The 100 Envelope Challenge Is a Fun “Hack” to Save Money — but It Has Some Flaws

Hey! Would you like an extra $5,050 right now? Of course you would! And according to people who swear by the 100 Envelope Challenge, that $5,050 could be yours in as little as 100 days from now. All you need is 100 envelopes and a willingness to commit to the challenge. Well, and $5,050.

The budgeting “hack” has been going viral lately, with people banking on a unique system as a way to increase their savings. While we certainly applaud anyone who wants to bulk up their savings (especially in these unprecedented times), there are a few details you should probably be aware of before you start participating in this latest fad.

On its face, the 100 Envelope Challenge actually seems super easy. You start with 100 envelopes and label them with the numbers one through 100. Place the envelopes in some sort of container (like a shoebox). For the next 100 days, randomly pull a single envelope out of the box and put in an amount of cash equal to the number on the outside of it. For instance, if you draw envelope No. 34, you’d put in $34.

If you stick with the challenge for 100 days, you’ll have $5,050 in the envelopes by the end of it. There are a few variations on the challenge that result in even more money. For instance, if you use 200 envelopes labeled with two sets of one to 100, and then pull out two envelopes per day, you’ll end up with $10,100! It almost sounds too good to be true, right? Well … there’s a reason for that.

We’ll start off by saying that if the 100 Envelope Challenge appeals to you and it’s something you want to try, you should absolutely go for it! As long as you’re not, you know, endangering your life by not being able to afford food, there’s not really any harm in participating in a budgeting challenge like this one.

But there are a couple of flaws with the challenge as we see it. For instance, what happens if, on day three of the challenge, you pull out envelope No. 76? That’s $76 out of your pocket, which might not be a huge deal — until you pull out envelope No. 80 on day four. That’s $156 in two days! In addition to this being a lot of money for most people, who even has that much actual cash these days?!

See where we’re going with this? If the idea is that you’re going to be contributing cash every single day, you could very easily wind up hurting for money depending on the luck of the draw. Proponents of the 100 Envelope Challenge claim that it’s an easy way to save a bunch of money without even thinking about it, but that’s really only true if you’re actually going to have an “extra” $5,050 over the next few months.

It’s also worth considering that if you do have an “extra” $5,050 to save over the next 100 days, that money may be better off somewhere other than in a bunch of envelopes. Like in a Roth IRA, for example! Or, if you have debt, consider putting that “extra” money toward it — otherwise, it’s costing you more every single day that it collects interest, which is (obviously) the opposite of saving money.

Another option you could try is spacing out your contributions a bit, rather than rushing to complete the challenge in only 100 days. For instance, you could pull two envelopes every two weeks (maybe on payday) and have your $5,050 in a little less than a year. (To be fair, we have seen people include this rule in their own 100 Envelope Challenge videos!)

Or you could simply plan to set aside the same amount of money from each paycheck throughout the year and possibly wind up with even more money! We know that’s not quite as exciting as pulling a random envelope, but it’s probably a more effective way to bulk up your net worth. Regardless of how you choose to save your funds, make sure to use your best judgment — and be wary of tricks that sound too good to be true.