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Does the sound of crisp dollar bills being counted, stacked, sorted and slid into labeled envelopes comfort you? let me direct you to The “Cash Stuffing” Phenomenon on TikTok. Also known as the “envelope system,” this is a budgeting system that pays for things only with allotted physical cash. The idea is that valuable bills are visible, and if they’re worth it, you’re less likely to splurge on your currently open sale tab, for example.
Popularized by radio personalities (and questionable guru) Dave Ramsey more than ten years ago, the original envelope method followed a strict formula. Every time I got a paycheck, I would pay fixed costs (housing, phone, etc.) and cash the rest. I then separated the cash into envelopes by budget category (groceries, transportation, hobbies, etc.) and used only what was inside. (In the words of Ramsey, “When it goes away, so does it”).
Various versions of this strategy have helped many people (including me) with their finances.You can also purchase Amazon’s Specially Labeled Cash Binders and Money Holders. But I hadn’t thought about envelope systems in years until recently. Paying everything in cash is not only annoying, it’s nearly impossible these days, and even rude in some cases. (Watch the faces of everyone in the back row as you start fiddling with bills at the register.)
Like most adults who are too busy to carry bags, I do most of my shopping online, where cash is just an abstract concept. But even if that’s not the case, many neighborhood stores are cashless.Moreover, credit cards are not all Bad — Most offer perks such as points, better consumer protection, and opportunities to build credit. Or so I tell myself, using them to pay for my life.
Still, the cash-only argument is compelling. According to research Using cash increases the “pain of payment”. This is also known as the gloomy feeling of letting go of one’s financial resources when shopping (or considering a purchase). Other studies show that when people use cash, tend to spend lessthey also Feel more connected to what you actually buy. When I tried the cash-only method years ago, I was able to take responsibility for my spending and save a lot of money.
So how do you combine the benefits of budgeting with cash with the frictionless, money-eating reality of cards and payment apps? At the time, everyone admitted that it wasn’t perfect, but it was worth a try.
First and most important is that you don’t have to go completely Cash Only — Consider what’s realistic. Most fixed charges (such as rent or internet) can only be paid by check or card. don’t fight
Instead, focus on spontaneous spending that needs to be done on the fly and actually budgeted. You can also cram cash for short periods of time (eg, a month, a week, or even a few days) to fix overspending. You don’t always need the combat accuracy you might imagine.
In its strictest form, the envelope method divides cash according to different budget categories, or “buckets,” and spends accordingly. But how does it actually work?
For Carmen Perez, who stuck with the envelope law for four years to pay off $57,000 in debt, buy a house with his wife, and start his own business (she earn real cents, financial coaching services), we needed some flexibility at first. “My spending was all over the map when I started working,” she says. “Three out of five Americans have no idea how much they spent last month, and I was one of them.” It went well.
Every two weeks when Perez got paid, she would withdraw cash for planned expenses and put the rest in the bank (savings and debt payments were automatically deducted from her account). She then distributes the cash across various spending categories. “I had envelopes with money for groceries, gas, outings, dates, therapy, Uber, and upcoming travel,” she says. “If I use the card to spend money, such as splitting the bill for a group dinner at Uber or her Venmo, the next time I go to the bank, I take the cash out of the corresponding envelope and put it back into my account.”
It may sound complicated, but using cash has made budgeting easier for Perez. “I tracked all of her expenses for two weeks at a time, and having a fixed amount on a physical envelope makes it easier to keep track of the balance,” she says. Sure, there were times when I spent a little too much money in one area and had to dabble in a different envelope. “But that’s fine. The envelope was just there to keep things organized,” she added.
It was also important to be realistic about the budget. “We didn’t mean to be too restrictive,” she says. “I still had an envelope with fun things to put in, because I knew I was going to fail if I didn’t.”
This might still sound like too much effort and effort, but I get it. You can also take a more modified route. I know people who selectively use cash to control spending when they are likely to make impulse purchases. One of my friends girlfriend says he doesn’t leave the house on weekends with $20 or more (nor does he have a spare card. Technically, in a real emergency, you can use her Apple You can use Pay, but I’ve never had to.) Once the $20 is gone, you’re done. she must return to her home.
Another friend switches to cash when he comes back from a trip or when he has a high spending period and wants to control himself. It will be weeks before we run out of cash,” he said. “It’s not a specific budget per se, but it creates friction when you buy things. And as long as you have the money, you’ll end up spending less than usual.” He says he sometimes gets a bad look from the cashier. But for the most part this is a useful exercise.
I tried cash only. However, instead of following a categorized budget (with fixed amounts allocated for food, drinks, coffee, etc.), give yourself the maximum amount of money you can spend in a day. If you spend less, the remaining amount will be carried over to the next day. It’s almost like giving yourself some pocket money.
Until this week, I had not used the per diem method for several years. But when I put it back together for a few days, it turned out to be strangely satisfying and easier than I expected (like Carmen, if you use your card to pay for something, ” I just take out the cash I used so that it is “counted” against my daily total). Reviewing your daily cash allocation will make you feel more responsible. I have a responsibility to put that money to work, and I want to think about it carefully.
For the time being, I think I will continue for a while. At the very least, it reminds me that I’m not just a sieve through which money passes on the way to buying clothes for my kids or groceries for dinner. I’m the one who decides where it goes.
The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance.Email us your money concerns mytwocents@nymag.com.
