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 involves putting money in envelopes earmarked for various spending categories — like rent, groceries, entertainment and gas. Once you use up all the money in a given envelope, you aren't allowed to spend any more in that category until the following month.
What is the cash stuffing method of budgeting? ›
How does cash stuffing work? The basic premise of cash stuffing is that you set aside cash for different budgeting categories at the beginning of each month. The goal is to spend no more than that cash you've set aside for each category.
How to start cash stuffing in the UK? ›
Create your core budgets or categories – Look at your main expenses. Separate them into categories, and note the amount you'll need to spend on each. Set your remaining budgets and create your remaining categories – Create categories for other areas, and set budgets.
What is the cash stuffing format? ›
You just take the exact amount of cash you've budgeted for each category and stick it in individual envelopes. Then throughout the month, you check your envelopes to see what's left to spend—because you'll see the literal amount in cash.
What is the 50 30 20 rule? ›
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.
Does cash stuffing actually work? ›
While other budgeting methods merely track your spending, cash stuffing physically prevents you from going over budget. Once an envelope is empty, you can't spend any further. That makes it useful if you're an impulse shopper or find yourself coming up short every month.
Is there a cash stuffing app? ›
Track cash virtually
Since Goodbudget allows you to track the money in your accounts via an app, you're able to utilize the cash stuffing method virtually. For some, using real cash in physical envelopes helps to keep them aware of their spending.
How much cash can you legally keep at home in UK? ›
There's no legal limit on how much money you can keep at home. Some limits exist with bringing money into the country and in the form of cash gifts, but there's no regulation on how much you can keep at home.
What is the 100 envelope challenge in the UK? ›
The 100-envelope challenge
Take 100 envelopes and write the number 1 to 100 on them. This number is the number of pounds you'll need to add to the envelope. Each week, pick out two envelopes at random and put the amount shown on the front into them. In 50 weeks, you will have saved £5,050.
What is an alternative to cash stuffing? ›
1. Use Gift Cards. 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.
Disadvantages of cash stuffing
After making your budget, this system requires you to physically go to a bank to take out cash and manually stuff envelopes. Carrying a lot of cash, or even storing it in your home, comes with risks. You could lose it or have it stolen, possibly with no recourse to get it back.
How to cash stuff for beginners? ›
Cash stuffing involves taking your spending money, converting it to cash and stuffing it into envelopes marked with spending categories like rent, bills, groceries and gas. You determine how much money you want to spend in each category on a weekly or monthly basis.
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 zero cost budgeting? ›
The zero-based budgeting process is a strategic budgeting approach that mandates a fresh evaluation of all expenses during each budgeting cycle. Unlike traditional budgeting, where previous spending levels are typically adjusted, ZBB requires individuals or organizations to justify every expense from the ground up.
How to budget money for beginners? ›
Try the 50/30/20 rule as a simple budgeting framework. Allow up to 50% of your income for needs, including debt minimums. Leave 30% of your income for wants. Commit 20% of your income to savings and debt repayment beyond minimums.
How much money should I have left over at the end of the month? ›
The 20% rule is a good general guide, but it isn't the right fit for everyone. Some people can save above that rate, while others merely struggle to make ends meet. “Some people pay their rent and they have nothing left.
What is the cash budget method? ›
A cash budget is a company's estimation of cash inflows and outflows over a specific period of time, which can be weekly, monthly, quarterly, or annually. A company will use a cash budget to determine whether it has sufficient cash to continue operating over the given time frame.
What is the method of cash flow budgeting? ›
A cash flow budget looks at where your business stands in terms of cash inflows and outflows, using these as the basis for future budgeting. One thing to note when looking at how to budget cash flow is that this will not be a precise figure, so think of it more as an educated guess.
