Swipe, pay. Tap, pay. Insert chip, pay. Credit and bank cards make it easy to get through checkout quickly, but when they’re your main purchasing tool, you might not realize just how much you’re spending day to day.
If these cards make it difficult for you to stick to a budget, it might be time for a new money-management system. Enter: the cash envelope system—aka cash stuffing—a budgeting method your grandparents might have used that’s resurging in popularity.
What is cash stuffing?
Cash stuffing is an organization system that separates your money into envelopes for each of your planned expenses. Before filling envelopes, you set a budget for each expense that month. Then, you use the cash in the envelopes to pay for things as they come up. The cash envelope system gives credit and bank cards a rest, so you can watch your cash deplete as you spend it throughout each month. The goal: to be more mindful of your spending habits. It works best for expenses that could change from month to month, such as dining out and getting gas, that you could easily pay in cash.
What is the cash envelope budget?
The cash envelope budget system is just another name for cash stuffing. You can do cash stuffing or use the cash envelope method using the same simple steps.
How to do cash stuffing or cash envelope budgeting
- Figure out your budget
Before you stuff any envelopes, you’ve got to budget for all the spending categories in your life: your daily needs and wants, debts you owe, and money you want to save for later. (Need a refresher on setting a budget? Check out these tips to learn how to budget.)
- Label your envelopes
Once you’ve got your monthly budget, you could move onto prepping your envelopes (or any other container). First step: Label envelopes with your spending categories. You could go high level, such as “food,” “fun,” “transportation,” “repairs,” and “savings.” Or you could get more detailed with separate envelopes for “groceries” and “restaurants,” instead of just “food.”
- Stuff your envelopes
At the beginning of the month, take out the total amount of cash you’ve budgeted for all envelopes and start stuffing. Remember: You’re not putting equal dollar amounts in each envelope but rather the amount you’ve designated for each category.
- Take cash out of your envelopes to make payments
As you make payments throughout the month, pull cash from the corresponding envelopes. That visually reminds you how much you’ve already spent and what you have left for each category. This only works if you bring that cash with you when you’re out and about and spending. There are wallets designed to help with this if you prefer your cash envelope system to be more portable.
- Check in on your spending
Because you’re keeping all of your spending money in envelopes, it’s easy to see how you’re doing over the course of the month. If there’s only a little money remaining in your food envelope but a lot of the month left, that’s your cue to take it easy on the takeout. Because once the envelope is empty, that’s it for that category. The idea is to not borrow cash from another envelope or hit the ATM again until the next month comes around.
- Restart the process for the next month
When the next month comes, rinse and repeat, tweaking categories’ allotments as needed. If you didn’t spend all the money in your utilities envelope and those bills are generally the same month to month, but you were wishing for one more food delivery instead of 100% pantry dinners that last week of the month, you could lower your utilities budget and up your food budget. What to do with your leftover utilities envelope’s cash? Put those dollars into savings.
Advantages of cash stuffing
There’s an emphasis on budgeting
You can’t begin cash stuffing until you make a budget. For some spenders, the cash envelope system is a gateway to a life of budgeting that could help them manage their money better going forward.
You could see exactly what you spend
The cash envelope system is visual, making it simple to see just how much you’re spending on various categories throughout each month. It could also help you understand what changes you might want to make to meet your saving goals.
It might prevent more debt
When you pay with cash, you need the money on hand. Envelope budgeting removes card payments, which could help you avoid racking up credit card debt or overdraft fees if you pay with a debit card.
Disadvantages of cash stuffing
It’s time-consuming
After making your budget, this system requires you to physically go to a bank to take out cash and manually stuff envelopes.
There’s little protection
Carrying a lot of cash, or even storing it in your home, comes with risks. You could lose it or have it stolen, possibly with no recourse to get it back.
You miss out on interest
If you stash your cash in envelopes, you won’t earn interest you could potentially accrue through savings or money market accounts. One idea: If you like the cash stuffing concept, you could make a “savings” envelope by writing out the amount, but instead of pulling out cash, move the equivalent amount into an interest-bearing account each month.
You could lose out on credit card rewards
If you pay your full balance each month, there could be benefits to paying with credit cards, such as earning points you could turn into cash back or money toward, say, travel expenses.
It could make you spend more
Some people find that having cash makes them want to spend it—more than a credit card makes them want to swipe it.
It could be hard to follow all the rules
If you don’t budget correctly, or you allow yourself to spend more than you originally allotted, the cash stuffing method might not help you.
It isn't designed for digital payments
These days, you probably have many bills you only pay online, such as your rent or student loans, which could make cash stuffing more difficult. To keep your cash envelopes on track, you could keep a running tab in marker on the bills’ corresponding envelopes, so you don’t go over your budget for that category. Or if you still want to watch cash disappear, you could fill envelopes with cash for bills you’ll pay online, make a payment online, and then redeposit the amount of cash you’ve spent online into your bank account.
You can’t set spending alerts
Because this is all manual, you can’t link your cash to your email or phone to receive an alert when you're close to your spending cap.
The bottom line on the cash envelope method
Like any money-management tool, cash stuffing is only good if it actually improves your budgeting, spending, and saving habits. For some, the time involved and requirement to hold physical cash won’t work. For others, cash stuffing could help curb overspending and stave off debt.
If you’re curious about the cash envelope system, consider giving it a shot. You might find it works well or that it could be useful for one spending category, say, just your entertainment. Or you might want to use cash stuffing principles digitally through spreadsheets or budgeting apps. (You could point the teen in your life—and their parents—to Fidelity’s Youth app, which digitizes cash stuffing using money buckets.) Or maybe instead of running out of cash in an envelope, you might prefer a digital alternative: setting alerts or thresholds for debit and credit cards, such as getting a text message when you hit a certain limit.
Want to get into budgeting, but cash stuffing isn’t the right fit? Check out other options, such as zero-based budgeting, the 100-envelope challenge, or the 52-week money challenge.