A recent study found that "cash stuffing," where you place physical dollar bills in envelopes, binders, liquor bottles or whatever container you choose, is particularly popular with Gen Zers and millennials right now. Stashing dollar bills in creative places went viral on TikTok during the spring. Researchers at Credello, a personal finance platform, found that more than half of young adults routinely use cash stuffing to manage their money, build savings and pay down debt.
And I can't get enough of it.
As a personal finance expert and a parent, I know firsthand how using cash can encourage more financial discipline than credit. I practiced this technique in early adulthood and only spent what I was carrying in my wallet. Because cash has real, physical limits, I didn't overspend as much. It helped me wipe out thousands of dollars in credit card debt in a matter of a year.
A 2021 MIT study found that parting with cash at the register versus tapping your credit card elicits a higher degree of "pain." That's actually a good thing. While credit cards have an intangible, "deal with it later" quality to them, when we use the almighty dollar, we only pay for what we can afford, which can improve our chances of sticking to a budget.
But in our hyper-online world where digital payments are the norm, and nearly half of consumers are using mobile wallets like Apple Pay and Venmo to transact, what's involved in successfully carrying out a cash-only strategy? Is it feasible?
A So Money podcast listener and newsletter subscriber, Ricky, recently asked: I am having trouble sticking to a budget and I'd like to start cash stuffing … How do I implement an all-cash budget if I have a credit card balance that I need to pay off?
I've got some best practices (and pitfalls) for Ricky and anyone looking to "cash stuff" their way to savings.
1. Create a realistic strategy
While some extreme cash stuffers may try to pay for everything using dollar bills, this isn't feasible for most of us, considering how many merchants and services prefer -- or even require -- digital payments.
Cash-stuffing works best for variable month-to-month expenses, such as food, gas or household supplies, where you can exercise better control of in-person spending.
Once you know what bills and payments you'll use your cash for, set a plan. Understanding why and how cash stuffing can enable your goals to either save more money or spend more consciously is an important first step to setting yourself up for success.
For example, if your hope is to save a certain amount each month, that could mean setting aside that amount in cash each time you get paid in its own labeled envelope (and putting that envelope out of sight).
Or if you want to leverage cash stuffing to get a better handle on spending, you might reserve a limited amount of cash each month for essentials like groceries and fuel and then use the rest to pay down a chunk of debt each month.
In Ricky's case, you can technically be on a cash-only budget when paying off credit card debt. You could either pay off your credit card balances each month at the issuer's physical branch or ATM, or pay virtually from a checking or savings account.
2. Figure out how much cash you need each month
While this requires some tracking, knowing how much cash you'll need on hand is crucial. I recommend reviewing past bank statements to see how much you tend to spend in each variable category, such as groceries, gas, utilities, clothing and entertainment. From there, commit to a spending limit or savings goal and allocate that amount to that corresponding envelope.
Note that unlike variable expenses, many fixed monthly expenses, such as rent or mortgage, credit card balances, loans or even a Netflix account, often require some form of online payment.
Pro tip: Stash 10% of each paycheck in a "savings" envelope to be sure that you always finish the month with extra.
While cash stuffing can limit the temptation of overspending in physical stores, it can't prevent you from overspending online. So if you do find yourself needing to pay for something digitally that would normally come out of your cash-stuffing system, be sure to revisit your plan and reconcile the expense.
Also, consider removing saved credit card numbers in your phone or on websites, which makes it too easy to buy on a whim. Having to enter your card info before making a purchase requires additional time and effort that may help reduce the temptation to spend.
4. Expect to spend more time shopping
When I think about how a cash-only budget would impact my daily routine, it feels inconvenient on multiple levels. First, I imagine going to an ATM to withdraw cash. Then, if the cash strategy is for spending, I think about showing up to a grocery store in person, which requires more time than ordering groceries online and paying by credit card.
A cash-only system means making more trips and moving away from the instant purchasing model that many of us got accustomed to during the pandemic. And that's not a bad thing -- it's just something to plan for.
5. Hold those receipts
Having a paper trail of your cash purchases is important, especially for big-ticket items that you may want to return or just to have as proof of purchase. Cash transactions don't get tracked online like credit purchases. Always get a receipt printed, emailed or texted to you following a purchase.
6. Know the trade-off you're making
Paying in cash may help you curb your overspending and build savings while taking a significant bite out of your debt. But you're also giving up some benefits.
For example, if you use a credit card and pay off the balance in full each month, you can earn points or rewards that you won't accrue when paying with cash. You're also not earning interest on your savings. And if you misplace your cash, there's no way to recoup it.
Some credit cards also offer purchase protection, which allows you to receive a refund or reimbursement if the item you purchase is stolen or accidentally damaged. Unless you buy a warranty, buying in cash won't provide you with the same peace of mind.
Lastly, deciding not to use credit cards in any form could prevent you from building a strong credit score, which is crucial if you're looking to buy a house, lease a car or even move into a new apartment.