Rhiannon Philps
Cash stuffing, or the cash envelope method, is far from a new form of budgeting, but it has been growing in popularity as people try to navigate their way through the cost of living crisis.
Cash stuffing simply means setting monthly budgets for certain expenses, such as groceries, clothing, fuel, and leisure, and putting the corresponding amount of cash in an envelope. You should then only use the cash in that envelope for the specified purpose.
Social media, particularly TikTok, has recently put this established budgeting method under the spotlight, with many individuals trying out cash stuffing and sharing their experiences online.
As cash usage has increased for the first time in 13 years, according to Nationwide Building Society, this indicates that more people are turning to notes and coins for their everyday spending. But is cash really the best way to budget?
Alastair Ford, financial coach at Octopus MoneyCoach, says: “The principle of cash stuffing is brilliant. It gives every pound a job and helps you make more mindful and conscious spending decisions because you’re limited by the number of pounds you have. Once the envelope is empty, it’s empty – you can’t spend more money if it’s not there.”
Removing the temptation
Many of us pay for goods and services with the tap of a card, phone, or even a watch. But this makes it all too easy to lose track of exactly how much we’re spending, which isn’t helpful if you’re trying to keep to a budget. Cash stuffing, on the other hand, will enable you to take a closer look at the way you spend your money.
Karen Barrett, founder and CEO at financial adviser and broker site Unbiased.co.uk, explains: “The big benefit of the cash stuffing method is that it enables you to keep a close tab of your spending and saving habits – something that’s crucial for so many people right now with the cost of living crisis continuing to bite.
“For instance, leaving cards at home and taking cash when meeting friends in a bar means you won’t spend more than you intend to. You’re also more likely to spend sensibly throughout the night as the money you take with you has to last. There’s no overdraft for you to unintentionally dip into.”
However, although using cash can make you think more carefully about your spending, it won’t automatically help you stick to a budget.
You still need to be disciplined and make sure you don’t continue to use your cards, or take money from other envelopes if you run out of money. When you start cash stuffing, you may find that you regularly don’t have enough money for something. If that’s the case, you may need to adjust your budget and spending limits accordingly.
Is cash really king?
Despite its benefits, using cash for all your spending may not be realistic. For a start, you will probably still need to make most of your larger payments digitally, such as your rent or mortgage, utility bills, council tax and insurance.
But, even if you only use cash for your everyday spending, you could find yourself carrying large sums of money around. Some people may be worried about this money getting lost or stolen, as you can’t just contact your bank to freeze payments as you could if you lose your debit or credit card.
Furthermore, many businesses now only accept card payments. This could make it more challenging, and potentially embarrassing, if you want to use cash at places that won’t take it.
By dealing primarily in cash, you could also miss out on several benefits, such as cashback on card transactions and interest on savings. Another problem with cash is that it will be more heavily eroded by inflation than money in your savings accounts.
“Money under the mattress can’t earn interest, meaning the buying power of this money will erode over time,” says Barrett.
If you put £100 in an envelope, and if inflation rose 5% every year for the next 10 years, your £100 would only be worth £59. “That’s a big risk right now with inflation currently above 10%,” adds Barrett.
The digital alternative
Setting spending limits for different kinds of expenses is key to sticking to a budget, but you can’t avoid the fact that it isn’t always practical to pay in cash.
As a solution to this problem, some apps, such as Monzo and Revolut, allow you to set limits and track your spending across individual categories, including groceries, gifts, entertainment, eating out and more. There are also specialist budgeting apps, such as Emma, Money Dashboard and Plum, that link to your bank accounts and can offer a digital alternative to the cash stuffing method.
While these apps may not physically stop you from spending above your chosen budget in the same way that cash does, you will be able to see when you are getting close to your limits and adjust your spending accordingly. And, crucially, you can continue to use your bank cards for payments in shops and other outlets that won’t accept cash.
Barrett also recognises the benefits of digital budgeting tools. “Budgeting apps can work just as well and mean you avoid the admin headache and stress of dealing with cash,” she says. “There are many different apps to choose from – each has its strengths and weaknesses. You might need to try several before finding the right one for you.”
Whether you use cash, online apps, or a combination of both, setting limits and following a budget can help you to stay on top of your spending and meet your financial goals despite the cost of living crisis.
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