If you have been anywhere near social media sites like TikTok or Instagram (and even if you haven’t), you may well have heard of a budgeting technique called “cash stuffing”.
With the past few years categorised by a cost of living crisis and squeezed salaries, it is no surprise that people across the country are keen to find ways to save money.
One such method is cash stuffing which could help you budget more effectively and be more disciplined over your spending. However, it comes with a few drawbacks to keep in mind.
This guide will explain what cash stuffing is and how you can implement it as a budgeting technique.
Cash stuffing is a cash-based budgeting system whereby you set your budgets for certain categories at the start of the month, and take out the cash you’ll need for them (most people do this on or just after payday).
Rather than simply tracking your spending and keeping it within the set limits, you physically set aside the designated amount of cash into a dedicated envelope. It’s likely you’ll have several envelopes to fill each month.
Let’s say for example that you budget £400 a month for food shopping. You would place this amount in an envelope marked “food shopping” and dip in when you need until you next add cash to the envelope.
Replicate this across all expenses in your life – which can include the things you’re saving for.
This is how cash stuffing works.
Cash stuffing could benefit people who find it hard to set and stick to a budget.
The fact that your spending is predetermined in cash makes it easier to track your costs and crucially not overspend.
Once your envelope is empty, you’ve maxed out your budget for that category.
Seeing the physical cash in one place can be a more helpful way to gauge how your spending is going, and some people have also said the act of handing over notes and coins makes them more aware of their spending – particularly when compared to simply tapping a debit or credit card.
Some of the people who could benefit from cash stuffing:
Really cash stuffing could benefit anyone if done in the right way – you just need to avoid the pitfalls.
Getting started with cash stuffing is very easy.
Remember it’s fine to spend on luxuries whether for yourself or your loved ones. Just make sure that you account for them in your budgeting.
There are several pros and cons of cash stuffing.
On the positive side, it can make it easier to see when you need to rein in certain types of spending as you’ll be able to see cash in an envelope running low. It can also focus your mind on budgeting and saving more effectively.
Spending with cash can make it impossible to overspend, as long as you are disciplined in not using your debit or credit card. For example, if you go for an evening with friends and take £30 in cash and leave your card at home, you are forced into a spending limit.
It also makes it less likely that you impulsively spend, given that you will only have a certain amount of cash in your wallet.
On the other hand, keeping all of your money in cash in envelopes in your home or on your person might leave you vulnerable if you were burgled or even mugged in the street.
Admiral, an insurance provider, reported seeing a surge in home insurance claims which it linked to cash stuffing. Cash theft claims had increased by 77pc in a year.
One customer who had been implementing cash stuffing made a claim after losing two envelopes with £1,700 inside.
Another negative is that some shops and retailers only accept card payments.
There are also practical issues to keeping your money in cash rather than in your bank account. If your current account pays interest for example, you would miss out on this income if you keep your money in envelopes.
Digital cash stuffing is a way of implementing cash stuffing techniques without the risk of carrying large amounts of money on you or keeping it in your house.
Many banking apps allow you to simulate cash stuffing by creating virtual “envelopes” for different categories of spending.
Monzo calls them “pots”, while Starling has “spaces”, and other digital banks like Revolut have a similar system.
In this case, you’d assign each one with the spending category of your choice and transfer your spending money into each one to spend from.
You’d need to withdraw money from the relevant pot when you need to pay for something from that category, which may require you to make a lot of cash transfers each time you spend.
Although this method doesn’t have the visual benefits of pure cash stuffing, it can still help you budget and is potentially more secure.
Whether cash stuffing is right for you is a personal choice. Think about your needs and financial goals and then figure out whether something like cash stuffing works for you.
2024-07-11T15:00:55Z dg43tfdfdgfd