Cash Stuffing 101: How to Take Control of Your Spending

Imagine a budgeting system that's simple, visual, and actually works. This isn't just another budgeting tip; it's a proven strategy to take control of your spending and achieve your financial goals. In this weeks newlsetter let's explore how the cash stuffing method or envelope system can transform your money habits

We used to always find ourselves surprised by the holiday shopping season, or school clothes and supplies.   We found ourselves shocked at our car needing new tires.   We never had the cash for these items and consistently used credit to cover for them.    

When we personally started using this system it changed our mindset around how we handled money.   Instead of reaching for a credit card we had the cash to cover it.  To this day we still use this system and we are debt free.  That is how much I believe in this and how much I believe it can help you. 

What is the envelope system?

The envelope system, also known as the cash stuffing system, is a budgeting method that uses physical cash to manage spending.  This system works in tandem with your written monthly budget and is best used for areas where many people overpspend or don't plan ahead.    

Let's breakdown of how it works. 

Step 1: Decide which items in your budget need an envelope

• Think about those budget lines where you overspend or always seem to get caught off guard because you didn't plan for them.  
• Here is short list to get your thinking: 
  • Groceries
  • Dining Out
  • Christmas/Birthdays
  • Vehicle Repair
  • Hair and Makeup
  • Entertainment
  • Clothing
  • Vacation

Step 2: Create your envelopes and "stuff" them with cash.

• At the beginning of each month (or pay period), you withdraw the budgeted cash for each category.
• You then "stuff" that cash into the corresponding envelopes.
• So for example let's say you budget $100 per month for dining out.  You would place $100 per month into the dining out envelope.

Step 3: You spend only what is in the envelopes

• Throughout the month, you use only the cash from the relevant envelope for each purchase.
• When an envelope is empty, you stop spending in that category until the next budgeting cycle.
• If you find yourself consistently running out of money each month it's time to reevaluate your spending or maybe you need to revisit you other categories and make some adjustments.  

Why does this system work?

Increased Awareness:

• Physically handling cash triggers something in your brain.  I'm not kidding!  There have been studies done that shows handing over cash triggers the pain areas of the brain while using credit activates the reward areas
• You become more aware of how much money you're spending and where it's going.  Think about your groceries.  If you are anything like me things have a habit of making their way into your cart.  When you take your weekly cash it makes it very easy to only buy what is on the list because you can't go over that amount.

Reduced Overspending:

• The system helps prevent overspending by limiting you to the cash available in each envelope.  Dining out was one of our biggest spending areas before we started this system.  Once the dining out budget money was gone, we stopped going out to eat until we had more money in the envelope.
• It can be very effective for those who struggle with impulse purchases.

Debt Control:

• By promoting mindful spending, the envelope system can help you avoid accumulating credit card debt.
• Think about areas of your spending like Christmas.  Many people, including me at one point would put the gifts on a credit card and spend month paying them off.   With this system you are saving monthly for the holiday season and have the cash when the time comes.

Visual Tracking:

• Seeing the cash diminish through the month, provides a very good visual representation of your spending habits.

Now it's your turn!

Take the first step by creating your own envelope system. Even starting with just a few categories can make a significant difference. We encourage you to try it out this month and see the impact for yourself. 

How to Implement It:

1. Create a Budget:
   • Determine your monthly income and expenses.
   • Allocate specific amounts to each spending category.
2. Label Envelopes:
   • Clearly label each envelope with its corresponding spending category.
3. Withdraw Cash:
   • Withdraw the budgeted cash from your bank account.
4. Stuff Envelopes:
   • Distribute the cash into the appropriate envelopes.
5. Track Spending:
   • Use only the cash from the envelopes for purchases.
   • Monitor your spending and adjust your budget as needed.