Is it really the best way to budget?

Informative Details

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On social media, money-saving tips and financial inspiration are just a click away. One viral trend — cash stuffing — has taken the digital world by storm, offering a nostalgic approach to tackling debt and taking control of your expenses. 

The budgeting strategy involves allocating physical cash for specific spending categories each month. Once the money in a given envelope runs out, you can’t spend any more in that category.

This approach is surprisingly popular with younger generations. Around 30% of Millennials and Gen Zers say they use cash stuffing for everyday purchases, according to a recent survey.

While cash stuffing can make it easier for some to track their spending, it isn’t without its drawbacks. Understanding how cash stuffing works can help you decide if it’s right for you.

What is cash stuffing — and should you try it? 

Cash stuffing, also known as envelope budgeting, is a budgeting strategy that can help you keep track of your spending.

Despite its recent popularity, cash stuffing has been around for decades, popularized by finance guru Dave Ramsey.

You assign cash to different envelopes (or shoeboxes, binders, even liquor bottles — wherever you want). Each envelope represents something like groceries, entertainment, or bills. Throughout the month, you spend only what’s in each envelope.

For example, let’s say you set a weekly budget of $100 for groceries, $25 for gas, and $50 for a meal with friends. You’d withdraw $175 in cash each week and divide it among three envelopes, one for each spending category. When you make a purchase, you take money from the appropriate envelope and use it.

There are some perks to using the cash-stuffing method. “The biggest pro is the simplicity,” says Jeff Rose, certified financial planner. “You don’t need the best app on the market or some recurring software subscription. You just need some envelopes and a pen to get started.”

Cash stuffing is a way to see and control your spending, keeping you on track and helping you avoid impulse purchases. It’s ideal for those looking for a hands-on, visual approach to budgeting.

Why cash stuffing may do more harm than good

Cash stuffing is definitely not right for everyone, and there are some drawbacks and risks to consider.

For starters, the cash-stuffing method can be inflexible and requires a lot of self-discipline. Carrying around large amounts of cash can be cumbersome and annoying.

Life is full of surprises, and unexpected expenses can pop up anytime. It’s difficult to adjust your budget to accommodate these unforeseen circumstances.

Cash stuffing may not work well for certain types of expenses. Many bills are paid online, and some transactions require card payments or electronic transfers. You may wind up with a disjointed financial system where some costs are accounted for with cash-stuffing envelopes while others are not.

Lastly, relying only on cash can be risky. If you lose your cash or it’s stolen from you, it’s gone. Other forms of payment, like credit cards, are more secure and can protect you against loss or fraud. Plus, if you have a rewards card, you can earn points, miles, or cash back on your purchases.

Alternatives to cash stuffing

Cash stuffing is one way to build and track a budget. The best budget for you is the one you’ll stick to over the long term, so it’s worth considering alternatives that may be a better fit.

  • Budgeting spreadsheet: You can manually track your spending in a physical or online spreadsheet. This old-school method is similar to cash-stuffing, without the hassle of carrying cash.
  • Budgeting apps: Budgeting apps like Mint, YNAB (You Need a Budget), or PocketGuard can track your expenses and set spending limits. These apps can automatically sync with your bank accounts and credit cards, providing a real-time overview of your finances. Some banks — like Ally, Capital One, and Chase — offer budgeting tools to account holders.
  • Virtual envelopes: Some budgeting apps have online features that mimic the cash envelope system. You can allocate funds to different virtual envelopes within the app and track your spending accordingly.

“You’d really be doing yourself a favor by giving budgeting apps a try,” says Rose. “They practically take all the hassle out of tracking your spending, sorting everything neatly into different categories without you lifting a finger.”

Effective budgeting tips

Building a good budget and following it can be tricky. Keeping a few essential budgeting tips in mind can help you succeed.

  • Start by tracking your expenses for a month or two. This will give you a clear picture of where your money is going and help you spot any problem areas.
  • Based on your tracked expenses, create a budget that works for you. Ensure it includes essential expenses, savings, and a bit of room for fun.
  • Saving money is crucial. Treat it like a bill and pay yourself first. Set aside a portion of your monthly income towards your emergency fund or other savings goal. 
  • Automated budgeting helps you stick to your budget without much work. A budgeting app can do the work for you, sending you spending updates or letting you know when you’re over budget.
  • Look at your non-essential expenses and see where you can cut back. It could be eating out less, canceling unused subscriptions, or finding cheaper alternatives for entertainment. Small changes can add up to big savings.
  • While cash stuffing isn’t for everyone, using cash for specific categories can help you stay on track. Set a cash limit for discretionary expenses like shopping or eating out. Once the cash is gone, it’s time to put the brakes on spending.
  • Before making a purchase, give yourself a little timeout. Wait a day or two to see if it’s a genuine need or a desire. You’ll be surprised how many impulse purchases you can avoid with this simple trick.

    • Don’t forget that budgeting is an ongoing process. You might find that over time, your spending habits or desires change. It’s a good idea to reassess your budget every 6-12 months. 

    The bottom line

    Cash stuffing is one of many ways to build and stick to a budget. It can be a helpful tool if it works for you, but carrying that much cash can be risky and unmanageable. It’s essential to consider the pros and cons of many different budgeting strategies and to try a few out until you find one that works for you.

    Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.

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