Yahoo Finance How cash stuffing can transform your budget
Cash stuffing can help you feel more physically connected to your money.
Search ‘cash stuffing’ on TikTok and you’ll be met with an endless scroll of videos of notes being organised into envelopes and folders. The viral budgeting trend is based on an age-old money-management technique but with an aesthetic upgrade.
But, as the cost-of-living crisis continues to bite, can the cash-focused budgeting hype really help you manage your money better?
What is cash stuffing?
Cash stuffing - or cash envelopes - is a cash-based money-management system. Budgeters will withdraw their spending money at the beginning of the week or the month, allocate different amounts to different categories, and stuff cash into an envelope for each.
For example, you might have $1,000 to ‘stuff’ for the month. You might split that up into five envelopes: $150 for dining out, $50 for coffee, $400 for groceries, $200 for savings, and $200 for petrol.
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Some stuffers will have envelopes for rent or utilities, but others opt to pay those electronically via direct debit, leaving only manual spending and saving to be organised into envelopes.
Do we spend less or more when using cash?
The theory behind the cash-stuffing method is that using cash makes you feel more physically connected to your money.
Some studies using MRI machines have shown that brain activity when paying with cash is the same as when processing other aversive stimuli, which is closely linked to a cognitive bias known as ‘the pain of paying’. When we feel ‘pain’ associated with parting with our cash, we’re less likely to spend excess money. Conversely, the streamlined purchase processes of modern cashless transactions and smartphone payments reduce this pain and make it easier to spend.
So, the argument is that using physical cash enhances that pain and allows us to use a natural bias to help us spend less and save more.
But, before you run to the ATM, the opposite can also be true. Contrasting research has shown that we choose payment methods based on how we feel about what we’re purchasing. One study revealed that customers paid with cash to erase guilt around certain purchases. The absence of a transaction record - and seeing a lower number in their bank balance - allows purchases made with cash to slide under the radar.
Equally, many Millennials and Gen Zs have become accustomed to spending and earning money in a digital format. The recent viral Girl Math trend proves that many treat paying for something in cash as though it’s ‘free’. This leaves us open to another cognitive bias – mental accounting.
Mental accounting refers to our tendency to treat money differently depending on the way our brains have compartmentalised it. This is why you might feel like cash transactions aren’t ‘real spending’, or why money you find in an old pair of jeans is easier to spend than money earned through your salary.
The behavioural benefits and drawbacks of cash
One thing I do like about cash stuffing is its ability to challenge our consumption habits by acting as an immediate obstacle in the purchase process. Having to carry cash, count out notes, and immediately face how much you have left in that envelope after making a purchase can be a helpful exercise. Often we’re not fully engaged with the consequences of our spending decisions until it’s too late.
However, there remains a raft of issues that can make cash stuffing a hassle. A video of freshly withdrawn notes being organised into aesthetic folders is one thing. Organising random handfuls of coins after making a couple of purchases is a bit more labour-intensive.
Plus, from a behavioural perspective, cash stuffing does require a significant amount of discipline and organisation. You’ll need to make sure you’re taking the right envelopes with you on the right days, and trust yourself not to pull money out of other envelopes to overspend in another category.
It’s worth taking Apple Pay or Google Pay off your phone, too, to reduce the temptation to spend outside of your predetermined allocations.
Is cash stuffing for you?
Whether cash stuffing will work as an effective money-management tool really depends on your personality. It might require some trial and error to establish how your brain reconciles cash purchases.
Do you find you’re more disciplined when using cash, or does the separation from your bank balance make you feel like it’s ‘free money’? Then, tune into whether you’re tempted to tap your card, or whether you have the discipline to stick to cash only.
Your lifestyle and location will also need to be factored in. As more and more hospitality and retail outlets go cashless, you may find it hard to make cash a regular part of your lifestyle.
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