With soaring costs and Christmas upon us, monitoring our spending habits is more important than ever to ensure we don’t damage our finances.
A viral social media savings trend has entered the financial scene for savvy savers called ‘Cash Stuffing’. Quite simply, the method involves putting cash into allocated envelopes of different categories.
It’s based on an accounting concept known as ‘zero-based allocation budgeting’. Many who use cash stuffing feel more in control of their spending, which serves as a reminder that the money you have is real funds. The use of cards and contactless payments can disrupt that reality at times.
How does cash stuffing work?
It’s entirely up to you how you implement this budgeting method into your financial system. It can be for bills or general monthly spending. However, we do recommend continuing to pay your bills via direct debit so you never miss a payment.
The key to this budgeting method is if the envelope is out of cash you have to decide - do you move more money from another envelope or don’t spend any further funds in that category for the rest of the month?
To get started, look at your monthly payslip and put aside the funds needed for your priority bills. With what’s left over (disposable income) you can begin to allocate different amounts to different categories.
If you would prefer to start small and notice in your account statement a problem area that you overspend on, begin with just one envelope and an allocated amount for this. For example, ‘eating out’.
Once you’ve grasped the concept of this budgeting method and have found a good rhythm you can start to add more envelopes to your budgeting system.
- A few categories we recommend are shopping, entertainment, eating out, groceries, transport, holidays, ‘treat yourself’ expenses, and general.
Some people feel anxious when carrying cash, if this sounds like you there are plenty of apps that can replicate this budgeting system digitally. These digital banks can be separate from your current bank account and it means you won’t overspend on your balance, which could jeopardize your priority bills.
What are the benefits of cash stuffing?
- Cash is finite - Cash stuffing highlights the reality of the consequences of overspending in one area of your life. When you find an empty envelope it teaches us how to be disciplined with budgeting.
- It’s a great challenge - Budgeting doesn’t have to be boring and copious amounts of spreadsheets; cash stuffing is a fun and creative way to take control of your finances. With the economic turbulence we’ve experienced this method is adjustable month to month and you can change amounts and categories.
- No more debt - Cash stuffing can significantly reduce debt. You’ll have no credit card interest to pay and no more overdraft statements from overspending.
- Goodbye to impulsive and compulsive spending - If you are a compulsive or impulsive spender, this is a great and conscious method to cure these habits.
- It can help with your financial mindset - If you’ve been in a cycle of overspending for a while now this is a way for you to feel empowered with your spending.
What are the drawbacks of cash stuffing?
- Credit and debit card protections - If you are paying in cash for most things you can lose out on the protections for consumers provided by credit and debit card companies.
- Cash has risks - As we mentioned some people have anxieties about carrying cash, as it can be stolen, lost, or forgotten at home. This is where we recommend that digital banks solve this solution.
- A modern society - There may be restrictions on shops and restaurants that don’t accept cash, or the item you’re buying has only a card option because of its value.
- Cash is finite -This is both a benefit and a drawback, some people find it stressful when faced with the reality that money is limited and they can feel restricted and less spontaneous with their spending.
- No interest -If you decide to keep your cash outside of a bank you won’t earn interest from your money.
Whilst we weather the inflation storm, cash stuffing can be a great budgeting alternative and a method you can now try over the Christmas period. We’d only recommend cash stuffing for short-term savings and spending, long-term savings is better held in an interest-paying account.
The great feature of having your savings funds in a savings account over some time is that your money starts to work for you and gain value from incurred interest. Whether it’s a fixed or easy-access account, your money will make money!
FAQs
Cash stuffing might also be useful for those who want to reduce their credit card spending. By having some or all of your spending money in cash, you're less likely to make credit card purchases, delay paying them off and add to your credit card bill.
What is the cash stuffing budget method? ›
The cash envelope system (aka cash stuffing) is a way to manage your spending by putting cash in physical envelopes labeled for specific budget categories. The goal of cash stuffing is to only spend what's in your envelopes for the month.
Do cash envelopes work? ›
Like any money-management tool, cash stuffing is only good if it actually improves your budgeting, spending, and saving habits. For some, the time involved and requirement to hold physical cash won't work. For others, cash stuffing could help curb overspending and stave off debt.
What is the cash stuffing amount? ›
What is cash stuffing? This version of budgeting uses paper money and envelopes (or binders or folders, pick your packet of choice) to physically save for specific expenses. By setting aside a set amount of cash each month, you can better monitor your spending and watch your savings physically grow over time.
Why cash stuffing doesn t work? ›
Cash stuffing disadvantage No. 3: Paying in cash doesn't build credit. If you want to build credit history and improve your credit score, you can't just use cash -- you need credit cards or other credit accounts.
What is the 50/30/20 rule? ›
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
What is Dave Ramsey's envelope method? ›
The envelope budgeting method is a budgeting system that was popularized by personal finance author Dave Ramsey. The method involves dividing your take-home pay into spending categories (e.g., rent, utilities, et cetera), labeling an envelope for each category, and putting the cash you plan to spend into the envelopes.
Is there a cash stuffing app? ›
Simple budgeting using the envelope budget system, also known as cash stuffing. Create envelopes, enter transactions, and take full control of your spending. This app is free with zero ads for budgeting on a single device.
What is one potential downside of using a cash envelope budget? ›
You may also feel unsafe carrying cash, as it's harder to track it when it's lost or stolen. It can be cumbersome to get started: Getting all the envelopes ready and allocating money into categories can take some time to set it all up, especially if you haven't created a budget before.
What is one drawback of the cash stuffing budgeting method? ›
Cash stuffing might appeal to consumers who prefer simplicity or have problems with impulse control. But the risk of having all that cash around — not to mention missing out on interest and card rewards — should make you think twice before labeling all those envelopes.
It works like this: Gather 100 envelopes and number them from 1 to 100. Each day, fill up one envelope with the amount of cash corresponding to the number on the envelope. You can fill up the envelopes in order or pick them at random. After you've filled up all the envelopes, you'll have a total savings of $5,050.
What is the envelope budget trick? ›
To begin, a good rule to follow is the 50/30/20 method: 50% of funds go to needs, 30% wants and 20% to financial goals. Make an envelope for each category that applies: rent, utilities, phone bill, gas, groceries, emergency, savings and leisure. Put aside cash in each envelope corresponding to the amount used.
Is $100000 in cash too much? ›
You don't want to keep too much money in cash
Now granted, you might spend more than $5,000 a month if you live in a high-cost area. The point, however, is that the typical consumer generally does not need a $100,000 to $249,000 emergency fund.
What is an alternative to cash stuffing? ›
Instead of stuffing your spending envelopes with cash, use gift cards. At the beginning of the month, purchase gift cards that correspond with your various spending categories. For example, you might get one card for groceries, another for gas and another to use for entertainment purchases.
Do budget binders work? ›
Budgeting binders can help you keep your finances organized, especially if you're using the cash envelope system. There are many different ways to set up your budget binder, including “DIY” approaches or by downloading worksheet templates.
Is it a good idea to stash cash at home? ›
It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.
Is it smart to stash cash? ›
“It [varies from] person to person, but an amount less than $1,000 is almost always preferred,” he said. “There simply isn't enough good reason to keep large amounts of liquid cash lying around the house. Banks are infinitely safer.”
Is hoarding cash a good idea? ›
The decision to hoard cash in today's economic climate may seem safe, but it could ultimately stifle innovation and hinder long-term growth.
