What is the Cash Stuffing Budgeting Method?

While the cash stuffing system isn’t a new thing, it recently gained attention thanks to a glut of social media videos showing individuals in early adulthood (Gen Z) singing the praises of cash stuffing. It’s really just a new name for an old budgeting method, the envelope system, that’s been promoted by personal finance expert Dave Ramsey for years.

Read on to learn how the cash stuffing system works and how it can help you to spend money more mindfully and develop healthy financial habits. And you don’t have to be a personal finance whiz to reap the benefits of cash stuffing.

How cash stuffing works

Part of the reason many consumers find that stuffing cash into envelopes or other receptacles is so effective is because of the way we tend to value cash over credit cards or other forms of plastic. Study after study has shown that people typically spend less when they’re using actual money versus a debit or credit card.

But that’s only part of how it works. Cash stuffing is also a very hands-on method that puts you on a strict budget. If you follow the rules, you can train yourself to adopt better, more disciplined spending habits that will then help you to reach other financial goals. And the rules are very simple.

1. Decide how much you’re going to spend on each piece of your budget (groceries, gas, hair care, clothing, etc.).
2. Label each envelope or folder with a single budget category.
3. Add a set amount of cash into each one when you get paid.

And that’s it! Whatever you have in those cash envelopes is all you can use until you get paid again. And no cheating — you can’t pull money from one envelope and allocate it to another spending category just because you want to buy some new clothes. That’s not how it works.

Cash stuffing in five steps

The cash-stuffing method can actually be quite fun because it’s almost like a game but with financial consequences. If you want, skip the boring old envelopes and make your own financial planner binder or come up with another way to organize your spending categories.

1. Withdraw cash from your bank account

It’s not really practical to withdraw all of your cash, so leave enough money in your bank account to cover your fixed expenses, such as rent or mortgage, utilities, and cell phone bills. Withdraw whatever is leftover — this is how much cash you have for your cash-stuffing budget.

2. Figure out your budgeting categories

Each person’s spending categories will be a little different, but they should generally fall under two basic areas — needs and wants. Some also use the cash stuffing method for savings goals too, which can be a handy way to set aside any extra money each month. Here are a few examples of different budgeting categories.

While this is one way to reach savings goals, you may prefer adding money to a high-yield savings account instead. This way you can earn a bit of interest just by stashing your funds in the account.

3. Determine your budget for each category and start cash stuffing

Now that you have your spending categories nailed down, you have to decide how much money you’re going to budget for each category. This can be hard in the beginning. To avoid too much mental accounting, look over your bank statements and credit card bills to get an idea of what you’ve spent in the past.

This exercise can also help to curb overspending by taking a closer look at where your money is going. For example, if you see that you’ve been spending $500 a month just on clothing, you might want to reevaluate that budget item.

Here’s a simple example of how you might want to allocate your budget envelopes. Let’s say you have $1,200 and you’ve come up with four budget categories: groceries, gas, dining out/entertainment, and pharmacy, plus one savings envelope for your vacation fund. Your cash stuffing might look something like this:

• Gas, $100. You work remotely most of the time, so you don’t need as much money for gas since the pandemic hit.
• Groceries, $300. You eat at home a lot because that’s also where you work.
• Dining out/entertainment, $400. You love to go out, especially since you’re home so much, and you have a penchant for nice restaurants.
• Pharmacy, $100. In addition to a couple of monthly prescriptions, you frequently need some personal care items from the pharmacy.
• Vacation fund, $300. After filling up your wants and needs envelopes, you have $300 left over that you can put toward your vacation fund or other savings goal.

4. Only spend the amount in each of the different envelopes

This is the most critical part of the cash-stuffing method. Once your cash envelopes are empty, you have no more money to spend. No reaching for your credit cards to go shopping or go out to eat. This is where you might have to get a little creative, like digging deep into your pantry or freezer to come up with a tasty meal.

5. Replenish and reevaluate monthly

Every month (or however often you get paid) you will refill the envelopes and, especially at first, you’ll probably want to reevaluate your spending categories and how much cash you allocate to each one.

For example, if you constantly have money left over from your grocery money, you might want to increase the amount in your savings envelope. Or, if you get a pay raise, consider throwing that extra money toward your credit card debt.

Advantages and disadvantages of cash stuffing

There are a lot of good reasons to use the cash-stuffing method, but it’s also important to be aware of some of the drawbacks to primarily using cash to buy things and pay your bills.

Advantages of cash stuffing

• Helps you stick to a budget. If you’re prone to overspending, which may have gotten you deep into credit card debt, the clear rules of cash stuffing automatically enforce discipline.
• Encourages prioritized budgeting. Stuffing cash into envelopes forces you to evaluate how much money you need for each category on your list. For instance, if your job requires a lot of driving, gas money isn’t something you can skimp on. This may mean reducing your budget in another area, such as entertainment.
• Encourages thriftier spending habits. When you stop relying on credit cards to make ends meet and only have a set amount of money each month, you may be forced to be more resourceful. As an added bonus, when you’re careful about what you buy, you end up with a lot fewer unnecessary things.
• Makes overspending more difficult. How much cash you have in each envelope dictates exactly how much spending money you have for that budget category. Once you’ve used up the money, you have no more funds for that category until next month.
• Can help you save money and reduce your debt. The transition to more mindful spending by carefully budgeting your money should ultimately result in less overall spending. This can help you reduce your debts and start saving money for specific goals.

Disadvantages of cash stuffing

• Not as safe. Let’s face it, keeping a large amount of cash around the house is not as safe as it is in federally insured bank accounts. Cash is easy to steal, but even if someone does hack your savings account, you’re most likely insured and will get that money back.
• More time-consuming. Most of us favor online bill-paying, Apple Pay, and other digital payments because it’s faster, easier, and you barely have to think about what you’re doing. Cash stuffing takes a little longer, but the extra work is meant to hold you accountable for how you’ve spent your cash.
• The world is a digital place. Back in the “olden days,” people paid cash for almost everything, and credit cards were used more for financing larger purchases. But that’s not true anymore. In fact, a 2022 Pew Research Center study found that 41% of Americans don’t use cash for any purchases in a typical week, and that number has been trending upward every year.
• No interest. If you store your money in a money market or savings account, you’re at least earning interest on that cash. Money stored according to the envelope system, however, earns nothing.

FAQs

What’s the 50/30/20 rule?

Sometimes it can help to turn to an expert when you’re not sure exactly how to allocate your money and manage your personal finances. In her book All Your Worth: The Ultimate Lifetime Money Plan, Senator Elizabeth Warren proposes the 50/30/20 rule as a guideline for how much of your income should be spent on what.

She suggests that 50% of your after-tax income should be spent on the necessities to live, 30% on things you want, and 20% should go toward savings and repaying debts. Of course, you don’t need to follow this “rule” to the letter. However, it is a handy tool to get a big-picture view of where your money is going now versus where it could be put to better use in the future.

Can you live a cash-only life?

Nowadays, it’s pretty much impossible to get by on cash alone. Yes, there are plenty of places where you can pay cash for things you need, and you could theoretically go directly to utility companies to pay cash for water, heat, or gas.

That said, there are some places that will only accept mobile, electronic, or digital payments. For example, streaming services, Amazon, and PayPal (among others) don’t accept cash. At a minimum, you need to have a bank account that you can link up to pay for certain services.