Do you have a tendency to impulse-purchase and over-spend? Are you looking for a way to change and build better spending habits? The Cash Envelope System, also called Cash Stuffing, is a tried and true budgeting technique popularized by Dave Ramsey to help visualize purchases, maintain a budget, and curb overspending. But how does this system work? Here’s a crash course in Cash Stuffing.
HOW IT WORKS
First, you want to think about all the different things you spend money on in a given month and sort them into categories. Groceries, eating out, and entertainment are a few examples of what some of your categories may be.
Next, label an envelope for each of your budget categories. Then decide on an amount of money you want to allot to each of those categories for the month and fill each envelope with that amount of cash.
For example, place $500 in the Groceries envelope, $100 in the Eating Out envelope, $200 in the Entertainment envelope, and so on.
Now, whenever you make a purchase from any of those categories, you only use the money from that envelope. So, when you spend $150 on groceries, you’ll be left with $350 in your grocery envelope for the rest of the month.
WHY IT WORKS
First, dividing money into envelopes gives each dollar a job. When purpose drives behavior, humans make better decisions. This also provides organization for your money.
Second, seeing what you have in an envelope before you spend, ensures you have the money. It also makes you aware of how much you have left for the rest of the month.
Third, cash stuffing combines your money and your budget into one. So, when your money is gone, so is your budget. It also removes the need to reconcile your money and your spending with your budget.
WHY IT’S IMPORTANT
Electronic money has streamlined the process of making a purchase to the tap of a phone, watch, or card. Credit card rewards encourage people to spend more and utilize multiple cards to maximize the benefits. This combined with the marketplace moving into the home via the internet, most people aren’t in control of their spending.
According to USA Today, the average credit card balance in the U.S. is nearly $8,000 per household. According to Yahoo Finance, Nearly 75% of people have less than $200K in retirement savings at the age of 65. Is it any wonder why the American Psychological Association has found that personal finance is the leading cause of stress and is impacting human wellness.
WHY IT MIGHT NOT WORK
Using cash is tough. Multiple trips to the bank/ATM machine requires extra time and money. Managing physical envelopes between couples is hard. Online purchases and travel aren’t possible. More and more establishments are moving away from cash impacting where Cash Stuffer’s can shop. There is the risk of losing cash and theft.
There are envelope budgeting apps like YNAB, Every Dollar, Goodbudget, Envy… Unfortunately, they don’t create the same experience as Cash Stuffing. They don’t combine your money and your budget into you, so you end up having to categorize your transactions after the fact to reconcile your budget to your money.
There is one digital app that does replicate Cash Stuffing: Qube Money. Qube combines banking and budgeting into one app. It allows you to divvy up your money into digital envelopes called qubes. Then you can spend from your qubes with the convenience of a debit card. In other words, you literally purchase gas with your ‘gas qube’, groceries from your ‘grocery qube’, and tires with your ‘car maintenance qube’. You give every dollar a job, you look before you spend and when your money for a category is gone, it’s gone.
There are many reasons why someone might need to transfer money from account to account or institution. Whether that’s sending money to someone else or moving funds between two of your own accounts, there are several options with different benefits and drawbacks to each. Make sure you choose the method that is best for you.