How To Budget With the Envelope System

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Thanks to the advent of digital wallets, online bill payment, and Venmo, it’s never been easier to go through your day without ever breaking a $20 bill—not to mention ever pulling one out of your wallet. Except if you’re a member of Gen Z: A 2023 survey conducted by The Harris Poll for Credit Karma found that 69 percent of Gen Z report using more cash now than they had the year before, and 23 percent said they use cash for most of their purchases. Yes, they grew up with iPhones, but just as they’re opting for digital cameras, this cutting-edge generation is also forgoing tap-to-pay tech in favor of envelopes stuffed with cash—aka cash stuffing.

“Cash stuffing is beneficial for those who struggle with overspending on cards but can manage cash effectively.” —Anthony H. Williams, CPA and wealth management advisor, Northwestern Mutual

Like “loud budgeting,” the “cash stuffing” trend has taken off on TikTok largely thanks to Gen Z—but the concept behind it is nothing new, explains Yuval Shuminer, CEO of personal finance app Piere. So are folks onto something here? Ahead, we’re breaking down the pros and cons of the budgeting trend.

What is cash stuffing?

Simply put, “cash stuffing” is a way of managing personal spending by using cash. Also known as the “cash envelope system” or “envelope budgeting,” it involves placing cash into labeled envelopes for expenses, and using only that cash throughout the month, Shuminer explains.

“Cash 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 “both involve using physical cash for budgeting purposes to control spending,” 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 don’t have the money for those new sneakers you really want, you can’t buy them. (Especially if they’re 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 they’re 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 doesn’t allow you to rack up any credit card debt. If you fall into the “romantic” 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.

“Cash stuffing is beneficial for those who struggle with overspending on cards but can manage cash effectively,” says Williams. “It can also be advantageous for those who want a visual representation of their budget limits.”

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. There’s a certain level of risk that comes with withdrawing your whole month’s budget from your bank account and having it on hand. “Keeping large amounts of cash at home —or on you—can pose a security threat in case of theft or loss,” Williams says. (It’s 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. “When paying with credit or debit cards, payments are tracked and recorded, and are often insured with a fraud or loss guarantee by the card’s issuing bank,” Shuminer says. “This means that if your card is used without your permission, you’ll likely recuperate the money that was wrongfully taken.” Meanwhile if you lose cash, it’s gone for good.

Not using credit cards also means you’re 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 don’t lose track of how much you’ve spent—or borrow from one envelope to fund another.

“Even though the aim of this method is to eliminate the accrual of debt, it can backfire,” 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 isn’t accepted, Williams says. There are also some situations where cash simply doesn’t work, like paying for streaming subscriptions or buying anything online.

How to do the cash envelope method of budgeting

If you’ve done the math and decided that you’re interested in trying cash stuffing, here’s 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 that’s 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 same—maybe you’re going to a concert or have a bachelorette party to attend—so start by looking at your anticipated expenses for the coming month, Shuminer says. It’s 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 envelopes—or opt for one of those fancy binders with clear pockets seen on TikTok.

The only real rule to practicing cash-stuffing? “Over the course of the month, spend only the cash that you have available within each envelope,” Shuminer says.

Store your cash safely

Whether you’re using a “binder” with different categories or traditional envelopes, it’s important to keep the cash in a secure location, Williams says.

Track your spending

“Recording your cash expenditures is key to monitor your spending and ensure you stay within budget,” 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 you’ll need, and that’s okay—you’ll likely get better at it as you go. “While spending, pay careful attention to how much of each budgeted category was spent, and record this for future months,” 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, “you can load specific amounts onto prepaid debit cards for different spending categories, providing a digital alternative to physical cash,” 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.

Schuminer’s app Piere analyzes your past spending and income and then recommends how much money to allocate to each category, “providing a level of certainty not guaranteed by manually allocating cash,” she explains. In addition to automatic tracking of your credit card purchases, if you want to also use cash stuffing, there’s 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 you’re 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 you’re struggling with how to allocate your money. “They’ll be able to help create a customized plan to control spending,” Williams says — and keep you focused on your saving goals, too.

The bottom line on cash stuffing

If you’re 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 you’re 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. “Once you introduce longer-term goals, liabilities, investments, and a more complex financial situation, there are serious caveats to cash stuffing,” Shuminer says.

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