With the cost of living crisis affecting most of the UK, Gen-Z and Millennials are looking for new ways to save.
And the “cash stuffing” trend, in which fans physically withdraw money from the bank to categorize cash, is growing in popularity.
The Cash Stuffing hashtag on TikTok has generated over 530 million views so far, with savers from around the world following the growing trend.
Personal finance expert Dan Whittaker, of CashLady.com, has explained how the budgeting system works, as well as its potential downsides.
CashLady.com’s Dan Whittaker explained the money-saving trend of “cash stuffing,” in which millennials physically withdraw money from the bank to categorize cash
What is Cash Stuffing?
Cash stuffing is a budgeting method where people physically withdraw money from their bank account and organize it in a filing system.
With a personalized binder containing several labeled envelopes, smart savers organize their monthly expenses into categories, label each envelope with a category, then select a budget for each category and place the allocated amount of cash in the envelope.
How can I start Cash Stuffing?
1. Divide your expenses into categories
Expenses like shopping, dining out, entertainment, gas, gifts, and groceries might initially be the most consistent monthly expenses.
2. Assign an envelope to save
You can start depositing change at the end of each month.
This could be for a car deposit, for example, or saving for a renovation or vacation, but having a specific goal is a great way to motivate yourself.
When you have those extra folders, always allocate some money for long-term goals.
3. Calculate how much you allocate to each category
If you know you’re spending too much money on contacts, lower your budget in that category and so on.
After you’ve created the budget, it pays to create a spreadsheet to track your spending by simply writing down how much you’ve allocated and then spent that month.
This creates awareness of your spending habits and helps to see where you went right and where you could save.
Any leftovers can be added to your long-term envelopes to encourage you to keep going.
4. Only spend what’s inside this envelope
Limit your spending to using only the allotted amount for each category and you should be making savings in no time.
For example, if your monthly net income is £1,000 you would make your essential payments such as rent, mortgage and bills by direct debit as usual.
Then split the remaining money into several categories within your folder.
This can be things like weekly shopping, birthday money, socializing, holiday savings or pocket money for children.
Each category and its envelope would contain the exact amount allocated in your budget. The technique is also sometimes referred to as the “Cash Envelope System”.
At the end of the month, you can clearly see how much money you’ve spent in each area and track it in a spreadsheet.
You can then readjust your budgets for the next month to stay on track.
If you are lucky enough to have any money left over these should be moved to a separate folder that will serve as bonus savings towards your ultimate savings goal.
Why does it work for some people?
This savings method can be a great way to keep you motivated to reach your savings goals.
Breaking down larger savings goals into smaller monthly goals makes the task of saving less overwhelming, and being able to literally see the money saved each month can lead to a greater sense of accomplishment.
Seeing your money physically dwindle can also help you become more aware of the current state of your finances.
Using apps or even online banking can sometimes feel like you are not spending money since no physical cash is exchanged.
With cash stuffing, you have a visual representation of your income and expenses, which can lead to greater awareness of your finances; When you see what you’re spending, think more about what you’re spending.
Maybe that’s why the method is popular with young people who grew up with online banking and are looking for a new way to see and manage their money.
Another bonus with this method is that you avoid the risks that can come with credit cards or overdraft fees.
Avoiding credit cards keeps those prone to overspending from going into debt because once your monthly budget is gone, it’s gone.
What are the disadvantages?
However, there are some downsides to be aware of – security in particular.
When your money is locked in your bank, it is protected by the bank’s security systems and the Financial Services Compensation Scheme.
However, because your money remains outside your bank in cash form, it may be more vulnerable to theft, loss or damage (e.g. by fire).
If this were to happen, you would essentially have no way of getting that money back.
If you are interested in this technique, investing in a safe or something similar would be advisable.
You also do not receive any interest on your money as long as it is not invested in a bank, building society or other savings bank.
Trending: The “Cash Stuffing” hashtag on TikTok has generated over 530 million views to date, with young savers from around the world following the growing trend