Many financial blogs have publicized a challenge called “No-Spend Month.” You might have read about it on social media, Reddit, and maybe even on your friend’s messenger group. It may sound a bit aggressive, but it is like a detox from unnecessary spending. Experiencing a minimalist life for a month can solve most of your financial problems and even jump-start your emergency savings.
Rules of the no-spend month challenge
The aim of the challenge is simple: bring discipline to your spending and reduce debt, boost savings, and lower stress. If reality TV shows like Apprentice and Shark Tank excite you, this challenge can make you live that experience.
Phase 1: Execute no-spend month
1. To get started with the task, you have to collect your past three to four months of bank and credit card statements.
2. Categorize your transactions as essential and discretionary spending.
Do not use artificial intelligence (AI) tools for it. Unless you categorize spending manually, you will not feel the impact of it.
3. Plan your bare minimum budget where all discretionary spending is gone. That means no eating out, no trip to the gaming arcade, cancelling the yoga class you never went to, or the OTT subscription that keeps getting renewed even when you are not watching.
4. Stick to the budget. Any day you miss will add another day to your 30-day challenge. There can be exceptions, like a pipe burst or a trip to the ER, but those expenses have to be genuine and not splurging.
Phase 2: Make the most of the money saved
You will be surprised by how much you save by the end of the month. How you use this money is the next part of the challenge. If you have high-interest credit card debt, pay it down first, and don’t take on more credit card debt. The amount you save from prepaying all debt can compound your savings.
Time to jump-start your emergency savings
Many Canadians put off emergency savings and investing, as they have no extra money left. The no-spend month and paying off expensive debt can help you unlock that trapped money and use it for emergency savings.
Remember the spending analysis you did in the first phase. Assuming your necessary spending—rent, utilities, broadband, groceries, healthcare, and taxes—comes to $3,500 and you earn $4,500 a month. That is $1,000 in savings unlocked. Once you start building your emergency savings, it could motivate you to continue. Do not stop contributing to your emergency fund until it is big enough to pay for at least six months of your expenses, which comes to $21,000 for $3,500 monthly expenses.
Why is the TFSA an ideal account for emergency savings?
The Tax-Free Savings Account (TFSA) is an ideal instrument to build your emergency savings. You need this fund to be easily accessible, carry low risk, and not add to your tax burden.
If you have put your emergency fund in a bank deposit, it does give you immediate access and is one of the safest, but 100% of the interest income is taxable. So if your $21,000 Guaranteed Investment Certificate (GIC) gives you 3% interest of $630 in a year, it is added to your taxable income. A 20% marginal tax will add $126 in tax liability.
You can save on this tax amount by creating a GIC through a TFSA. It allows your money to grow tax-free and allows you to withdraw tax-free. And the amount you withdraw in 2026 will get added to your TFSA contribution room on January 1, 2027.
CT REIT (TSX: CRT.UN) could be a good investment to build emergency savings. It has a low-risk distribution yield of 5.6%, which it pays over 12 monthly installments. Moreover, its unit price hovers around $15.5-$19. The unit is currently trading at the midpoint. The REIT also increases its dividends at an average annual rate of 3%.
If no emergency comes in a year, it can compound your dividends through a dividend reinvestment plan (DRIP).