As expected, you will need to create a budget that suits your financial situation, which means you should consider taking the time to analyze your spending habits.
Making it easier and more manageable to track, the cash stuffing system is an excellent way to keep you organized so long as you separate your expenses appropriately. To help you on your financial journey, we created a comprehensive list of strategies you can apply.
1. Build A Budget That Fits Your Situation
Begin cash stuffing by ensuring your budget is your top priority. Budgeting is the most effective way for low-income households to pay down debt and build wealth because it keeps their spending in check. It puts every dollar to work, leaving no room for unnecessary expenditures.
To do this, you want to categorize all your expenses, prioritizing housing and an emergency fund. You want to make this budget about two things:
- Making sure your bills are a priority and paid on time
- You’re allocating any surplus in income to savings
Break down all your expenses, including debt, to calculate how much your monthly expenses are for each. You need to know these numbers to better help you design your budget.
2. Go Lean Wherever You Can
Overspending on household bills is a common issue when it comes to the overall financial health of households. In America, the average family spends nearly 40% of its net income on housing. This is compared to the recommended 30% maximum. It will be very beneficial for you to review this expense compared to your monthly net income to make the appropriate adjustments if needed. While changing your housing situation presents an upfront cost (moving, deposit), if you're going to be saving a reasonable chunk of money each month, it will help you to save more money for cash stuffing.
If moving houses is not an option for you, you might want to consider renting out a room if you have additional space. This income can cover one or more of your expenses or can be used to pay down debt that prevents you from saving money.
In addition to housing, many American households overspend on utilities. Remember, it's never a good thing to waste money on unnecessary usage of anything. It can be particularly detrimental to low-income families because every penny counts. When you're going over expenses for your budget, determine what your overall utility bills are each month. You can do a little research online that will reveal average cost of utilities in your neighborhood. If you determine your expense is greater than the average, you should consider making adjustments to help you go lean. A few options are:
- Keeping the lights off when you don’t need them.
- Always unplug electronics when you don't use them. Even if you have it powered off, it still consumes energy if it's plugged into the wall.
- Take showers and baths less frequently.
- If you’re the homeowner, fix all leaks and drafts. If you’re a renter paying utilities, contact your landlord to maintain any of these issues causing you a hefty monthly bill.
- Don't do laundry on peak days and at peak hours. Rates tend to be higher when people most often do laundry, which is weekends and weekend mornings.
These are just a couple options and suggestions available that should help you get into a routine of minimizing your utility use. When you reduce your monthly expenses, you will find yourself more motivated to start cash stuffing.
3. Eliminate Categories of Spending
Cash stuffing can be intimidating if you have so many categories to monitor. This would be one of the reasons people give up. It's very time-consuming to allocate money into so many different categories every month. When you begin labeling envelopes, you will notice all the unnecessary spending that is likely preventing you from saving money.
Additionally, it might seem useless to you if you already struggle to save and believe that nothing can help you. Well, this is precisely why low-income households need to eliminate spending from every corner possible. Here are a few expenses typical to most families but are a source of overspending.
Eating Out: This expense would be considered a leisure activity that is not a necessity, but rather, a treat or a luxury, as some would put it. On average, Americans eats out 5.9 times each week. This number goes up for people who don't know how to cook or simply don't enjoy cooking which is alarming considering levels of household debt in America.
Leverage the cash stuffing system to help you monitor this expense to eventually reduce it. If you're a low-income household, you might want to consider eliminating this expense entirely. You can begin making lunches at home and making coffee at home rather than going out on your lunch break. This will help you save money and build better money habits. So, give it a try. You might learn to hate wasting money on eating out!
Entertainment: You want to use cash stuffing to help you save money and pay down debts, so try to maintain a limited amount of envelopes to keep your expenses down. Another category that low-income households may want to consider eliminating is entertainment. This will include areas such as movies, events, shows, entrance fees, and so on.
While entertainment is essential to enjoying life, if your household is already on a tight budget, you might want to consider eliminating it in place of free activities. This will make cash stuffing more manageable because you won't have so many envelopes to manage. More importantly, you can allocate those funds to your rainy-day fund or household debt.
Reevaluate Your Vehicle Costs: The great thing about cash stuffing is that it helps you see in real-time exactly where your money is going, and what percent of it is being spent on each category.
Another significant expense American households pay is vehicle costs. While owning a vehicle is necessary to get to and from work and other important places, there are other means of transportation. For low-income households, reevaluating this cost is essential to saving more money. A few alternatives you have that will help you reduce the cost or eliminate it are:
- If you have a car payment, ask the dealer about buyback options.
- Sell your vehicle for a cheaper one or save the money from the sale and use public transportation. Most cities have affordable and accessible public transport.
- If your household has two vehicles, sell one and work around sharing the other.
With the money saved from your car payments, you can allocate it to other envelopes for debt repayment or future savings. When you eliminate one or both vehicles, you can also call your insurance provider to cancel those payments, saving you even more money.
As already illustrated, applying the cash stuffing method is not just great to organize your money; it can also help you to visualize areas of opportunity for further savings.
4. Put Your Hard Work into Action
Now that you’ve analyzed where you’re overspending and broke down all your categories, you can begin cash stuffing.
Make it a habit to withdraw all your funds from your bank account each payday going forward. The first thing you should do and never delay is allocate all your cash before you give in to temptation and spend some of it. This step is just as important as the rest because it sets the tone for the next two weeks.
In addition, check-in with your spending for each category each week to ensure you're not spending too quickly in categories that need to be stretched. Use of funds too quickly can encourage you to pull money from other categories if you give in to temptation. Use the cash stuffing method to control your spending as well.
And one more thing, you will want to periodically analyze each category's status to make any necessary adjustments. For example, suppose one of your categories always carries a surplus. In that case, this is an opportunity to allocate it to your rainy-day fund or to paying down debts. You never want to allow cash to go unused, especially when you have debt accounts accruing interest where those funds can be used.
Final Thoughts
Cash stuffing is an excellent system for all households, particularly for families attempting to overcome impulse shopping and learning how to budget. The best aspect of it is that it encourages you to set goals that suit your financial situation. It also helps you to easily monitor your progress by observing the cash in each envelope. Getting a hold of your finances is very difficult when you're trying to do so electronically, so this is an excellent way for anyone looking to have direct hands-on control.
