Social media influencers make an old-school budgeting plan popular again by doing one thing – rebranding. Instead of calling it the envelope system, the trendy name is now “cash stuffing”. There are a slew of short videos on TikTok that show how to take the cash from your paycheck and divide it up into categories. You put, or “stuff”, set amounts of cash into paper envelopes or other similar containers. The envelope system of budgeting can be traced back more than 100 years to published reports in New York City newspapers. As early as 1916, working women were sharing tips on how to make their checks last until the next payday. So, how does it work?

How it Works

Gather a dozen or so envelopes, plastic zip-top bags, or even an accordion-style coupon holder. Then, label each one with the things you spend money on every month. The categories can be anything. Some examples are:

  • Cable/internet
  • Electric
  • Rent/mortgage
  • Car payment
  • Loans or credit cards
  • Streaming services
  • Cell phone
  • Gas
  • Going out to eat
  • Pet expenses
  • College tuition
  • Insurance

You want an envelope, slot, or baggie, for every monthly financial obligation you have.

Why Does the Envelope System Work?

Before the trend became a hashtag (#cashstuffing), it was known as the envelope system for budgeting. The idea behind it is a good one. Research shows that people spend less when they use cash versus when they use a debit or credit card. Why is that? The $100 bill with Benjamin Franklin’s face on the front feels more valuable in your hands than a skimpy piece of plastic. So, you will be less likely to spend the cash. The larger the bill, the less likely you are to spend it on non-essentials.

One of the reasons people are able to save more when they use the cash stuffing method is because once the money in the envelopes is gone, it’s gone. You don’t get to spend more until you are paid again and put more money in the envelopes.

The lesson? Keep cash on hand and you could end up spending less.

Where Should You Start?

One of the biggest mistakes people make when it comes to their finances is not knowing what they are spending money on every day. To get started, we recommend tracking your purchases for at least one week. One month would be even better. That way, you get a real picture of exactly how much you spend month to month. Then, you can pinpoint where to cut back to reach your larger savings goals.

You can track your expenses without any fancy apps by:

You just need to write down what you bought (coffee, lunch, shoes) or paid for (car payment, mortgage, cable) and how much it cost.

How to Make the Envelope System Work for You

Keep it simple

With any new plan, it’s best to start small. For beginners, start the cash-stuffing or envelope system concept on daily expenses first. You could also consider them incidentals, or expenses that aren’t fixed. Items where the cost per month can fluctuate. Things like:

  • Eating out
  • Morning coffee
  • Shopping for non-essentials
  • Beauty treatments

That way, you won’t get overwhelmed with a lot of envelopes. Start with the things that are considered “luxuries”.

Stash your cash safely

Keep the envelopes of money somewhere safe in your home. That might be an actual safe or inside a desk drawer. We recommend a small waterproof and fireproof safe. You should also keep your hiding spot a secret from those outside your home.

Look for low cost & free options

Those who have been successful at this budgeting style say it’s helpful to find cheap and free entertainment options. This way, they aren’t tempted to splurge. Some suggestions:

  • Check out books or movies from your library
  • Hike local trails
  • Host a game night
  • Plan a pot-luck dinner instead of meeting friends out
  • Take advantage of free or discount admission days at local museums and art centers
  • Make coffee at home
  • Meal prep so you have food ready for lunches and dinners
  • Adopt a one-in-one-out policy: you can’t buy new shoes until you sell an old pair, for example
  • Check your local thrift stores for clothes, kids toys, furniture, and more

We’re Here to Help!

Not sure where to start? We can help! Our financial coaches can work with you to review your monthly expenses. They can help you make a plan to save money or pay off debts. Call, chat, text, or stop in! (315) 671-4000, M-F 9am-4pm ET.