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If you think cash stuffing is a revolutionary concept sparked by a TikTok social media trend, think again.

Once called the “envelope” method, this classic budgeting tool — in which savers sock away physical cash earmarked for specific budget items — has been around for decades. And while a young, social media-savvy crowd has revived the concept, the idea (and benefits) is much the same.

Here’s everything you need to know about cash-based budgeting, and the pros and cons of using this time-tested tool in an increasingly digital world.

Table of contents

What is cash stuffing?

As the name implies, cash stuffing is a cash-based budgeting method, also known as envelope budgeting. With this method, savers write each of their monthly budget categories (“vacation,” “groceries,” “medical,” etc) on separate envelopes, and “stuff” them with the amount of money they’ve allotted for the month. For die hard cash stuffers, once you run out of cash in one of the envelopes, you can’t spend another dollar in that category until you replenish the pot the following month.

This can be a useful tool for people who have problems controlling their spending — especially when credit cards, cash apps and digital wallets are involved. It can be a tedious process, though, and it isn’t practical for fixed bills like student loans and car insurance payments. It also doesn’t help you earn interest, like a high-yield savings account can. So most people use cash stuffing to track and control discretionary spending on things like food and entertainment, and stick to online bill pay for the essentials.

How does cash stuffing work?

Like other forms of budgeting, cash stuffing involves assigning a “job” to every dollar you make. After determining your budget categories, and deciding how much money you can spend on each per month, you put the money into separate envelopes labeled with their respective categories.

At the end of the month, you’ll evaluate which envelopes are empty and which still have cash in them, and make any necessary adjustments for the next cycle. The goal is to have tangible evidence of your spending habits and financial awareness — or lack thereof.

Pros and cons of cash stuffing

Cash stuffing can help you gain control of your spending and improve your overall financial health. But it’s not for everyone. Here’s a breakdown of the pros and cons:

  • Mindful spending
  • Improved money management skills
  • Better financial awareness
  • Faster debt payoff
  • Frequent bank trips
  • Impractical for some purchases
  • Theft and loss risk
  • No rewards or earned interest

How to start cash envelope stuffing

Cash stuffing is a simple budgeting method, but it does require some legwork. Here’s how to do it, broken down into five easy steps.

1. Determine your budget categories

Create a list of all the budget categories you spend money on every month. This should include essential expenses like rent and groceries, discretionary expenses like takeout and cocktails, debt repayment and savings funds.

Next, pick which categories you'll track with cash stuffing. Some categories lend themselves to this method more than others — you probably can’t pay your mortgage in cash, for instance, and using paper money to pay the water bill won't help you spend less on water.

Categories you should consider for cash stuffing include:

  • Food, including groceries, delivery and dining out
  • Transportation expenses, such as ride-sharing costs and gas
  • Entertainment, including streaming services
  • Household items
  • Clothing
  • Personal care
  • Gifts

If you’re on a tight budget and are having trouble figuring out how to save money, be sure to include an envelope for savings, too. It might take you a few months, and some serious willpower, to stop dipping into that reserve, but it’ll be worth it.

2. Label an envelope for each category

Once you’ve got your categories, you’ll need to write each down on a separate envelope. Choose envelopes that are big enough to jot down your expenditures, so you can keep a running balance of how much money is left in each.

3. Allocate funds

Carefully consider each category and how much money you can (and should) put in each envelope. This is a tricky line to balance if you’re just starting out: You probably won’t stick to a too-tight budget, but one that’s too lenient won’t help you pay down your debt or build your savings.

If you get overwhelmed, look at your bank and credit card statements for the last two to three months, and see how much you currently spend on each category. Use this as a starting point to fund your initial envelopes, monitor your cash flow and make adjustments as needed down the line. (If you’re a business owner, check out our guide on how to use discounted cash flow to support your financial goals).

4. Use cash for expenses

Once you've stuffed your envelopes with cash, use them as intended — and stop spending when they're empty. Avoid borrowing from other envelopes or pulling out your credit card once you've emptied an envelope. (Otherwise, what’s the point?)

5. Track your spending

Keep a running balance on each envelope to quickly determine how much money you have left in your respective categories. Every time you take out cash from an envelope, note the amount, date and expenditure (i.e., what you bought).

Then, at the end of each month:

  1. Gather all your envelopes.
  2. Record which ones still have cash in them and which are empty
  3. Evaluate your spending patterns
  4. Adjust your budget for next month

It’s good to have a plan in place for any leftover cash — ideally, one that involves repaying your debt or putting it into a savings account.

Cash stuffing FAQs

How do you use a cash envelope system?

First, determine your monthly budget. Then choose the budget categories you want to pay with cash. Finally, set up an envelope for each category and fill them with their designated amounts. Once you spend the money in an envelope, you know you've reached your spending limit for that category.

What categories should I have for a cash envelope system?

Most people use the cash envelope system for discretionary budget categories in which they tend to overspend — AKA "wants." This often includes dining out, entertainment, clothing, streaming services, travel, gifts and other non-essentials (or "needs").

How can I track my expenses using cash envelopes?

Keep a running total on each envelope you have. At the end of the month, note the budget categories that you've run out of cash for, as well as those with leftover money. Then, make adjustments for next month's batch of envelopes.