What Is Cash Stuffing?

How Does Cash Stuffing Work?

Like any budgeting system, cash stuffing starts with determining your monthly income and expenses. Go through your bank and credit card statements or track your spending for a month or two to get an idea of both essential expenses (like rent, food and car payments) and nonessential expenses, such as restaurants, entertainment, streaming services and travel. Don't forget to pay yourself by putting aside some savings each month.

Next, identify the expenses that you can pay with cash, and withdraw enough cash to cover them for the period in question. You can budget for a month at a time, two weeks at a time or even a week at a time—whatever is easiest.

Put the cash in envelopes labeled with your categories and write the total on the outside of each envelope. For example, you might have one envelope with $400 for groceries, one with $200 for dining out, one with $100 for clothing and one with $200 for entertainment. Before you head to the supermarket or dinner out, grab the appropriate envelope (or as much of the money in that envelope as you think you'll need). Return any change to the appropriate envelope when you return.

Many people use cash stuffing only for categories where they have trouble controlling their spending. For example, if you can't resist heading to happy hour with your friends, you could restrict yourself to using cash when dining out.

You can also adopt cash stuffing without using actual envelopes. Budgeting apps Goodbudget and Qube Money offer digital versions of cash stuffing.

Pros and Cons of Envelope Budgeting

Cash stuffing—or envelope budgeting—has its upsides and downsides.

Pros of Envelope Budgeting

• It can curb impulse buys. Studies have shown that people spend more money and spend more impulsively when using credit cards than when using cash. Physically handling cash forces you to think about your spending, compared to blithely swiping your payment card or waving your phone to pay. This can keep you from spending on a whim and help you stay within your budget.
• It's simple. It's easy to put a purchase on a credit card and forget about it until you get the bill a month later. When the money in your envelope is gone, it's gone—end of story. You don't need spreadsheets or apps to track your spending with cash stuffing. Just look inside the envelope to see how much you have.
• It helps prevent debt. Because you're only spending money that's (literally) in hand, you can't run up a credit card balance with cash stuffing.

Cons of Envelope Budgeting

• It can be inconvenient. Making frequent trips to the bank to deposit or take out cash can get time-consuming. Slowing down the checkout line as you fumble for your envelope may not win you any friends. Unlike budgeting apps, physical envelopes can't link with your bank accounts to track your spending automatically; you'll have to reconcile amounts manually.
• It may be risky. Carrying cash could make you vulnerable to crime. If your cash is lost or stolen, it's gone.
• It doesn't offer rewards or purchase protections. Using credit cards may earn valuable rewards such as cash back or travel miles. Some credit cards also offer purchase protection, which can reimburse you for damaged or stolen items purchased with the card. Others provide travel insurance benefits such as roadside assistance or reimbursement if a trip booked with the card is canceled, delayed or interrupted.
• You can't always use cash. Cash only works for in-person purchases. You'll have to use your checking account for things like utility, auto loan and student loan payments. Even in person, many businesses prefer card payments and some don't accept cash at all.
• It can be complicated for couples. Sharing envelopes with your spouse can get confusing. What happens when you head out to the movies, only to discover your spouse already took the "entertainment" envelope?
• You won't earn interest. Savings and checking accounts can earn interest; cash parked in an envelope can't. For example, high-yield savings accounts may boast annual percentage yields (APYs) of 4% or more, meaning your money is earning money just sitting in your account.

Other Budgeting Methods to Consider

If cash stuffing or envelope budgeting doesn't appeal to you, one of these popular budgeting methods may.

Zero-Based Budget

Similar to cash stuffing, but even more granular, this system accounts for every dollar you earn and spend. At the end of the month, your income and expenses should balance out to zero. Zero-based budgeting works best if you are very detail-oriented and your income and expenses are highly predictable.

50/30/20 Budget

Want a more flexible option? The 50/30/20 budgeting system directs 50% of your income to essential expenses, 30% or less to nonessential expenses and at least 20% to savings or paying down debt.

Two-Account Budget

With this budgeting method, you divide your paycheck between two checking accounts. Use one of them to pay your essential bills and the other for discretionary spending. (You'll also want at least one savings account to stash your emergency fund and put money aside for future goals like a vacation or buying a home.)

You could also use cash stuffing for a short time to get your spending under control—the financial equivalent of going on an intense diet or fitness regimen. Once you have a grip on your expenses, you can shift to a different budgeting method.

The Bottom Line

If you decide to try cash stuffing, don't abandon credit cards altogether. Using them responsibly can help you build a credit history. Concerned about debt? Put one or two small monthly expenses (such as streaming services) on your credit cards, then pay the balance in full and on time every month. This can help boost your credit score without incurring interest. Sign up for Experian's credit monitoring service to keep tabs on your credit at no cost.

Experiment with different ways of budgeting until you find a system that works for you. Whether you use cash stuffing or some other budgeting method, what matters most is sticking to it.