Posted on 07/20/2023 7:21:07 AM PDT by Diana in Wisconsin
When Giovanna “Gigi” Gonzalez wanted to cut back on her food spending, the finance expert and money coach applied what is known as the “cash-stuffing” method of budgeting. She put the cash she allotted to food for the week into an envelope and limited her spending to that amount.
“I could see when I had just 20 bucks left for the week, so it was really helpful,” she says.
Popularized through TikTok videos, cash stuffing has brought back the old-fashioned envelope system of budgeting: You divide up your cash into different envelopes, each dedicated to a category of spending or saving. “It’s a tried and true method,” says Gonzalez, who also founded The First Gen Mentor, a money course where she promotes financial literacy.
If you’re considering joining the cash-stuffing movement yourself, here are some guideposts:
Set aside planning time
Cash stuffing requires an upfront time commitment because you need to plan your spending, withdraw your cash and then “stuff” it into labeled envelopes. That process could easily take an hour or two to get prepared for the week ahead.
“It’s an additional time commitment,” Gonzalez acknowledges, but the upside is that “you immediately feel more in control of your money.”
Keep your cash safe
With so much cash on hand, it’s important to secure it, says Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling. “There are all kinds of risks involved if you’re stuffing cash in places where you might forget it or heaven forbid something happens and the cash burns,” he says.
Tim Melia, a certified financial planner and founder at Embolden Financial Planning in Seattle, suggests keeping the cash envelopes in a fireproof safe that locks. He adds that while news about bank collapses likely contributed to the appeal of cash, an FDIC-insured bank account is still the safest place to store money. (The Federal Deposit Insurance Corp. insures up to $250,000 per depositor, per bank and per ownership category.)
Consider a hybrid approach
Gonzalez likes the idea of cash stuffing for everyday expenses but then moving larger amounts for savings or something like a house down payment into a bank account. “I don’t want that money sitting in an envelope,” she says. Also, cash doesn’t earn interest, but if you move the money into a high-yield bank account, it can grow.
Melia says cash stuffing is a great way to get started with budgeting and see where your money is going for a month or so. “Then, transition to a spreadsheet and bank account,” he recommends, noting that the discipline of the cash-stuffing method can stick with you.
McClary points out that many banks allow you to create digital envelopes for different categories in the form of separate bank accounts. For example, you might have labeled accounts for travel savings, down payment funds and everyday expenses, as well as a “fun money” account.
“The money is still deposited with a financial institution and insured through the FDIC, but you are able to accomplish this kind of envelope approach and segment it into different spending categories,” McClary says.
Severine Bryan, a personal finance educator and accredited financial counselor candidate, uses an approach she calls “faux cash stuffing” because she doesn’t carry the bills around. Instead, she assigns set dollar amounts to different categories like food and transportation, makes sure not to exceed those dollar amounts, and uses her credit card to earn cash back while she spends.
“I’m not using cash, but it’s the same idea,” she says.
Decide whether it’s a good fit
For some fans of the cash-stuffing method, the appeal comes down to the fact that you’re touching real cash. “It feels more real and you’re more aware of your spending, whereas if you’re swiping a credit or debit card, or buying something on Amazon, it doesn’t feel real. It’s just the click of a button,” Gonzalez says.
McClary notes that others are drawn to the simplicity of the method. “It’s not overly complicated and you are less likely to end up in debt because it keeps you spending within your means.”
Bryan says that cash stuffing likely works best for people who are more visual. “If you don’t want the friction of writing numbers down, this method becomes more fun with colorful envelopes. It doesn’t even feel like budgeting,” she says.
Skip the accessories
Even if you like the cash-stuffing method, you don’t need to purchase the accessories marketed by TikTok influencers, which include cute wallets and designer envelopes. Those extra expenditures could make for a rough start to budgeting, Melia warns.
All you need is a stack of envelopes and a pen to label them — and possibly a fireproof safe to keep all that cash secure.
I guess Excel spreadsheets for budgeting are too complicated for these folks to handle...
Lol.
When the random spending checking account is out of money, the random spending stops. Have the bills checking account automatically deposit a set amount weekly to the random spending account. In your budget, this looks like a weekly "bill" that you do the math in your budget for. Thus, every time you spend randomly you don't have to stop and recalculate your budget (frees you to spend as wanted), but at the same time limits your spending to stay in budget (when the random spending account is empty that's it until the next weekly transfer).
Why buy anything? Ca.ifornians are allowed to steal under $1000 (every day? I dunno) so budget using the $1000 mark as the limit per day. (Can’t imagine spending $1000 on food everyday lol, but wow could I eat well if I did lol)
Send me $10,000, and I will teach you how Con Operators work.
I used an Excel spreadsheet for decades; retired, debt-free at age 56. :)
Banks hate this.
“When the random spending checking account is out of money, the random spending stops.”
A concept foreign to so, so many! ;)
Sad to see people doing desperate things like this. However with inflation so bad people should enact whatever budget system works for them.
I see this as a gimmick for the undisciplined but if it works, that’s great.
For me I charge everything and pay it off in full every month.
Sometimes there’s a surcharge for using the card, like at a restaurant. If I know that in advance I use cash.
Excel user here (and a couple of C# apps to help project Dave Ramsey’s debt snowball combined with tax free investing in Roth IRA’s LOL). My wife retired at age 55 and I’ll probably fully retire about the time I reach age 57 or 58.
Sooo...let’s teach the government THIS!.../S
I like your method of paying off your credit card every month. But be warned about spending more than you would have if it was cash or a debit card. For example, if it was cash and you'd spend $300/week, but with it being a credit card you find yourself spending $450/week, that's $150/week that could be used to further long term financial goals (i.e. pay off debts, save for kid's career training, invest in retirements). So even though you're not paying interest for using your credit card (yay to you for paying it off every month), don't be satisfied with just that. Keep the credit card use within the budget spending and goals planning.
My parents did this in the 1950’s. My MIL law did it until she died.
So…this is “depression budgeting 101.”
My house was paid off. My bank kept asking me if I didn’t want a home equity loan. I asked my banker “Why would I want a home equity loan?” He couldn’t answer me.
What a pantload. Dave Ramsey has been preaching this concept for decades.
Lol.
You are correct. Dave Ramsey has been preaching this cash envelope process for years. It's designed to enable financial morons who can't budget to get out of debt.
My grandmother was very fond of the envelope method. Kind of a pain when she died, trying to find all the envelopes. But it definitely worked for her.
Sometimes there’s a surcharge for using the card, like at a restaurant. If I know that in advance I use cash.
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If a restaurant adds on a surcharge for using a card, I simply reduce the tip by that amount.
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