If you’re stumped by where your pay cheque is going, withdrawing it in cash and subdividing it into individual envelopes, labelled by expense – cash stuffing – is one way to take back control.
It’s easy to see how this dash for cash has gained momentum. By absent-mindedly swiping and tapping our cards, phones and watches at the checkout, many of us have lost touch with our spending and with rising costs.
How often do you neglect to look at the bill for coffees, a round of drinks or a basket of shopping? Technology means your budget is no longer just the notes in your wallet; it’s your whole current account balance, and any credit you can access too.
Paying over physical cash from separately labelled envelopes and having your change counted back to you seems quaint, but for those struggling to manage their money, it is about taking back control.
What is cash stuffing?
Cash stuffing is a way of organising your money so as to better control your spending.
The whole process starts before pay-day when you set a budget for each expense in the month ahead. Things such as groceries, coffees, dining out, fuel and savings should all get an envelope.
You could estimate how much you think you spend on these items in a month, or if your banking app categorises your spending, you could look back over three months’ worth of data to find your average spend in each category.
It pays to be a bit forensic about this. Instead of lumping “groceries”, “lunches” and “coffees” together under “food”, for example, split them out for maximum control and transparency on your spending.
The next step is to label your envelopes by each of your spending categories. You’ll find a whole ecosystem of money binders and cash-stuffing, starter-bundle products on eBay to aid your efforts. When pay-day hits, head to the bank and withdraw the total amount you have budgeted to cover your needs in the month ahead.
TikTok loves the next part, which is the cash stuffing bit. There is certainly something mesmeric about watching wads of €20 or €50 notes being counted into colour-coded pouches or envelopes.
When all the organising is done, you can work your way through the month, using only the cash in the envelopes to pay for things as they occur.
Friend or fad?
So, does cash stuffing work as a budgeting tool? Anything that forces you to analyse your spending is going to be good for your ability to budget. On that front, cash stuffing scores well.
The initial, pre-pay-day bit, where you scrutinise your transactions in the previous months to budget for the month ahead can be an eye-opener.
“Millennials and Gen Z are starting to use this because they are really starting to feel the pinch of the cost of living,” says Nick Charalambous of Alpha Wealth. “It’s gone viral on social media because it’s quite effective. While I personally believe it’s quite onerous, the concept is quite powerful.”
Having to get through the month with only the money in the envelopes can be a challenge. It can reveal that your monthly grocery spend, for example, is actually far more than the sum of your four, weekly “big shops”.
If your groceries envelope is empty by week three, you have either over-spent or under-budgeted. Cash stuffing can help you realise that your supplementary milk and bread pit stops throughout the month typically have €10 of discretionary purchases thrown in with them and that really eats into your money.
Another advantage of cash stuffing is that it forces you to spend less, or not at all.
The rule is that once your envelope is empty, that’s it for that category of spending. You can’t borrow cash from another envelope to supplement the category that is short, or go to the ATM to withdraw more.
Having an empty “groceries” or “coffee” envelope may force you to raid the freezer for meals you didn’t know you had, or bring your own brew to work.
“Going for drinks on a Friday evening, most of us tend to just tap and end up spending more than we realise, whereas if you go with €50 in your wallet, that really disciplines you,” says Charalambous.
“Tapping on our phones and watches is great for convenience but it’s a terrible way to financially plan.”
The cash-in-an-envelope limit wins hands down over tapping where you can just keep withdrawing, or even run into overdraft.
The downsides
Cash stuffing is time consuming. Going to the ATM, withdrawing money and counting it out into envelopes all takes time. Carrying cash around in envelopes or pouches, or leaving it at home is a risk too.
Cash stuffing also requires discipline. If you save in one area, you can’t borrow from that envelope to replenish another.
And there are some expenses for which cash stuffing doesn’t really work. Most of us pay bills such as subscriptions, utilities and rent by direct debit for ease, or sometimes there is an online discount for doing so. Cash stuffing works best for variable expenses.
There will also be plenty of expenses in your month that will be unexpected. Cash stuffing can be unforgiving about that, though you could create a “miscellaneous” envelope to deal with those items.
Tapping and swiping does provide an electronic record of all of your purchases in the month, not that most people bother looking back over it. There is no such paper trail if you are paying in cash. This is great for privacy but not so great for record keeping – unless you keep receipts.
“Paying from cash in envelopes seems bizarre in this day and age, but some people are finding it helps them to manage their spending and keep them focused,” says Charalambous.
Back to the future
If you don’t want to fiddle with physical money and envelopes, you could try a hybrid version of cash stuffing.
Online bank Bunq has a good budgeting feature. Customers of its Pro plan, which costs €9.99 a month, can compartmentalise their money into up to 25 different money “pots” such as “groceries”, “socialising”, “savings” and “rent”, for example. Each pot has its own virtual card that you can pay with. Each pot has its own unique Iban too, so you can use them for different direct debits.
Going this route may not stop your mindless tapping or swiping, but it does compartmentalise your current account balance into budget lines that can offer some control.
If your goal is to be more mindful of your spending, paying in cash using physical cash stuffing may be worth a shot, even for a month or two.
Essentially cash stuffing is trying to “reverse engineer” some of the positive characteristics of paper money. It does literally give you a feel for your money. Seeing how your hard-earned cash physically depletes as you spend it can restore a sense of connection and control of your money.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
