Finance expert reveals how viral cash stuffing trend can help you stick to a budget
What’s old has become new again.
Setting aside physical cash and stuffing it in envelopes to stay on budget – otherwise known as "cash stuffing" or the "envelope method" – has seen a spike in popularity.
The trend has specifically been booming on TikTok as users share their cash-stuffing experiences. Bankrate senior industry analyst Ted Rossman told FOX News Digital there’s actually "a lot of validity to this trend."
"It may seem counterintuitive for young people who are tech-savvy to be using cash, but I think the biggest advantage is when it's out, it's out," Rossman said. "And a lot of studies show that there is more pain associated to paying with cash, that you just notice it more, rather than this kind of magic money that sometimes a credit or even a debit card can feel like."
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A 2023 study from the University of Notre Dame found that consumers pay strategically to forget guilty purchases. Looking into how they decide to use cash or card: they prefer to pay with a card to remember their purchases and create an electronic trail, but use cash when a purchase is "difficult to justify."
"While a debit card is cash-like in the sense that it's not debt, it's money coming out of your checking account. It's still just a tap on your phone or a quick dip of the card. It's different from actually counting out dollars and cents," Rossman explained.
"I do think that especially for somebody who's worried about debt, and a lot of young adults are worried about debt because they have a lot of student debt, they may even have trouble accessing credit because it's gotten harder to get your first credit card," the analyst continued. "I actually think for all these reasons, cash stuffing can be a valid budgetary technique."
Rossman expanded on how the envelope method may be best utilized for discretionary spending.
"For example, where you have a certain amount this month that you're going to spend on restaurant meals, let's say, or maybe it's concert tickets or sports tickets or maybe it's just kind of a catch-all, miscellaneous fun fund. Something like that I think could work well to impose a kind of discipline," he said.
However, it may not be the most viable long-term solution to staying on budget and potentially building your credit.
"Not that using a credit card is the only way to build credit, but it is actually one of the easier ways to build credit, which you do need for future loans and lines of credit, and even non-credit obligations," Rossman noted. "Things like renting an apartment or having a utility plan or a cell phone plan."
While younger generations have made cash stuffing trendy, the Bankrate analyst added that there are "a lot of older folks" who use cash only as a personal preference.
"Ultimately, I do think it's important to be part of the banking system, so that means having a checking account, hopefully a free checking account. I do think credit cards are useful for building credit and earning rewards. I wouldn't recommend carrying debt for a long period of time," Rossman said. "There is an element of, 'to each their own…’ personal finance can be inherently personal."
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A recent Bankrate report highlighted that a better savings strategy in today’s economy includes putting your money in top-yielding online savings accounts which currently see a return of around 5%.
"Just like with your 401(k), part of the beauty of that is that you make a good decision once and it repeats automatically every couple of weeks on payday, and you're less likely to miss what you don't see. I think you could do the same thing with savings where you have an automatic transfer that goes into an online savings account every payday. Those rates are over 5% now on totally liquid, totally federally-insured savings accounts. That's the best we've seen in years," Rossman explained.
"We're probably at or near the peak of savings rates right now. But the good news is the Fed's talking about higher for longer," he added. "So I think that rates should remain attractive for a while still. I mean, even if we're at or near the peak a year from now, we may only be something like half a point lower. So still attractive rates."
For the first time in U.S. history, credit card debt hit $1 trillion by the end of June as Americans continue to pay higher costs for everyday expenses. Inflation has cooled from a peak of 9.1%, but it remains well above both the Federal Reserve’s 2% goal and the pre-pandemic average.
The Fed announced at their latest meeting Wednesday that the central bank will pause rates for the third time this year, while leaving the door open for another potential rate hike before the year’s end.
Credit card debt and inflation are the two biggest hurdles facing Americans’ savings goals, according to Rossman.
"The good news is that the job market is strong and people are working and their wages are up. The bad news is it doesn't feel like you're getting ahead. It feels like whatever raise you're getting is being eaten up by higher housing costs and higher food prices and higher just-about-everything prices," the analyst said.
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Amid these macroeconomic challenges, Rossman encouraged savers to take baby steps towards optimizing your budget.
"Some people, especially young adults, feel like you only live once, right? And you have financial challenges, but you still want to enjoy your life," he pointed out. "I don't want you to go into debt, but I think it's important to have some fun along the way. I think that's actually a way that cash stuffing could help because you set a budget and that helps you stick to it."
FOX Business’ Megan Henney contributed to this report.