Why Finance Experts Want You to Think Twice About "Cash Stuffing"

Resolved to get your finances in order this year? So, too, are hordes of people on TikTok, who are trying "cash stuffing" to stick to their budgets. Also known as the envelope system, cash stuffing involves divvying up cash into envelopes (or fancy binders) across categories like rent, groceries, clothing, and the like, and limiting spending on said categories through the end of each month.

But how well does the cash stuffing system actually work, and is it worth trying it out for yourself? Keep reading to see what personal finance experts have to say about the popular but potentially flawed budgeting hack.

Rachael Levine, CFP, is the director of financial planning at Peltoma Capital Partners and the travel and finance creator behind Tripping Millennial.

Jenny Whichello is a money management and financial planning coach.

According to financial advisor Rachael Levine, CFP, cash stuffing is a good place to start for those who are unfamiliar with budgeting or are trying to create discipline.

"It's great for people who are earlier in their budgeting and personal finance journeys or have had spending problems in the past, as this is a forced discipline practice," Levine tells PS. "If you're somebody who struggles with your own spending discipline, then it can make sense to use this extreme method of budgeting and spending."

Financial coach Jenny Whichello agrees the envelope system can help control short-term spending, thus providing a sense of stability and restraint. She adds that it can also be beneficial for those who are prone to impulse shopping online, especially since it can be seamless to spend on sites and apps with saved credit card info and digital wallets.

Both Levine and Whichello are quick to say that there are more cons than pros with the cash stuffing method. For starters, this budgeting hack is pretty inconvenient and time-consuming: You need to take a trip to the bank or ATM, portion out your cash into different envelopes, and know which envelopes you need to carry with you on a given day.

Paying with cash is also not feasible (or highly impractical) in many cases, Levine adds, like, say, if you need to shop online, find yourself at a cashless brick-and-mortar store, or now need to make the trek to pay your landlord in person on the first of every month. Of course, there are also inherent safety concerns around stockpiling wads of cash, like the risk of loss or theft.

You're not earning any interest on that cash either, Whichello says. (The same goes if you leave your funds collecting dust in a checking account versus a high-yield savings account, thus losing an opportunity to earn passive income. And no matter which bank and type of account you use, Levine urges you to opt only for those that are FDIC-insured.)

Cash stuffing also limits your ability to build credit and eliminates your potential to earn credit card rewards like points and cash back. These can accumulate over time into significant sums — perhaps even enough to cover an annual vacation or a wish-list purchase. That said, Levine does warn that credit card spending and points hacking can be a slippery slope for people who aren't ultra-disciplined with their finances, so this route is best for those who can pay off their balances in full each month to avoid paying high interest rates.

In addition, this budgeting system prevents you from getting high-quality data about your money habits. "For example, I run all of my transactions digitally and almost never use cash," Levine says. "The benefit of that is that I'm able to use budgeting software and other tracking devices to get very useful data about my spending trends, and I can use that to, in turn, curb behaviors that I deem to be not good for my personal finances."

More importantly, Whichello warns that the envelope system can foster a scarcity mindset — not to mention shift your focus away from building a fruitful financial future. "Anybody who handles cash like this is literally pinching pennies," she explains. "They're in the headspace of managing spending, not in the headspace of building wealth." Focusing on short-term, small-dollar problems takes the emphasis away from thinking about smarter financial habits, like maxing out your 401(k), and long-term goals, such as buying a house, and creating a game plan to achieve them.

Cash stuffing can make you feel like you're taking control over finances and spending habits. For some, it can even be an enjoyable and gratifying monthly ritual, as well as an empowering introduction to budgeting and being intentional about where your money goes. Yet, in most cases, it's unlikely to be sustainable or practical, and it'll probably only provide a fleeting or false sense of security.

If your goal is to be more mindful about your budget, Levine suggests relying on digital money management tools like Monarch, Copilot, and YNAB, which can arm you with actionable insights about where you should cut or contribute costs. "These platforms are getting really good at identifying transactions and categorizing them appropriately," she shares. "They can create helpful guardrails for you if used effectively, and eliminate some of the cons that you may run into with holding physical cash via envelope stuffing."

Whichello strongly advises thinking beyond budgeting and homing in on the bigger picture, which starts with diving into the psychology behind your money mindset. "Before you try to take any action or find some tip or trick, you should spend a lot of time thinking about why you do the things that you do and what beliefs — often from childhood — are leading you down that path," she says. (Your "whys" can run the gamut from feeling successful by spending to believing that since you have money you might as well spend it.)

From there, you'll need to adopt a better belief system — perhaps with the help of a personal finance expert — and figure out what you want your money to do for you and how your funds can drive your vision for the life you desire. Whichello says, "When people get clear on what they actually want and they have a financial plan that helps them work towards achieving that, the desire for mindless spending evaporates and you have real clarity on what to do with your money."

Michele Ross is a freelance writer specializing in wellness, culture, and beauty. Her work has appeared in Well+Good, Coveteur, Editorialist, GQ, Vice, and Teen Vogue, with brand clients including Peloton, Moon Juice, and Hum Nutrition. She's grateful to cover her many interests — including but not limited to self-care, self-development, skin care, coffee, travel, and Korean culture.