Cash stuffing: What is it and how does it work? (2024)

Q: I was at my daughter’s condo last week and a small binder on her kitchen counter caught my eye. It was filled with brightly coloured plastic envelopes stuffed with various amounts of cash. I assumed it belonged to her roommate because I wouldn’t know where my daughter would get that much cash.

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She typically pays for everything with an app on her phone. She assured me that it was hers and that she had started using the cash stuffing method of budgeting to pay off her credit cards so that she could afford to go back to school.

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I’m proud of her for taking charge of her finances, but I couldn’t help but think that she really hasn’t discovered anything new. My great grandmother used to keep envelopes of cash in her bedroom drawer. Either way, my daughter figures that she should be back on track in about a year. Is cash stuffing really that effective? ~Colleen

A: Cash stuffing is simply a catchy new term for a tried-and-true budgeting strategy that we know works. It’s a simple way to keep track of how much money you have and how you’ve planned to spend it.

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Tech-obsessed consumers have popularized it through TikTok and share mounting successes on various social media platforms. Where previous generations kept envelopes of money safely tucked away in bedroom or kitchen drawers, many today proudly share their creative #cashstuffing systems on social media, spending extra money on colourful pens, binders, and stickies to do it.

What is cash stuffing?

Have you ever heard of the decades-old envelope system? Cash stuffing is a trendy name for the envelope system. It’s an alternative budgeting method where one simply withdraws money from their bank account and allocates predetermined amounts toward specific expenses based on an overall spending plan. To keep the allocated amounts of cash straight and on budget, the cash is stuffed into individually labelled envelopes.

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What are the benefits?

Cash stuffing is a type of visual budgeting, which helps us stick to our budget and achieve our financial goals.

Think of your budget as a plan for how you want to spend and save your money. By mapping out your monthly spend ahead of time, and assigning different amounts of your pay cheque to those different causes — or envelopes — you can visually appreciate how much or how little you have left for any specific expense.

Using cash rather than credit or debit for variable costs and lifestyle expenses also helps you gain better insight into your spending habits. And with the careful oversight this system provides, it fosters savings growth, which you can then capture each month by allocating a certain amount to be automatically transferred to a savings account.

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Think about how much you spend on groceries, home decor, eating out, takeout, gifts, recreation, personal care expenses, clothing, and entertainment for example. If you aren’t sure how much you spend, or you know that you’ve got a tendency to spend more than you should; using only the cash provided by those envelopes will force you to take stock of your allocated budget, so that you don’t exceed your self-imposed limits.

Cash stuffing also helps rein in those whose habits are prone to impulsive or mindless shopping. An empty envelope is the signal that you need to stop. While it might be tempting to borrow from a different envelope when you run out of money, that will leave you short for other essential expenses. Credit is off limits when you’re cash stuffing and the money left in your bank account is to pay specific bills electronically.

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The biggest benefit of cash stuffing is that it forces you to stop and think about the outlay of your hard-earned cash. It gives you time to ask yourself if it a planned for and needed item, and to consider the consequence if it were not purchased.

Intentional spending is a skill worth practicing. It forces you to hold yourself accountable for your choices and will keep you on track to reach your goals.

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Does cash stuffing have any downsides?

Beyond the potential of running out of cash for groceries two days before payday and having to raid your fridge and cupboards to come up with creative meals — which isn’t really a downside — the most obvious downside is the effort it takes to keep your cash safe.

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From finding a secure place to store cash at home to carrying larger sums throughout the day to pay for budgeted expenses, consider carefully how you’ll keep your cash safe.

If you have roommates, a hidden or locked drawer might be the answer. When it comes to spending, carry only what you need that day, put your wallet into a front pocket, or use cross-body bags that zip shut. If you tend to spend a lot in a month, to minimize the risk of loss, consider withdrawing cash at the beginning of each week rather than only twice a month when you get paid.

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If you have expenses that would be better paid electronically than by cash, keep a tally in your envelope rather than the cash. For example, if you have budgeted $200 for takeout but prefer to pay via an app, keep a running list of what you’ve spent in the envelope, rather than the actual cash. It will take a little more effort to be as disciplined as you would be with cash, but a blended visual or virtual envelope system is possible.

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There are a few other drawbacks, but nothing you can’t overcome with some creativity or a little inspiration from blogs or posts. For instance, you may need to use your credit card to buy yourself a gift card with the monthly budgeted amount for your favourite coffee so that you don’t miss out on collecting reward points with your credit card. It takes more effort to be precise with cash — such as counting out $9.37 for the coffee — and cash might not be an option with some retailers or service providers.

The ultimate goal of cash stuffing is to get on track with your money and spending. When looking at alternative or hybrid options, do what works best for you.

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The bottom line on cash stuffing and alternative budgeting methods

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To decide if cash stuffing could help you get on track with your money, think about how you would react if you were given a $100 bill versus a debit card loaded with $100. Would you be more likely to break the bill to pay for an item that costs $17.82 or pay with debit?

Most people are more restrained when they buy with cash versus plastic and would use debit before they spend the cash. Test this out for yourself. Over the next two or three months, transition to at least a hybrid cash stuffing system. You might surprise yourself with some savings from a more frugal lifestyle.

Related reading:

How to Stop Relying on Your Credit Cards to Make Ends Meet

A Lack of Money Skills Can Cost You – Tips to Improve

4 Money Mistakes That Are Penny Wise and Pound Foolish

Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.

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