With soaring costs and Christmas upon us, monitoring our spending habits is more important than ever to ensure we don’t damage our finances.
A viral social media savings trend has entered the financial scene for savvy savers called ‘Cash Stuffing’. Quite simply, the method involves putting cash into allocated envelopes of different categories.
It’s based on an accounting concept known as ‘zero-based allocation budgeting’. Many who use cash stuffing feel more in control of their spending, which serves as a reminder that the money you have is real funds. The use of cards and contactless payments can disrupt that reality at times.
How does cash stuffing work?
It’s entirely up to you how you implement this budgeting method into your financial system. It can be for bills or general monthly spending. However, we do recommend continuing to pay your bills via direct debit so you never miss a payment.
The key to this budgeting method is if the envelope is out of cash you have to decide - do you move more money from another envelope or don’t spend any further funds in that category for the rest of the month?
To get started, look at your monthly payslip and put aside the funds needed for your priority bills. With what’s left over (disposable income) you can begin to allocate different amounts to different categories.
If you would prefer to start small and notice in your account statement a problem area that you overspend on, begin with just one envelope and an allocated amount for this. For example, ‘eating out’.
Once you’ve grasped the concept of this budgeting method and have found a good rhythm you can start to add more envelopes to your budgeting system.
- A few categories we recommend are shopping, entertainment, eating out, groceries, transport, holidays, ‘treat yourself’ expenses, and general.
Some people feel anxious when carrying cash, if this sounds like you there are plenty of apps that can replicate this budgeting system digitally. These digital banks can be separate from your current bank account and it means you won’t overspend on your balance, which could jeopardize your priority bills.
What are the benefits of cash stuffing?
- Cash is finite - Cash stuffing highlights the reality of the consequences of overspending in one area of your life. When you find an empty envelope it teaches us how to be disciplined with budgeting.
- It’s a great challenge - Budgeting doesn’t have to be boring and copious amounts of spreadsheets; cash stuffing is a fun and creative way to take control of your finances. With the economic turbulence we’ve experienced this method is adjustable month to month and you can change amounts and categories.
- No more debt - Cash stuffing can significantly reduce debt. You’ll have no credit card interest to pay and no more overdraft statements from overspending.
- Goodbye to impulsive and compulsive spending - If you are a compulsive or impulsive spender, this is a great and conscious method to cure these habits.
- It can help with your financial mindset - If you’ve been in a cycle of overspending for a while now this is a way for you to feel empowered with your spending.
What are the drawbacks of cash stuffing?
- Credit and debit card protections - If you are paying in cash for most things you can lose out on the protections for consumers provided by credit and debit card companies.
- Cash has risks - As we mentioned some people have anxieties about carrying cash, as it can be stolen, lost, or forgotten at home. This is where we recommend that digital banks solve this solution.
- A modern society - There may be restrictions on shops and restaurants that don’t accept cash, or the item you’re buying has only a card option because of its value.
- Cash is finite -This is both a benefit and a drawback, some people find it stressful when faced with the reality that money is limited and they can feel restricted and less spontaneous with their spending.
- No interest -If you decide to keep your cash outside of a bank you won’t earn interest from your money.
Whilst we weather the inflation storm, cash stuffing can be a great budgeting alternative and a method you can now try over the Christmas period. We’d only recommend cash stuffing for short-term savings and spending, long-term savings is better held in an interest-paying account.
The great feature of having your savings funds in a savings account over some time is that your money starts to work for you and gain value from incurred interest. Whether it’s a fixed or easy-access account, your money will make money!
As a seasoned financial expert with a deep understanding of budgeting concepts and personal finance strategies, I can confidently delve into the topic at hand. My expertise in financial planning and budget management has been honed through years of professional experience and a commitment to staying abreast of the latest trends and methodologies in the field.
Now, let's dissect the key concepts outlined in the article about "Cash Stuffing" and its implications for personal finance:
1. Cash Stuffing and Zero-Based Allocation Budgeting:
- Explanation: Cash stuffing is a viral savings trend that involves allocating cash into envelopes designated for different spending categories. This method aligns with the concept of 'zero-based allocation budgeting,' wherein every dollar is assigned a specific purpose.
- Expert Insight: Zero-based allocation budgeting ensures that every penny is accounted for, fostering better control over spending by making individuals more aware of their financial choices.
2. Implementation of Cash Stuffing:
- Advice: The article suggests starting with priority bills and then allocating disposable income to various categories using envelopes. The key decision point is when an envelope runs out of cash — either transfer funds from another envelope or refrain from further spending in that category.
- Expert Tip: Starting with a single envelope, such as 'eating out,' allows for a gradual understanding of the method before expanding to more categories.
3. Benefits of Cash Stuffing:
- Finite Nature of Cash: Highlights the consequences of overspending and enforces discipline in budgeting.
- Engaging Challenge: Positions budgeting as a creative and enjoyable activity, adaptable to economic changes.
- Debt Reduction: Can significantly reduce debt by eliminating credit card interest and preventing overspending.
4. Drawbacks of Cash Stuffing:
- Loss of Protections: Cash transactions may lack the consumer protections provided by credit and debit card companies.
- Security Risks: Carrying cash poses risks of theft, loss, or forgetfulness.
- Modern Society Constraints: Some establishments may not accept cash, limiting purchasing options.
- Financial Limitations: The finite nature of cash can be stressful, restricting spontaneity in spending.
5. Considerations for Cash Stuffing:
- Digital Alternatives: For those uneasy with physical cash, digital banking apps can replicate the cash stuffing method securely.
- Short-term Focus: Cash stuffing is recommended for short-term savings and spending; long-term savings are better suited for interest-paying accounts.
6. Long-term Savings and Interest:
- Expert Advice: Long-term savings are better held in interest-paying accounts, where money can work for the individual by accruing interest over time.
- Interest Earning: Holding savings in a bank account, whether fixed or easy-access, allows money to grow through earned interest.
In conclusion, while cash stuffing presents a dynamic and engaging approach to budgeting, it is crucial for individuals to weigh the benefits and drawbacks based on their financial goals and preferences. As a financial enthusiast, I recommend considering the long-term impact of savings strategies and leveraging interest-earning opportunities for sustained financial growth.
