As inflation continues to grow, people are looking for answers on how to manage their money. A lot of influencers on social media are encouraging a practice called “cash stuffing.”
What is it, and is this a good trend to follow? That’s our focus today.
Click the player to listen to this episode of The BIGG Success Show Podcast. Below is a summary.
Cash stuffing isn’t new. It just comes with a new label. It used to be called the envelope system. Now, we talk about cash stuffing.
How does it work?
The idea is to divide up your cash, and then “stuff” it into marked envelopes for different expenses: rent, groceries, etc.
It’s kind of ironic that the idea of paying in cash is trendy in an age where everything is paid electronically. It seems young people’s distrust of institutions comes into play here. The most digital generation ever is going analog with their finances.
But the reason the trend has been catching on, is that some find the practice forces them to be more disciplined with their finances.
So is this something you should do?
Let’s pull out the Professor’s whiteboard for: The pros and cons of cash stuffing…
Cash Stuffing Pros
1. It’s simple
Let’s face it: personal finance can be complex. It involves math and numbers and multiplication and addition. Cash stuffing is simple. Every time you get paid, you simply stuff the relevant envelope with the relevant amount of cash.
2. Keep spending in line
Because you stuff the envelopes with a pre-determined amount of cash first, it reduces the temptation to make impulse purchases. And many who are doing this say it’s rewarding to see the money being added to the appropriate envelopes.
Mary-Lynn shares something she does every month when we pay our bills. Listen at 6:03.
3. Eliminate credit card debt
What’s the best way to stay out of credit card debt? Don’t get into credit card debt in the first place! Just pay with cash and you won’t have to worry about it.
What if you already have credit card debt? Pay it off. Then don’t get into credit card debt again. As you work your system, make an envelope for credit card debt payments. Set a goal for the amount. Then, stuff the envelope every time you get paid.
Cash Stuffing Cons
1. Costs you purchasing power
As we weather record-setting inflation, you must accept that stuffing cash away is NOT an inflation hedge. You may have envelopes stuffed with cash, but every uptick in the inflation rate is robbing you of your ability to pay your bills.
Let’s consider an example: Let’s say, this year, you make $100 and all your costs total $100. Assume inflation is 8%. Next year, your costs will be $108. That’s the costs with one year of inflation. But you only have $100 stuffed away. You’re $8 behind.
Hear The Professor explain this example starting at 8:14.
2. Failure to establish credit
Strangely enough, paying with cash, always and only, can harm your ability to get credit. This can seriously dampen your ability to make major purchases.
If you’re an established adult with credit established, you don’t need to worry about this so much. Unless – You don’t use any credit cards and you don’t have any other debt. In that case, you’ll want to preserve your credit by using a credit card for purchases and paying it in full every month.
If you’re a young adult, a credit card can be a great way to establish your credit. In that case, when you use your credit card, transfer the purchase amount to your financial institution. Your checking or savings account serves as a “remote envelope”. Be sure to pay the balance on time and in full.
3. No insurance
Neither homeowners or renters insurance provide much protection for your envelopes of cash. Ask your broker for details.
Cash stuffing can be an effective way to get on firm footing financially. While it has its drawbacks, it serves as an excellent starting system for taking control of your finances. It leads to BIGG success.
George “The Professor” & Mary-Lynn
Co-Founders, BIGG Success
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