What Is Cash Stuffing?

What Is Cash Stuffing?

Cash stuffing involves making a budget, withdrawing cash from the bank and putting cash for each spending category into a different envelope. You use the money in the envelope to pay for expenses in that category. Once the money is gone, you can't spend any more.

By compelling you to physically watch your cash dwindle, cash stuffing can be an effective way to get a grip on your spending.

Learn more: What Is a Budget?

How Does Cash Stuffing Work?

If you're curious about cash stuffing, here's how to do it.

1. Create a Budget

Start by adding up your monthly income and expenses. You can do this by reviewing bank and credit card statements or tracking your spending for a few months. Tally both essential expenses (such as rent, groceries and car payments) and discretionary or nonessential expenses, such as eating out, entertainment and travel. Create a budget that accounts for both types of expenses and also sets aside some savings each month for short-term and long-term financial goals.

Learn more: Budgeting Mistakes to Avoid

2. Withdraw Cash

There are some expenses you usually can't pay with cash, such as your car payment, credit card bill, rent or mortgage. Identify the expenses that you can pay with cash, and get enough cash from the bank to cover them for the period in question. You can budget for each pay period, two weeks at a time, a month at a time or whatever is easiest for you.

Tip: Many people use cash stuffing only for categories where they tend to overspend. For example, if you can't resist heading to happy hour with your friends, restrict yourself to cash for that.

3. Organize and Label Your Envelopes

You can keep it simple and use plain white envelopes for cash stuffing, or splurge a bit and explore the many special cash-stuffing envelopes, binders or wallets available to stash your cash. Whichever option you choose, label the envelopes by writing an expense category on each.

Your expense categories can be as general or as detailed as you want. For example, you might have an overall "entertainment" envelope holding money for dining out, going to the movies and attending concerts, or you could have a separate cash envelope for each of those expenses.

Learn more: Budgeting for Needs vs. Wants

4. Stuff Your Envelopes

Place your cash in the appropriate envelopes. For instance, you might put $500 in your groceries envelope, $200 in your dining out envelope and $100 in your clothing envelope. Write the total amount on the outside of each envelope or, if you plan to re-use the envelope, use an index card or slip of paper inside the envelope to jot down the balance.

Learn more: Ways to Treat Yourself Without Breaking Your Budget

5. Spend as Needed

When you're ready to shop for groceries or go out to dinner, take the appropriate envelope with you. If you don't want to carry a lot of cash, just take as much of the money in the envelope as you think you'll need.

6. Track Your Spending

When you get back home, return any unspent money to the appropriate envelope. Subtract the amount you spent from the envelope's total and keep a running tally on the outside of the envelope or a slip of paper inside the envelope. You can also track your spending in each category using a notebook, app or spreadsheet.

Tip: You don't need physical envelopes to practice cash stuffing. Budgeting apps Goodbudget and Qube Money both offer digital versions of the envelope method.

Learn more: Why You Should Track Your Spending

7. Assess and Rebudget

At the end of each week, pay period or month, review your spending to see if you need to make any changes going forward. You can also adjust your budget on the fly, since cash stuffing makes it easy to see how much you're spending. For example, if your groceries envelope is down to $10 but payday is a week away, move some cash from another category—such as dining out—into the groceries envelope.

Learn more: How to Get Back on Track if You've Blown Your Budget

Pros and Cons of Cash Stuffing

The cash stuffing method has benefits and drawbacks.

Alternatives to Cash Stuffing

If cash stuffing doesn't work for you, there are plenty of other budgeting methods to try.

• Zero-based budgeting: This method accounts for every dollar you earn and spend so that your income and expenses balance out to zero at the end of the month. Zero-based budgeting works best for detail-oriented people with predictable income and expenses.
• 50/30/20 budgeting: With this method, you direct 50% of your income to essential expenses, 30% or less to discretionary expenses and at least 20% to savings or paying down debt.
• Two-account budgeting: This divides your paycheck between two checking accounts, one for paying essential bills and one for discretionary spending. You'll also want at least one savings account for your emergency fund and future goals like buying a home.
• Pay-yourself-first budgeting: Also called reverse budgeting, this method can motivate you to save. When you get paid, you put money into savings first and use what's left for essential and nonessential expenses.

Tip: Like a financial crash diet, you can use cash stuffing for a short time to get your spending under control, then switch to a different budgeting method.

Frequently Asked Questions

Build a Budget That Works for You

Whether you use cash stuffing or some other budgeting method, what matters most is sticking to it. Experiment with different options until you find one that fits your needs.

If you decide to use cash stuffing, don't abandon credit cards altogether. Responsible credit card use can help you build a credit history without going into debt. Put a few small monthly expenses (such as streaming services) on your credit cards, pay the balance in full and on time every month, and you could help improve your credit score. You can also sign up for Experian's free credit monitoring service to keep tabs on your credit.