How To Use Cash Stuffing For Budgeting

There are many budgeting methods out there depending on your priorities and goals. One popular budgeting program is called "cash stuffing,” which involves envelopes that you put cash into each month. The idea is to help you prevent overspending by categorizing your expenses. That can help you stay motivated and track your money more carefully because you know exactly where it’s going.

Continue reading to help you learn what cash stuffing is, how it works, how you can use it to stay on budget and determine whether the this system is for you.

What Exactly Is The Cash Stuffing Method?

Cash stuffing, also known as envelope budgeting, is a money-saving method that designates your monthly spending into categorized envelopes. Each envelope contains the funds for your weekly or monthly expenses.

With the cash stuffing method, you have an envelope specifically for each budgeting category and assign money for each one. The idea is that you only have enough money for what you need. If you run out of money in one envelope, you can move it from a different envelope, but once you use all the money in your envelopes, you don't have any more to spend for the rest of the month.

How Cash Stuffing Works

The cash stuffing or cash envelope system for budgeting is relatively straightforward, but there are several steps to be mindful of. One of the most important things to understand is that while the original cash stuffing method used actual cash and envelopes, cash stuffing can be done without physical cash (using credit cards) and with the help of budgeting apps.

Use the following guidelines to use this system effectively:

1. Set A Budget

The first thing that you'll need to do is set up your budget. Setting a budget must happen before any envelope stuffing takes place. If you are just now starting to review and categorize your spending, you may not know for sure how much money you should spend in different categories. In that case, it may be a good idea to make a rough estimate, and plan on adjusting it over the next few months.

2. Determine Your Spending Categories

Next, you'll want to determine what the main categories are for your budget that you want to include in your envelopes.

Some common categories include:

• Groceries
• Rent/mortgage
• Utilities
• Insurance
• Health care and medical expenses
• Dining out
• Gas
• Entertainment
• Savings

3. Withdraw Cash And Stuff Envelopes

Once you have your categories, it’s time to set up your envelopes. Depending on your needs and preferences, you can either create physical or digital envelopes.

For physical envelopes, it can be as simple as picking up some from your local office supply store and labeling them with your different budget categories. Or, if you want to take it one step further, you can purchase reusable envelopes or pouches and use them as your cash envelopes. There may also be small accordion folders where you can put all your cash in one place.

If you’re someone who prefers to use technology, you can set up digital envelopes. There are apps (both free and paid) that mimic physical cash envelopes and track your cash by connecting the app to your bank account. With the Rocket Money^SM app, for example, you can set custom budget categories and monthly limits on your spending in each category.

4. Use Cash For All Monthly Expenses

The only way this budgeting system works is if you use the cash set aside in each category to cover your expenses. The cash stuffing process can also work by using your debit card for purchases or using an app with digital envelopes. You’ll want to monitor your spending to see how much you have in each category throughout the month. That way, if you’re at risk of overspending, you can course correct before it’s too late.

While it’s not as easy to use the cash envelope system if you’re using credit cards, it’s still possible. It will require you to be more vigilant about tracking your spending and taking the equivalent out of your envelopes, whether that’s physical cash or money from your digital envelopes.

5. Save Any Cash That’s Left Over

At the end of the month, see how much you have left over or whether you have overspent. Hopefully you had extra money left over, which you can apply towards your savings or investment accounts. Then, take a look at each category and determine whether how much you had set aside was realistic, or if you need to adjust the amount. This could be a good time to carefully scrutinize your budget to see if there are categories you can cut back on.

Remember, a budget is meant to work for you, not the other way around. As your life circumstances change, so should your budget. That’s why it’s important to regularly reflect and adjust your budget to ensure that what you have set is actually helping you.

Who Benefits Most From The Cash Stuffing Method?

All sorts of people could benefit from a budgeting method like cash stuffing. If you find it difficult to stick to a budget when everything is digital, cash stuffing can give you a tangible reminder of how much money you have left in your budget. Having the actual physical cash on hand helps many people to have a better grasp on how much money they have left in the month.

Another group that may benefit from using the cash stuffing method is people who have had trouble budgeting in the past. Cash stuffing is a subset of the budgeting philosophy that you should "give every dollar a job." Using the cash envelope system may help you realize that if you spend a dollar on a dinner out, that dollar is no longer available to help pay rent at the end of the month.

Pros And Cons Of Cash Envelope System

Pros

• Effective in creating discipline: All you have to do is set your spending categories once throughout the month. And if you’re using physical cash, it’s easy to see exactly how much you have to spend, making it an effective way to develop better financial habits.
• Easier to save money: Since you (literally) can’t spend more than what you have in your envelopes, it increases your chance of sticking to your budget. Plus, looking over your money like this could help you build your savings muscle.
• Lessens chances of unnecessary fees: If you’re spending physical cash, you won’t overdraw on your bank account so you can avoid potential overdraft fees. Even if you’re using digital envelopes, by tracking your spending in each category, you’re less at risk of incurring these fees as well.
• It forces you to look at your spending: By tracking your spending and seeing where your money is going, you have to look at your financial behavior. Doing so is one of the first steps to improving your financial health.

Cons

• Can be harder to track: While using cash is great, if you have a family, it could be hard to track each other’s spending, or to find a way initially to give each other cash to use for purchases. Or, if you’re using digital envelopes, it may not be as easy to see in real time what is spent, especially if you’re both making purchases at the same time.
• Need to withdraw money: Using cash is great, but it does mean you’ll need to spend time going to the ATM or bank to withdraw cash. Or, you’ll need to spend time transferring money or allocating money to your various accounts if you’re using digital envelopes. You may also feel unsafe carrying cash, as it’s harder to track it when it’s lost or stolen.
• It can be cumbersome to get started: Getting all the envelopes ready and allocating money into categories can take some time to set it all up, especially if you haven’t created a budget before. This includes the time it takes to purchase envelopes, get cash and track your spending.

Cash Stuffing FAQs

What are some alternative budgeting methods to cash stuffing?

If you find that the cash envelope budgeting system isn’t for you, there are plenty of other systems out there for you to try. The 50/30/20 rule, "Pay Yourself First" method and the "Zero-Based Budget" are three different budgeting methods to try. Experiment with different strategies to find one that works for you.

Can I use credit cards for cash stuffing?

If you're looking to use the cash stuffing method but don't want to miss out on credit card rewards points, it is possible to use a bit of a hybrid strategy, but it takes discipline. Cash stuffing is possible using apps and other digital tools to track spending via debit and credit cards. But if you find yourself struggling, it may make sense to ditch the credit cards and focus on cash, if only temporarily.

What if I run out of money in an envelope?

If you run out of cash, you can’t spend any more in that category until the next month (or budgeting cycle). However, you can allow yourself to spend from other categories if there is excess cash in one. Assuming the envelope you ran out of cash in is for essential purchases, you can justify the “extra” spending and review your budget to see if you need to allocate more next time.

The Bottom Line: Cash Stuffing Can Help You Save Money

Cash stuffing can be a great way to help you stay on budget. While it may take some time to get used to, the effort can help you build a sustainable budget. No matter how you set up your cash envelopes, the important thing is to stick with it and adjust your budget as needed.

If you’re looking for a simple way to create a budget and track your spending, consider downloading the Rocket Money app today. Using the Rocket Money app can help you establish budget categories and savings goals.