Challenge on TikTok encourages saving money; understand how (and if) it works

The good old savings went viral. Called “the 100 envelopes challenge” on TikTok, the idea promises to put more than US$ 5,000 (which you can consider in reais) in your pocket in just 100 days.

Touted by influencers as a fun and easy way to save money, the challenge is aimed at young investors struggling with higher rent and grocery bills, student loan debt and a general feeling of never being able to make the money last until the end of the year. month.

Here’s how the challenge works: Label 100 envelopes from 1 to 100. After all, since this is social media, these envelopes must look really cool for the videos. On day one, put $1 in envelope #1. On day two, put $2 in envelope #2. Continue like this until day 100, when your final savings deposit of $100 will bring you to $5050. In videos of piles of cash, a woman claims to have done this three times and saved $15,000.

It’s confusing, but is it realistic? In truth no.

First, where does the money come from? Some people don’t even make $5,000 in 100 days. And, according to Bankrate, 57% of American adults cannot afford a $1,000 emergency expense. When broken down by generation, GenZers and Millennials are more likely to be concerned about covering basic expenses.

Second, the challenge is cumulative. Savers need to save nearly $500 in the last week.

Third, the idea of ​​keeping $5,000 in a box under your bed sounds complicated. It’s a bit like a fad diet or makeup trend that looks great when you see it on screen, but difficult to achieve on your own.

There’s no doubt that TikTok offers an abundance of questionable financial advice. But given the popularity of the envelope challenge, I decided to ask a certified financial planner for their opinion. Doug Flynn from Flynn Zito Capital Management.

“I’m all for whatever it takes to get people talking about saving money. That’s good,” he told me.

“But it’s enigmatic,” he said. “It’s commendable to try to save some money, but to me it doesn’t seem very goal-oriented. What are you saving that money for?”

He notes that the envelope idea is actually a traditional financial planning tool — one envelope to save for vacation, one envelope for car payment, one envelope for dinner out, etc.

But envelopes today are more metaphorical in an era of instant account access and budgeting software.

And he questions the sustainability of the last week of the challenge. “Think of the functionality of the last five days – who will really make $500 in the last week? Where is a GenZer going to find $98 today and $99 tomorrow?”

Even if you have an amazing business or can sell your grandma’s jewelry, there are more viable ways to grow a legit nest egg.

The most sustainable plan is to consistently save $5,000 over the course of a year and put those funds into an investment account, bank, or credit union.

Saving $13 a day equals $5,000 in a year, not including interest. Save $5,000 a year starting at age 25, and at mid-market rates, that increases to over $1.1 million by age 65.

Envelope challenge videos have a get-rich-quick twist that is certainly viral and fun, but obviously the exception, not the rule.

“How many people will make it past the second week?” Flynn asks.

Here is the most boring and sustainable challenge. Save up to $10 a day and keep. Slowly build it up to $15 a day and think where you should stop. If you want to periodically add to that savings, $15 turns into $5,000 and $5,000 into a million.

It’s more boring, takes longer, is more consistent, but has longer-lasting results, says Flynn.

*With information from Kevin France of CNN