What is Cash Stuffing?

What is Cash Stuffing?

Cash Stuffing or Envelope Budgeting or bucket system, is a process of splitting up your cash each moth into envelopes assigned to a line of your budget.

This budgeting concept has been around since the great depression, with the recent cost of living pressures highlighting the need for many to review how they budget (or starting a budget). This has coined the new term “cash stuffing”

Many people do this virtually in different offset accounts to save interest, however the younger generation is moving towards the envelope budgeting system, which supports people in being disciplined around their money.

This budgeting concept allows you to track exactly what you are spending in each budget line for the month by keeping your cash tucked away in labelled envelopes. Throughout the month (or your pay cycle) you can check your envelopes to see how much physical cash you have left for each expense.

This is said to support individuals that tend to go overboard in certain areas of their budget (alcohol, food, shopping, gambling). As you take out the exact amount of cash you have budgeted for that category and stick it in an envelope.

When you shop, you use what’s in the cash envelope. NOTHING MORE.

Once all the money is gone in that envelope – it is gone – which is said to force you to stop overspending and help you achieve your saving & financial goals faster.

However, in 2023 there several traps that we have seen Australians fall in to. A growing number of retail outlets are no longer taking cash. In Australia, cash only accounts for around 13% of all payments according to the Reserve Bank of Australia (RBA).

Furthermore, it is difficult for many, as most bill are paid online in 2023, whether that is your phone bill, internet, rent/mortgage or healthcare. This is way this budgeting concept is more popular in the younger generations.

I know locally in Newcastle, after climbing to the top of McDonald Jones stadium to find my seat for a Knights match – I was puffed/ out of breath and only had $50 on me to purchase a bottle of water. I was told that they cannot help me as they no longer accept cash – I would have to drink out of the sink in the toilets.

In addition, I have seen people spend all their money in their envelopes only 2 weeks into their monthly pay-cycle, which saw them rack up significant amounts of debt on credit cards and Buy Now Pay Later providers or when an emergency occurs. We particularly see this with the younger generation who have the disposal income and limited financial literacy & experience.

Those with a mortgage and implementing this budgeting strategy could be costing themselves thousands of dollars each year in lost offset interest. We see many people implement a virtual “cash stuffing” budgeting system, where they have multiple offset accounts off their mortgage for different bills/ expenses – to support on managing their household budget.

So whilst the concept of spending physical money may trigger something mentally before handing over cash (rather than a plastic card), there are a significant number of disadvantages that need to be overcome.

As a Newcastle financial planner, there are a plethora of cashflow and budgeting systems, and there is no one size fits all. We believe that financial literacy is the key to empowering future generations. We educate our clients around the different budgeting options and support with monitoring and keeping them accountable. This allows each individual to make an informed decision with their money,