โCash stuffing is beneficial for those who struggle with overspending on cards but can manage cash effectively.” โAnthony H. Williams, CPA and wealth management advisor, Northwestern Mutual
Like โloud budgeting,โ the โcash stuffingโ trend has taken off on TikTok largely thanks to Gen Zโbut the concept behind it is nothing new, explains Yuval Shuminer, CEO of personal finance app Piere. So are folks onto something here? Ahead, weโre breaking down the pros and cons of the budgeting trend.
What is cash stuffing?
Simply put, โcash stuffingโ is a way of managing personal spending by using cash. Also known as the โcash envelope systemโ or โenvelope budgeting,โ it involves placing cash into labeled envelopes for expenses, and using only that cash throughout the month, Shuminer explains.
โCash stuffing typically involves keeping cash at home or in various locations, while the envelope system allots cash into specific envelopes for different spending categories (e.g. gas or subway rides, dining out, shopping, entertainment, rent, utilities), adds Anthony H. Williams, a certified financial planner and wealth management advisor with Northwestern Mutual.
However, the two terms are often used interchangeably and โboth involve using physical cash for budgeting purposes to control spending,โ Williams says.
Is cash stuffing worth it?
Cash stuffing has some obvious benefits in that it can help you limit spending by restricting you to the cash you have on hand, Williams says. If you physically donโt have the money for those new sneakers you really want, you canโt buy them. (Especially if theyโre only available online.)
The act of physically parting with cash can instill a more visceral understanding of spending and loss than using a digital wallet or a physical card to buy things, Shuminer says. (After all, 67 percent of Americans say they always or sometimes lose track of how much theyโre spending when using digital wallets, according to a 2023 survey from Forbes.) Seeing the amount of bills you hand over to pay for that oat milk latte, or watching your envelope get slimmer over the course of the month, can encourage people to make more thoughtful spending decisions.
Plus, Shuminer points out, buying only what you can afford in cash simply doesnโt allow you to rack up any credit card debt. If you fall into the โromanticโ money archetype and love spending money on little luxuries, but struggle when it comes time to save for a big purchase, cash stuffing could be a great option as it supports stronger willpower and financial control, Shuminer says.
โCash stuffing is beneficial for those who struggle with overspending on cards but can manage cash effectively,โ says Williams. โIt can also be advantageous for those who want a visual representation of their budget limits.โ
Those with limited income, limited spending, and no existing debts are most likely to benefit from a cash-only spending method, Shuminer says.
What are the risks of cash stuffing?
As with any money management method, there are a few downsides to cash stuffing. Thereโs a certain level of risk that comes with withdrawing your whole monthโs budget from your bank account and having it on hand. โKeeping large amounts of cash at home โor on youโcan pose a security threat in case of theft or loss,โ Williams says. (Itโs why some TikTok users are even using fake bills as placeholders.)
Plus, paying in cash means you miss out on the unique purchase protection that credit cards provide. โWhen paying with credit or debit cards, payments are tracked and recorded, and are often insured with a fraud or loss guarantee by the cardโs issuing bank,โ Shuminer says. โThis means that if your card is used without your permission, youโll likely recuperate the money that was wrongfully taken.โ Meanwhile if you lose cash, itโs gone for good.
Not using credit cards also means youโre also missing out on cash back rewards and credit card points, which have cash value when used responsibly, Shuminer says. While certain credit cards allow you to leverage your everyday spending to buy plane tickets or your next hotel stay, with cash-only payments, you could be leaving these perks on the table.
Cash transactions are also harder to track compared to electronic payments, Williams points out. As the TikTok videos show, cash stuffing requires being seriously organized so you donโt lose track of how much youโve spentโor borrow from one envelope to fund another.
โEven though the aim of this method is to eliminate the accrual of debt, it can backfire,โ Shuminer says, adding that it can lead you to spend money that is needed for other mandatory spending such as rent, or savings.
Lastly, in a world where online shopping and tap-to-pay reign supreme, this method can be inconvenient to rely on if you come across a situation where cash isnโt accepted, Williams says. There are also some situations where cash simply doesnโt work, like paying for streaming subscriptions or buying anything online.
How to do the cash envelope method of budgeting
If youโve done the math and decided that youโre interested in trying cash stuffing, hereโs how to get started and implement the method effectively.
Determine your budget across spending categories
The first step for cash stuffing is to determine your budget categories and how much you want to allocate to each. Perhaps thatโs by using the 50/30/20 budget method, which allocates 50 percent of your take-home funds toward necessities (think: rent, utilities, and groceries), 30 percent for fun spending like eating out or shopping, and 20 percent for savings and debt. Shuminer says you should aim to allocate at least 20 to 30 percent of income each month into a savings category if you can.
Not every month will look exactly the sameโmaybe youโre going to a concert or have a bachelorette party to attendโso start by looking at your anticipated expenses for the coming month, Shuminer says. Itโs also helpful to revisit your spending over previous months to determine what your historical spending is on each category, she adds.
Withdraw cash and add to labeled envelopes
Once you know what you need, withdraw the necessary cash from your bank account for each category and place it into labeled envelopesโor opt for one of those fancy binders with clear pockets seen on TikTok.
The only real rule to practicing cash-stuffing? โOver the course of the month, spend only the cash that you have available within each envelope,โ Shuminer says.
Store your cash safely
Whether youโre using a โbinderโ with different categories or traditional envelopes, itโs important to keep the cash in a secure location, Williams says.
Track your spending
โRecording your cash expenditures is key to monitor your spending and ensure you stay within budget,โ Williams says. So, every time you take money from a specific envelope, write it down. Maybe you have a notebook for this purpose, or use an app to help you keep things straight.
You may not be able to perfectly predict exactly what youโll need, and thatโs okayโyouโll likely get better at it as you go. โWhile spending, pay careful attention to how much of each budgeted category was spent, and record this for future months,โ Shuminer says.
What is an alternative to cash stuffing?
There are a few alternatives that capture the spirit of cash stuffing without the need to actually carry around cash. For example, โyou can load specific amounts onto prepaid debit cards for different spending categories, providing a digital alternative to physical cash,โ Williams suggests. Just be sure to keep track of the exact amounts left on each prepaid card, just as you would your cash envelope.
Personal finance or budgeting apps can also help you budget across spending categories in the place of physical envelopes. For example, the You Need a Budget (YNAB) app is based on the envelope system, allowing you to assign only money you actually have to a particular category.
Schuminerโs app Piere analyzes your past spending and income and then recommends how much money to allocate to each category, โproviding a level of certainty not guaranteed by manually allocating cash,โ she explains. In addition to automatic tracking of your credit card purchases, if you want to also use cash stuffing, thereโs a place to record cash spent so you can see where all of your money is going each month.
Certain credit cards can also help with this aspect of cash stuffing by breaking down your spending into different buckets to let you see how much youโre spending on, say, groceries versus eating out.
And of course, working with a professional like a certified financial planner is a great way to help you reach your financial goals if youโre struggling with how to allocate your money. โTheyโll be able to help create a customized plan to control spending,โ Williams says โย and keep you focused on your saving goals, too.
The bottom line on cash stuffing
If youโre responsible with your credit card spending, it can be a great way to earn rewards, and build and improve your credit score along the way. But if youโre struggling with swiping without thinking and sticking to a budget, cash stuffing could be a great way to reign in your spending in the short term. โOnce you introduce longer-term goals, liabilities, investments, and a more complex financial situation, there are serious caveats to cash stuffing,โ Shuminer says.