About this time every year I see a myriad of ‘saving challenges’ shared around the internet, claiming that you can easily save large amounts of money throughout the month or year.
The one I see the most is the 'Penny Challenge' and it starts off pretty easy by saving 1p on the first day, and adding a penny to the amount you save each day; 2p on day two, 3p on day three and so on. By the end of the year this method will save you over £660. Another similar one that always seems to be popping up on social media is the '52 Week Challenge'. It’s a similar idea where the participant saves £1 on week one, £2 on week two and so on, finally saving £52 in the final week of the year and bringing their savings pot up to £1378. Some people also suggest increasing the potential savings of both challenges by using a different amount; £1 instead of 1p or £5 instead of £1 etc.
There's also the Weather Saving Challenge, Round-Up Challenge, Bingo Challenge, £5 A Week Challenge, and the list continues...
While we all have something we’d like to do with that money (maybe a holiday or a new fridge) do these challenges really work?
One of the issues most critics find with these challenges is the speed at which the amount you’re saving has to increase; five months in to the Penny Challenge and the amount you’re saving that month is almost ten times higher than it was in the first month, and a similar effect can be seen in the 52 Week Challenge where in the final month you have to be able to save over £200, up from £10 in the first month.
Those are some huge increases and might not be realistic for a lot of people, especially if they’ve started off on a larger amount.
Aside from the increasing difficulty of saving, most of these challenges don’t suggest what to do with the savings; a lot of message boards talk about putting it all in a piggy bank and counting up the cash at the end of the year. Although that does sound like a satisfying feeling, if you did the entire Penny Challenge using pennies it would weigh over 200kg by the end and that is definitely more than I can lift. So, it might be a better idea to invest that money.
By saving regular, manageable amounts (roughly £55 per month to match the Penny Challenge) with either a savings account or by investing on rebuildingsociety.com you could end up saving even more. This is because the amount being saved won’t spiral endlessly upwards, and the savings will earn regular interest to increase the amount you’ve saved.
Saving the same amount every day or month is a better plan; the amounts you add to your piggy bank don't spiral endlessly upwards, and you'll end up with more interest if you invest as you save...
An ISA offers an even better deal for some, as the interest earned on savings (up to £20,000 invested in a year) is tax-free.
However, there’s no easy magic ticket for saving millions and retiring early. Every saving or investing option comes with its own benefits and pitfalls which should be thoroughly understood before deciding to invest your hard-earned money. Whether it’s a savings account or a P2P investment, aspects including liquidity, security, interest rates, and risks should be carefully considered while building a portfolio to suit your own risk appetite.
