Looking for ways to cut costs? Think of using the cash envelope system or cash stuffing. Despite being an ancient idea, the budgeting technique has been given new life on the video-sharing platform TikTok. The films with the cashstuffing hashtag may have millions of views, but that doesn’t mean you understand everything about them.
Read on for a quick primer on cash stuffing, including the benefits, drawbacks, and best practises for making it work for you. Let’s get down to brass tacks!
Cash Stuffing: How Does It Operate?
It’s hardly unexpected that individuals are seeking methods to cut costs in this time of rising prices due to inflation and rumours of an impending economic downturn. For this purpose, cash stuffing is a method for giving concrete form to abstract financial decisions. What I don’t understand is how it operates.
To sum up, you decide how much of your monthly budget will go towards each category of expenses. Put that amount of money in an envelope and use it just for those purchases. Once the budget for that section has been depleted, no more purchases can be made within it.
Spending is typically lower when paying with cash
Evidence demonstrates that consumers reduce their spending while using cash. According to the 2018 ValuePenguin Credit Card Spending Report, “people are willing to spend more—as much as 83% in some cases—when paying with a credit card instead of cash.” The authors of this piece refer to this occurrence as the “credit card premium.”
The phenomenon’s causes remain a mystery, but conjectures abound. It’s possible that paying with cash will feel more honest than using a credit card. The study indicated that people who paid with cash had an 82% higher rate of recalling specific prices than those who used credit cards. Additionally, when viewed collectively on a credit card account, individual purchases may appear less significant.
Benefits of Money-Stuffing
Cash stuffing could be an effective method for limiting spending. One benefit is that it encourages less reliance on plastic. Spending may be controlled, and credit card debt can be avoided, when cash is used instead of plastic.
Cash stuffing also has the added benefit of increasing personal responsibility and financial awareness. By doing so, you are doing what certified financial planner Kendall Clayborn tells GOBankingRates: “You are setting aside time every month to review your finances, create a budget, and set specific goals for the month.”
Consequences of overspending on cash
Of course, there could be certain drawbacks to think about. One reason is that cash is vulnerable. If it disappears or is stolen, you lose your money. Liability protections are commonly included with credit card use. Building credit and earning rewards points with credit cards is possible with responsible use.
Similarly to how interest is not accrued on cash kept in envelopes at home, this is also the case with savings accounts. In addition, there is the matter of convenience. Credit cards are convenient, which is why they can lead to overspending, but they can also be useful. Given these considerations, it could make sense to use a mix of cash and credit cards.
Where to Begin
Determine which buckets make the most sense to fill with cash before you start stuffing envelopes. It is recommended by Ramsey Solutions that you choose categories that “tend to bust your budget.” You could, for instance, separate grocery, restaurant, beauty, apparel, and activity envelopes.
Never assume that filling your wallet full of cash is your only option. Therefore, it could make sense to start with just a few groups. Once you’ve decided on some buckets, it’s time to take stock of your monthly outlays and allocate funds accordingly.
Stuff the envelopes and stick to your spending plan
The next step is to divide up your cash and place it in clearly labelled envelopes. Keeping to your financial plan is the next challenge. Let’s imagine you have $500 set aside in this month’s budget for eating out. Take money out of that envelope to pay for your dinner out, including beverages and a tip.
Avoid using a credit card by sticking within your set spending limit. Please deposit any refunds into the “Restaurant” mailer. This will come in handy the next time you eat out. And once you’ve spent the $500, that’s it for the month; no more eating out.
What about shopping online, do you say?
It’s almost impossible to live in the modern world and never make an internet purchase. Some stores that used to only accept cash now don’t take it at all. Using a discount code when shopping online might sometimes save you more money than paying cash would. Thankfully, cash stuffing can work just fine with other payment methods besides cash. Here’s the deal: separate your cash and credit card spending into separate envelopes labelled “Online Spending” and “Non-Cash Purchases.”
When making a transaction that doesn’t involve cash, put the money for that purchase in the appropriate envelope. Then, tuck the money for in-store purchases into the envelope. To buy clothes online would mean transferring funds out of the “Clothing” envelope. Be sure that any non-cash purchases are within your means before making them.
Is it possible to keep a holiday budget with cash stuffing?
Cash stuffing is a smart strategy for the holidays, regardless of whether or not it fits into your regular budget. After all, it’s easy to go overboard on presents when you don’t keep track of your spending. Overspending is easily done because of all the discounts and deals available.
But that’s when a strategy called “cash stuffing” comes in handy. Create a budget for each person on your shopping list, put that amount of money in an envelope, and then give them all their gifts. In addition to helping you stick to your spending plan, it can reveal whether you’ve unwittingly spent a disproportionate amount on a single individual.
Suppose you don’t use all of the money
Well done for finishing below the allotted financial plan! Depending on the amount of money you have left over, it is OK to treat yourself to a treat such as a luxury coffee or a night at the movies. Maintaining financial discipline is a worthy accomplishment.
You might use the extra cash to pay off debt or invest in your future instead. It all depends on the specifics of your case. You can also carry it over to the following month’s spending plan if you like.
You can keep your spending under control and gain financial independence by using cash stuffing. It’s a practical approach to learning to control one’s finances and spending. And it may be modified to work with internet purchasing as well.
Cash stuffing is not an either-or proposition; try it out in little doses to see whether it works for you. One or two categories where you typically overspend could serve as test subjects. If this method is successful, you can add more subheadings.