My customers love my 5% cashback savings challenge. Here’s how it works
Finding the balance between living your best life and saving money is not easy. During my debt payoff journey, depriving myself of fun purchases made meeting my money goals feel boring.
To keep myself motivated, I came up with a fun savings challenge. If a credit card company could entice people to spend more with a 5% cash back offer, why wouldn’t I make the same promise to myself for crushing my money goals?
I know how hard it is to pay off debt or reach savings goals. This cash back challenge kept me on track as I erased more than $300,000 in debt and later saved more than $1 million for retirement. When I became a money coach to help others achieve 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 out this challenge for them, and it was an instant success.
If you love the dopamine rush every 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% cashback challenge?
My 5% cash back challenge is simple: reward yourself with 5% back every time you reach a money milestone or financial goal. It’s flexible, easy to update, and can fill the void you may be missing from credit card rewards programs.
I implemented the rule by paying myself 5% back every time I reached a debt repayment goal. For example, when I paid the last $5,000 on a credit card bill, I planned 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 diligent and sticking to my payout plan.
Depending on your financial goals, you can approach this challenge differently. If you don’t have debt, you can use it to achieve big savings goals or other money priorities you’re working toward.
You can cash out your rewards right away or continue to accumulate them (as you would with credit card rewards) and use them for a larger purchase, such as a concert, massage, or weekend getaway. I recommend keeping your reward money in a separate high-yield savings account.
You can earn money back and pay off debts
If you have a large amount of debt – say $100,000 in student loans as some millennials do – break it down into smaller, more manageable chunks. Then promise to pay yourself 5% back so you can treat yourself to achieving 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 also have fun tracking your progress. A client of mine involved her two children in the process and drew a large thermometer in their living room. The whole family went out for pizza after paying off a thousand dollars in debt. Soon the children were asking how they could help pay off even more debt.
Expert tip: You may want to budget for your “treat” amount. For example, if you know within three months that you will have paid off another $1,000 in credit card debt, factor in your $50 reward. If you don’t use it right away, keep it in a high-yield savings account to accrue interest.
Use this challenge to grow your savings
If your goal is to build an emergency fund or grow your savings, the 5% cash back challenge can help you stay motivated. It works the same way as paying off debt: Set a goal, and each time you reach a milestone, budget to reward yourself with 5%.
For example, if you want to save $3,000, give yourself a 5% treat ($150) to reward yourself at the end of the goal. Break larger savings goals into smaller milestones. This reward strategy can make the long slog to save thousands more fun by giving you little treats to look forward to.
This reward challenge also helped me rethink my spending
I have struggled with shopping as a form of coping with stress, sadness and anxiety. But I also enjoy shopping, and I don’t think it’s necessarily a bad thing. Instead of trying to eliminate this habit, I schedule one day a week to shop using only the money I earned from my 5% challenge.
On my designated shopping day I walk around the local stores, usually on Monday afternoons after my heaviest workdays. This schedule limits my impulsive shopping during the week and gives me something to look forward to. By spending only the money I earned from my 5% goal, I can stay within my budget and make more conscious purchases. And when I’m unsure whether to make a purchase, I use my handy $1 spending rule to help me decide.
By allowing myself space and money in my budget to enjoy shopping, I notice a surprising trend: I shop much less because it doesn’t feel forbidden or taboo.
Building room into my budget for fun shopping keeps me on track to achieving bigger money goals. If you’re like me and struggle with overspending, this challenge can help you too.
So go out and crush your money milestones, but don’t forget to treat yourself. I know I will.
