank offering the same promotion.

If you’ve already got your emergency fund squared away and want to stash your cash in an account for a longer period to accrue more interest, then it’s time to look at ISAs and LISAs, Royce says. (We’ve covered these accounts here before ) Currently, the tax-free interest rate in the UK for a Cash ISA is between 4.1% and 5.1%.

The Bottom Line

If you’re reading this and still thinking that the 100 Envelope Challenge sounds like a fun way to up your savings game, we want to be clear: You’re not wrong! Anything that gets you saving more can be a powerful tool on your wealth-building journey. So here’s the compromise we all need:

Follow the steps of the 100 Envelope Challenge, but then transfer your savings into a secure account of your choosing every week. You’re still playing the game, but you’re keeping your money secure, and capturing every penny in interest that you possibly can.

The goal is that however we choose to save, we keep it simple — when we make it easy, we’re far more likely to stick with it for the long haul… And THAT is the true challenge.

P.S. We loved what these Redditors had to say about their favourite hacks for spending less in everyday life, and how they first started saving money when they were new to the game.

Any other savings (or investing) philosophies you’d like us to cover? Drop us a line at contact@moneyin2.com and we’ll get on it!

And for dessert…

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Amazon is sitting on a “Gen Z goldmine” that could be worth £46 billion. Heard of the live streaming platform Twitch? It could be the new TikTok, according to one analyst who believes this portion of Amazon’s portfolio has serious untapped potential.
Tinder is trying to get you laid. Lack of face symmetry got you down? Tinder to the rescue. The matchmaking app is promising to help ensure you look your best by helping you pick the best profile pic… Just make sure you don’t pick a pic that makes you look too good, because everyone likes to be pleasantly surprised.

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