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Key takeaways:
With the envelope system, you allocate your take-home pay toward specific categories by placing cash in labeled envelopes.
On TikTok, it's known as "cash stuffing."
You can apply a digital approach to the envelope system with the help of apps and spreadsheets.
This system allows you to closely track all of your money; a downside is that it takes a significant amount of effort.
What is ‘cash stuffing’?
The envelope system — also known on TikTok as "cash stuffing" — is a budgeting method that allows you to physically portion out your monthly income into different spending categories.
This money management system has been around for years, but cash stuffing or the envelope budgeting method has taken on new life from high-profile exposure on TikTok.
The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent or student loans — and then put the money you plan to spend on those things into the envelopes.
Traditionally, people have used the envelope system on a monthly basis, using actual cash and envelopes. More recently, people have adopted digital methods, including spreadsheets and apps like Goodbudget and Mvelopes.
Before you build a budget
NerdWallet breaks down your spending and shows you ways to save.
How the cash stuffing method works
Cash stuffing doesn’t have to be complicated, but it does require some organization and planning on your part. The three steps below outline how you can begin your budgeting journey, if this is the right method for you.
1. Start with a budget
A solid budget can make the cash stuffing method smoother by ensuring you have enough money to cover your expenses. Consider using the 50/30/20 budget, where you put 50% of your after-tax income toward needs like rent and groceries, roughly 30% toward wants like travel and eating out, and at least 20% toward savings and debt repayment.
Say you take home $3,500 a month. This is what your budget might look like:
$1,750 in your needs envelopes.
$1,050 in your wants envelopes.
$700 in your envelopes for savings and debt repayment.
Keep in mind that this is just one budgeting strategy and you can divvy up your money as you see fit.
2. Create your envelope categories
Think about the types of expenses you have and sort them into categories. You get to decide how broad or specific to be here. You can have a general “going out” envelope, for example, or you can have a “movies” envelope, a “restaurants” envelope and a “drinks” envelope.
Next, label an envelope for each category and fill it with the amount of cash you’ve allotted for that expense. That's the "cash stuffing" part of the process.
3. Limit spending to the envelopes
When you pay for something, use money only from the corresponding envelope. For example, if you set aside $50 in an envelope marked “coffee,” and you buy a $5 latte at Starbucks, you’ll take the money from the envelope. That leaves you with $45 left to spend on coffee for the month.
You can refill your envelopes once a month or after you get your paycheck.
The pros
The cash stuffing envelope system also helps avoid the overdraft fees and debt that can come with frequent debit and credit card swiping. Physically dividing up your money also makes you aware of exactly how much you have available to spend on a given item, which helps curb overspending on impulse purchases.
“What either makes or breaks a budget is the variable expenses. It’s the going out with friends here and there. ... It’s all these little things that add up,” says Carlos Moreno, a financial specialist and coordinator of the Mobility Mentoring Center at Economic Mobility Pathways, a Boston nonprofit that serves low-income families. “That’s where the envelope system is so effective. It shows you right then and there how much money is going into specific categories.”
Cash-only users are more likely to feel an emotional connection to their money, too. Because cash is visible, touchable and instantly parts with you, it’s easier to be aware of how much you’re spending — and you’re likely to spend less than you would with a credit card, according to several studies.
The cons
Making regular trips to the bank or ATM to withdraw money can be time-consuming and leave you vulnerable. Carrying large sums of cash puts you at risk of loss or theft. You’ll also miss out on the protection and rewards that credit cards can offer.
Protect your savings allotment by putting it into a savings account, preferably one that pays a good interest rate, rather than keeping it in an envelope where it could be easily lost or stolen.
» MORE: How to choose the right budget system
Who benefits from the cash stuffing envelope system
The envelope system can help new budgeters and impulsive spenders. It lets you set goals and gauge how much you spend and save. We recommend this method to people who want to take charge of their finances in a hands-on way.
Want a free budget worksheet?
Use the Nerds’ 50/30/20 budget worksheet to see how your budget stacks up, and spot opportunities to save money.
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Now, let's discuss the concepts mentioned in this article.
Envelope System or Cash Stuffing
The envelope system, also known as "cash stuffing," is a budgeting method that involves physically dividing your monthly income into different spending categories using envelopes This money management system has been around for years but gained popularity on TikTok recently The concept is simple: you write a specific expense category on each envelope (e.g., groceries, rent, student loans) and put the money you plan to spend on those things into the corresponding envelopes.
Traditionally, people used actual cash and envelopes for this system on a monthly basis However, more recently, digital methods have been adopted, such as using spreadsheets or budgeting apps like Goodbudget and Mvelopes.
The envelope system allows you to closely track your spending and helps you become more aware of how much money you have available for each expense category It can also help curb overspending on impulse purchases However, it does require organization, planning, and effort to maintain.
Steps to Implement the Cash Stuffing Method
The article outlines three steps to begin using the cash stuffing method:
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Start with a budget: A solid budget is essential to ensure you have enough money to cover your expenses. One popular budgeting strategy is the 50/30/20 budget, where you allocate 50% of your after-tax income to needs (e.g., rent, groceries), 30% to wants (e.g., travel, eating out), and at least 20% to savings and debt repayment.
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Create your envelope categories: Think about the types of expenses you have and sort them into categories. You can decide how broad or specific you want these categories to be. For example, you can have a general "going out" envelope or separate envelopes for movies, restaurants, and drinks.
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Limit spending to the envelopes: When you make a purchase, use money only from the corresponding envelope. For instance, if you set aside $50 in an envelope marked "coffee" and buy a $5 latte, you would take the money from the coffee envelope, leaving $45 for the rest of the month.
You can refill your envelopes once a month or after you receive your paycheck.
Pros and Cons of the Cash Stuffing Envelope System
The cash stuffing envelope system offers several benefits:
- Avoiding overdraft fees and debt: By physically dividing your money into envelopes, you can avoid overspending and the associated fees and debt that can come with frequent debit and credit card use.
- Increased awareness of spending: The envelope system makes you more aware of how much money you have available for specific categories, helping you make more conscious spending decisions.
- Emotional connection to money: Using cash can create a stronger emotional connection to your money, making you more mindful of your spending. Studies suggest that people tend to spend less when using cash compared to credit cards.
However, there are also some drawbacks to consider:
- Time-consuming and vulnerable: Making regular trips to the bank or ATM to withdraw cash can be time-consuming, and carrying large sums of cash puts you at risk of loss or theft.
- Lack of credit card benefits: By relying solely on cash, you miss out on the protection and rewards that credit cards can offer, such as purchase protection and cashback rewards.
- Limited tracking and automation: While digital methods like spreadsheets and budgeting apps can be used with the envelope system, they may not provide the same level of tracking and automation as dedicated budgeting apps .
Overall, the envelope system can be beneficial for new budgeters and impulsive spenders who want a hands-on approach to managing their finances.
Please note that the information provided above is based on the content of this article, and the sources cited are mentioned accordingly.
