Although the financial goals you are saving for and the amounts you “should” have saved to reach them can look different depending on what life stage you are in, one thing is certain — making a plan to save is one thing, and sticking to it is another. Despite the challenges that come with saving, personal finance experts agree that you should have sufficient emergency savings (often referred to as an emergency fund) to cover three to six months’ worth of living expenses in the case of an unforeseen emergency. However, saving for long-term financial goals or life’s unexpected twists and turns is often put on the backburner in the face of monthly, or unexpected bills and expenses. Oftentimes, many feel discouraged to save by not having a clear idea of where their money is spent. There are various budgeting techniques that can help rein in spending and identify room to save – one of which is called Cash Stuffing.

What is Cash Stuffing?

Cash Stuffing, also known as the envelope system – is a budgeting method in which you convert your spending money into cash and stuff it into envelopes earmarked for different categories where you expect to spend during a specific timeframe. You would typically withdraw this cash when you receive your paycheck in an effort to budget where it will be going until your next paycheck. By setting cash aside in envelopes designated for specific purposes, you are encouraged to commit to spending only what you’ve allocated for a particular category.

How Do I Get Started?

1. Determine Your Typical Monthly Spending Categories

The success of cash stuffing lies in your ability to realistically project what you will be spending on. Determining the categories you typically spend money on can be done through brainstorming or going through your bank statements for the previous few months. There is no limit to the types or number of categories you can choose, but some common categories include:

• Rent and bills
• Groceries
• Gas
• Dining/takeout
• Entertainment
• Clothing

If you would like to take your cash stuffing one step further, you can create a category for saving. Unlike your spending categories, your saving category should remain untouched during the timeframe you choose, and can later be put into your savings or retirement accounts.

2. Set Spending Limits for Each Category

Decide how much you would like to spend on each category for the timeframe you choose. It is important to be realistic — for example, you can’t skimp out on paying your fixed expenses, such as rent and bills. Even if you don’t fill up those envelopes, those bills are still due. However, this step offers an opportunity to identify categories where you could potentially rein in your spending. If you notice you don’t typically use all of your groceries, or you impulsively buy coffee out multiple times a week, try setting your spending limit lower for those categories than it has been in previous months.

3. Decide How You Will “Cash Stuff”

While tried-and-true cash stuffing is done by stashing white envelopes in a box, the method has gotten much more creative in recent years. You can decorate the envelopes or color-code labels, or even purchase “budget binders” that can hold all of your cash envelopes.

Cash Stuffing Can Be Done Digitally: Cash stuffing digitally can eliminate worries about having your funds lost or stolen. In this case, you would create a spreadsheet and save it on your computer or tablet, still track your categories and spending limits, as well as how much you have spent and what’s still remaining. If creating a spreadsheet is not your forte, there are also phone apps and websites that can help create and manage digital envelopes to visualize your spending.

4. Withdraw Your Cash and Stuff Your Envelopes

Once you have determined how much money you would like to allocate to each category, add up your spending limits and withdraw that amount in cash. Then as the name suggests, “stuff” the cash into your envelopes.

5. Spend with Your Envelopes

Here is where self-discipline comes into play. Whether the cash contained in the envelopes is meant to last you for two weeks or a month, cash stuffing is designed to work if you only spend what you have set aside in each envelope. When you go to use your debit or credit card, remember that you are going over the budget you set for yourself.

The first time you attempt this budgeting method, you might notice that you have allocated too much or too little to certain categories. That’s okay — don’t go into cash stuffing with the expectation that your budget will be perfect the first time. You can tweak your categories, spending limits, or both – to fit your typical spending habits.

6. Save Any Excess Cash

If you notice that you have a surplus in one of your categories, try to avoid moving it to another category where you may find yourself wanting to spend more. You also don’t want to save it to spend the following month. Having excess cash affords you the opportunity to make extra payments towards debt, or to build up your savings account.

As far as budgeting methods go, cash stuffing is customizable to your financial needs and goals. Whether you are embarking on the cash stuffing journey to control your spending, pay off debt, or build your savings — First Financial is here to help you along the way. Check out our financial calculators that are available on our website, as well as our budgeting guide and fillable PDF worksheet. Stop in and see us in any of our branches if you still have questions, or call us at 732-312-1500 to set-up a financial review appointment.