‘Cash stuffing’ is a money-saving technique currently blowing up on social media.

With the cost of living crisis impacting the majority of the UK, Gen-Z and Millenials are looking for new ways to save. Within the past year, Google searches for the term ‘cash stuffing’ have increased by 274% (Source: Google Trends/Glimpse) and the TikTok hashtag has generated over 498 MILLION views to date.

Dan Whittaker, Personal Finance Expert at CashLady.com, has released comments explaining the trending method of saving at home, how it works, along with the downsides.

What is ‘cash stuffing’?

“Cash stuffing is a method of saving money by physically withdrawing money from your bank account and organising it in a folder system.”

“Using a personalised folder containing several labelled envelopes, savvy savers divide their monthly outgoings into categories, label each envelope with a category, then select a budget for each category and put the allocated amount of cash into the envelope.

For example, if your monthly take home pay was £1,000, you would make your essential payments as normal, such as rent, mortgage and bills. Then, you split the remaining money into several categories within your folder. This could be for things like ‘the weekly shop,’ ‘birthday funds,’ ‘socialising,’ ‘holiday savings’ or ‘pocket money for kids.’ 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 see clearly how much money you have spent in each area and track it on a spreadsheet. You can then readjust your budgets for the next month to stay on track. If you’re lucky enough to have funds left over, these should be moved into a separate folder which acts as bonus savings for whatever your ultimate saving goal is.”

Why does it work for some people?

“This method of saving can be a great way to keep you motivated to achieve your savings goals. Breaking down larger savings goals into smaller monthly targets 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 achievement.”

“Also, seeing your money physically dwindle can make you more aware of the current state of your finances. Using Apple Pay, Paypal or even online banking can sometimes feel as though you aren’t actually spending money as there is no physical cash exchanged. With cash stuffing, you have a visual representation of your earnings and outgoings which can lead to a greater sense of awareness of your finances; when you see what you’re spending, you think more about what you’re spending.”

“This is perhaps why the method is particularly popular amongst young people, who have been brought up using online banking and are seeking a new way to view and manage their money.”

“Another bonus with this method is that you’re avoiding the risks that can come with credit cards or overdraft fees. Avoiding credit cards altogether stops those prone to overspending from racking up debts, as once your monthly budget is gone, it’s gone.”

What are the downsides?

“Security is the biggest downside. When your money is locked away in your bank it is protected by the banks security systems and protected by schemes such as the Financial Services Compensation Scheme.”

“However, with your money living outside of your bank in cash form, it may be more vulnerable to theft, loss or damage (for instance from fire). If this were to happen then you would essentially have no recourse to recover that money. If you are interested in this technique, investing in a safe or something similar would be advisable.”

“You also aren’t earning any interest on your money while it is not deposited in a bank, building society or other savings scheme.”

How can I do it?

“If you want to give Cash Stuffing a try then firstly, you need to think about what you typically spend money on. Dividing your usual spending into categories will help you to start your envelope system. Spends such as shopping, dining out, entertainment, petrol, gifts and groceries might be the most consistent monthly costs to begin with.”

“Then, think of your longer-term savings goals. Assign an envelope for this, where you can start to deposit any spare change at the end of each month. This could be for a car deposit or saving for a renovation or holiday for example, but having a specific goal is a great way to keep you motivated. Having these additional folders means you’re always allocating some money to long-term goals.”

“Next, you need to work out how much money to assign to each category. If you know you spend too much on socialising, then lower your budget in that category, and so on. After you’ve budgeted, it’s worth creating a spreadsheet to track your spending, simply writing down how much you allocated and then spent that month. This creates an awareness of your spending habits and helps see where you went right and where you could cut back. Any leftovers can be added to your long-term envelopes to encourage you to keep going.”

“The important thing is to only spend what is in that envelope. Restrict your spending to only using the allocated amount on each category and you should have savings in no time.”