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Cash Stuffing: How Does This Budgeting Method Work?

July 6, 2024

6 min Read

Written by Jacob Wade

Edited by Melanie Grafil

Male hand opening a white envelope full of American Dollars (USD, US Dollars) on the wooden table as a symbol of cash transfer, money laundering or bribery.

MartinPrague / Getty Images/iStockphoto

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Every generation looks at the younger generations and scratches their heads, noting differences that often feel miles wide. Generation Z, those born between 1997 and 2012, is definitely doing things differently than older generations, especially when it comes to money.

Cash stuffing has been around a long time–and is also known as “cash envelope budgeting method.” But how exactly does it work? What about online purchases? Here’s everything you need to know about cash stuffing:

What Is Cash Stuffing and How Does It Work?

Cash stuffing is a budgeting method that requires separating your cash into various spending categories–stuffing the cash amounts into envelopes or a cash stuffing wallet. The idea is to create budget categories that you can use cash for–such as gas stations, groceries, restaurants, entertainment, vacation, etc.

As you get paid, you’ll withdraw cash. Next, you’ll stuff a predetermined amount of cash into each envelope. This is essentially your exact budget for that budget item. Once the money is spent, you can’t spend any more money on that category.

But the physical act of cash stuffing takes a few steps:

1. Determine Your Budget

Before you can implement the cash stuffing method, you’ll need to come up with a budget. It’s easiest to start with a monthly budget by laying out all of your expenses on paper. You’ll first need to determine your fixed expenses

2. Create Labels for Envelopes and Cash Wallets

You can choose to stuff your cash in old-school mail envelopes. Or, get a cash stuffing wallet that has dividers and pockets to stuff cash in for each category. Either way, you’ll need to create labels for your chosen budget categories so you can keep track of your cash.

This can be as easy as writing down each category on the front of a plain envelope. Or you can use a label maker to spruce up your design. If you have a divided wallet, it may come with pre-made labels already.

3. Stuff Your Cash

Once you’ve put together your cash envelopes or cash divider wallet–it’s time to start stuffing. You’ll need to get enough cash out of the ATM or from your bank to fill all of the envelopes until your next paycheck.

To stuff the envelopes, simply divide up your cash for the set amounts for each spending category.

4. Spend Your Cash

Once you’ve stuffed your cash envelope system, you can start spending. Remember, it’s important to only spend the cash you have available and avoid whipping out a credit card or debit card to cover any shortages.

You’ll bring your envelopes with you everywhere that you plan on paying with cash. This may include the grocery store, restaurants or gas station. As you spend money in a category, make sure to return any cash back or change you have from each transaction into the envelope.

5. Stop Spending When It’s Empty

As you spend cash throughout the month–you might run out of cash within a specific spending category. Resist the urge to use a credit card. Simply say “no” to any purchase within that category until you get paid next.

If you absolutely need to spend money in a specific category and have run out of cash, you’ll need to borrow cash from another envelope. This ensures you don’t overspend and helps you stay on track with your overall monthly budget.

Pros and Cons of Cash Stuffing

Cash stuffing can help your budget in a big way. However, it might not be worth the hassle. Before you start using cash only, consider these pros and cons of the cash-stuffing budget method:

Pros

It helps you focus on your goals. Cash stuffing helps you break down larger expenses into smaller, manageable amounts. You can slowly build up savings over time toward larger expenses and physically see the balance growing.
It forces you to stick to a budget. Cash envelopes are cut and dry–you can only spend the money in the envelope–and are forced to stay within your budgeted amount.
It stops compulsive spending. Cash stuffing helps stop compulsive spending on credit and debit cards because you can actually see the money leaving your wallet. This helps cash stuffers say “no” more often and save money.
It reduces the use of credit cards. Cash stuffing stops credit card spending and keeps debt in check. With average credit card balances ballooning to over $6,500 per household, according to Experian, cash envelopes can help reduce this debt burden and save a ton of money in interest charges.
It stops you from going further into debt. By forcing yourself to only spend money you already have–it stops you from going further into debt. Of course, this requires discipline to avoid credit cards and loans, but the cash stuffing method gives you more control over your spending than other budgeting methods.

Cons

It can hurt your credit score. If you choose to only use cash stuffing for your monthly expenses and pay everything else with a debit card, you might be hurting your credit score. Using credit wisely, such as a credit card or loan, can increase your score. Just make sure to pay off your cards every month and never carry a balance.
Cash is a higher-risk form of payment. Unfortunately, using cash is much higher-risk than simply making purchases on a credit or debit card. Cash can be lost or stolen. There are no purchase protections for buyers that use cash.
Cash is inconvenient. If you’re buying gas or making a grocery store purchase, using cash is a bit of a hassle. Plus, with so much shopping happening online, you might be stuck using a card anyways. Using cash can get messy if you don’t have a good way of tracking your cash vs. non-cash spending.
You miss out on rewards. Many credit cards offer lucrative rewards programs that offer cash back, free gift cards, and even free flights or hotel stays. With cash stuffing, you’ll miss out on these rewards completely.

Who Should Try Cash Stuffing?

Cash stuffing is ideal for first-time budgeters or those who are on a limited budget and want to avoid debt. Dividing your spending into cash envelopes forces you to stick to a strict budget, and can help you save more money versus using a credit card.

If you’re struggling to stick to a budget and want strong guardrails against overspending, cash stuffing can help. Just know that it might take some getting used to–and you’ll have to account for bills that are paid online or using another form of payment.

Jordan Rosenfeld contributed to the reporting for this article.

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