What Is Cash Stuffing?

Have you heard about "cash stuffing," a new, low-tech budgeting method popularized through social media? It’s become a popular way for Gen Z (those born 1997-2012) to keep their spending under control. But it’s not just Gen Z who’s finding success with cash stuffing – this Gen X’er has used it for decades, although past generations called it the “envelope system” or the “envelope budgeting method.”

Cash stuffing is a way to keep spending within a budget using cash and envelopes. You start by preparing a household budget for as many spending categories as feasible, then create an envelope for each category. Every payday, you put your budget-designated amount of cash into each envelope. Purchases are made using the cash that’s in its respective envelope – not by using a credit card or your digital wallet.

An empty envelope is a clear indication that the budgeted spending amount has been reached. Leftover cash can be transferred to an envelope marked for “savings” or kept in the same envelope to be rolled over to the next month.

Cash stuffing tends to be most effective for budgeting variable expenses such as groceries, clothing, gasoline, beauty supplies, and dining. Why? Since these are not fixed, it’s easier to overspend. However, some find it helpful to include fixed expenses, like rent, insurance, utilities, and car payments.

Another option is to take a hybrid approach, using physical envelopes for variable expenses that can easily be paid in cash, and a “digital envelope” for expenses that aren’t as cash-friendly, like a mortgage or car payment. A digital envelope is established by setting up a separate checking account that you deposit funds into and then use for digital bill payments.

Regardless of your approach, the number of envelopes – digital and physical – and their categories should reflect your personal budget and your spending profile.

Once you have your envelopes (or other designated cash containers), you can start cash stuffing in six straightforward steps:

1. Take inventory of all your expenses. Fixed, recurring expenses like mortgage, car, or student loan payments can be calculated by looking at past lender statements. Quantifying spending on variable items like groceries, gas, and entertainment can get hazy. In order to get a good starting estimate, analyze past spending by looking at past credit and debit card statements, or start fresh by tracking these expenses for a few weeks. Since these expenses are variable, it’s a good idea to periodically review and adjust your estimates.

2. Determine your cash stuffing commitment level. If the all-in approach sounds overwhelming, consider starting with a few envelopes for the areas that tend to be budget-busters. For example, if you’re trying to save up for a new car but have a soft spot for getting dinner and drinks with friends, you might create an envelope to help budget “restaurant”  expenses. Additional envelopes for other expenses can always be added.

3. Assemble the envelopes. This can be as simple as writing the name of the expense on a standard white envelope or as fancy as crafting a binder with color-coded plastic pockets. There are many DIY websites with creative envelope ideas if you’re so inclined. The simple and the swanky work equally as well – what matters most is using the approach that will help keep you committed to your financial goals.

4. Fill, or “stuff,” the envelopes. Get reacquainted with the faces on those green paper bills by cashing your paycheck, dividing up the dollars, and stuffing each envelope with its proper amount. For example, if your budget for dining out is $200 per month, you put $200 in the envelope labeled “restaurants,” or $50 if you get paid weekly. Each time you head out to a restaurant you take cash from the envelope with you. Knowing that you have a finite amount of money to pay the check will help keep you from overordering. At the end of the night, any leftover cash goes back into the restaurant envelope for next time. When the envelope is empty, that’s the end of going out to eat until the envelope is refilled.

5. Allocate the leftovers. Envelopes with leftover bills at the end of the month mean that you’ve underspent your budget. The bills represent a windfall, which can go into designated savings envelopes (more on this later). Or this windfall can be used as a reward for being so disciplined throughout the month. Recurring windfalls may signal that the budget may need adjusting.

6. Don’t forget about savings. To help prioritize savings, create envelopes for “saving.” A dedicated envelope for a special purchase can help turn a dream into reality. It’s also a good idea to create long-term savings envelopes that can be used to put money aside for an emergency fund and retirement. If you’re wondering how much to save, 20% of your income is a good place to start, in accordance with the popular 50/30/20 guidelines for budgeting: 50% needs, 30% wants, and 20% savings. Long-term savings envelopes are likely to be “digital” and go directly into bank accounts and retirement accounts, but short-term savings goals – like a vacation or a new TV – are well-suited to paper envelopes.

Cash stuffing has been around so long – and is making a return – because of its many benefits. But it’s not without drawbacks. Consider these pros and cons to help determine if starting a cash stuffing program is right for you:

• Raises awareness of what you’re spending money on.
• Helps eliminate overspending because when the envelope is empty, spending stops.
• Simple and low-tech.
• Helps prioritize short-term and long-term savings.
• Saves interest charges from carrying credit card balances caused by deficit spending.