Envelope budgeting and cash stuffing: How does it work?

What is cash stuffing?

Cash stuffing involves setting aside cash for specific expenses by physically placing the money in an envelope. It’s a practical way to create a budget, especially for those who prefer using cash over cards. Each envelope represents a spending category like groceries, rent, or savings.

For example, a "disposable income" envelope may hold £200 for the month, and once it’s empty, no more can be spent on that category until the next budgeting period. Envelope budgeting encourages people to visually track how much they have left in each category.

How to save money with envelope budgeting

For those looking to control their budget, prefer dealing with cash, or live in countries where cash is king, the envelope system may help to save more money and set financial goals.

Tips for increasing savings with envelope budgeting involves a few key steps:

1. Create specific categories. Identify essential spending areas and allocate cash to those categories, including savings.
2. Label envelopes. Make sure each envelope is clearly labelled, such as Groceries, Rent, Bills, and Savings.
3. Stick to the plan. Once the money in an envelope is spent, try not to spend money in that category until it's refilled in the next budgeting period.
4. Track progress. Review envelopes regularly to see how savings are progressing with cash stuffing and adjust as needed.

Benefits of envelope budgeting

Envelope budgeting can be helpful for anyone who wants to create and stick to a budget. Some of the benefits include:

• Avoiding impulse purchases. Cash stuffing helps that spending is deliberate, with money physically allocated to different categories.

• Supporting long-term saving goals. The method allows easy visualisation of savings, as each envelope is dedicated to a specific purpose.

• Tracking payments and managing bills. With an allocated budget in each envelope, it may be easier to track expenses and manage bills.

• Promoting mindful spending. Physically removing money from an envelope helps promote conscious spending and encourages budgeting discipline.

Drawbacks of envelope budgeting

While cash stuffing can be a helpful tool for managing finances, it does come with certain limitations, especially in today's increasingly cashless society. So, while cash stuffing may be a good idea, there are a few key drawbacks to consider before fully committing to this method:

• Reliance on physical cash. As society shifts towards digital payments, managing physical cash can become inconvenient, especially when many businesses prioritise card or mobile payments.

• Security risks. Storing money in an envelope at home may increase the risk of theft or loss, making it less secure than digital alternatives.

• Inconvenience of carrying cash. The envelope system —managing multiple envelopes for different categories — can be cumbersome compared to using digital budgeting tools.

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Alternate saving methods

For those looking for alternative approaches to budgeting and saving money, different savings methods can offer flexibility and structure in managing finances. Here are a few popular options:

• 50/30/20 rule. This method suggests dividing income into three categories — 50% for needs, 30% for wants, and 20% for savings. It's a simple and balanced way to prioritise spending and saving.¹

• Zero-based budget method. Every pound is accounted for by allocating your entire income toward expenses, savings, and debt payments, ensuring that no money is left unplanned.

• Loud budgeting. Loud budgeters take a very direct approach to their finances, constantly seeking conversations about how to budget, sharing financial information with friends and family, and collaborating to find financial goals.

Budgeting with PayPal

Envelope budgeting is a simple but effective method for managing money. By separating cash into envelopes, users can enjoy mindful spending and a clear visibility of financial progress.

PayPal can be another invaluable tool for budgeting and setting money aside . With its digital wallet, users can manage funds, settle their bills, and even pay with rewards to budget efficiently. PayPal offers a range of features and budgeting tips that help beginners learn how to budget and support the experienced alike.