In the age of digital dollars, there’s value to budgeting with cash

Emily Franks and her husband were making enough money to get by but were still living paycheck to paycheck and struggling with debt.

After learning their church was hosting a financial literacy class, they decided to take action. Through several weeks, they learned to craft a budget and make it stick, using cash-filled envelopes as a budgeting system to plan and control expenses.

Fast-forward seven years, and Franks has built a career around “cash stuffing” as founder of the Aesthetic Dollar, a Twin Cities-based online store selling minimalist budgeting tools including envelopes, wallets and planners. Franks also posts regular YouTube videos — initially an accountability tool for her own budgeting efforts — with business updates, budgeting tips and calming overhead shots of her organizing piles of cash.

Similar videos have flooded the internet as cash stuffing — a familiar idea repackaged for the social media age — has gained traction with a new generation, even as digital currency has become the norm.

According to Federal Reserve survey data, cash comprised 16% of respondents’ payments during a monthlong period in 2023, compared to 31% in 2016. Still, cash usage has held steady since 2021 and remains popular among lower-income and older consumers, according to the Fed.

“Anyone can use cash. It’s available to everyone to use,” Franks said. “It doesn’t have to be complicated. Anyone can make it as simple as they want to.”

Before withdrawing a stack of twenties from your bank account or ordering fancy envelopes online, start by figuring out your budget, beginning with the often-humbling step of tracking your current spending.

Autumn Schinka, a Twin Cities-based financial adviser at Thrivent, said people often underestimate discretionary spending — categories like groceries or eating out that vary from month to month. That’s where things can get out of hand.

“Sometimes when people start spending cash instead of swiping, they go, ‘Oh my gosh, I had no idea I was spending $600 on entertainment and eating out,’” Schinka said. “But now if they set aside $300 a month … they put the cash in the envelope, and then when the money’s gone, it’s gone for the month.”

Kumiko Love, an accredited financial counselor and bestselling author of “My Money, My Way,” recommends pulling three months of statements so you can see everywhere money is moving in or out. If you find big month-to-month differences as you categorize your spending, budget using the biggest number so you’re prepared for the worst-case scenario.

Once you’ve established spending limits, she said, withdraw cash and stuff your envelopes every time you get paid. You don’t need fancy materials: plain white envelopes labeled with a Sharpie will work just fine.

Budgets are meant to evolve through time, Love said, from monthly bill variations to long-term values shifts.

“If people are copying and pasting the same budget from month to month, they’re not doing it right,” she said. “Because essentially, your budget is a reflection of your real life. And how many of us have the same day twice? None of us.”

Though Franks said she has more than 40 budget categories as specific as school expenses, gardening and individual holidays, those trying cash stuffing for the first time should start with just a few categories and build from there.

And don’t worry about toting all your envelopes around with you. Franks said she doesn’t typically carry more than $100, and if she has to buy something with a debit card, she records the amount and then, during a dedicated 30 minutes each week, replenishes her accounts by depositing the cash she’s already set aside. For those sharing budgeting and shopping responsibilities with a partner, Love recommended saving receipts to tally up spending later.

Research has shown swiping a debit or credit card creates less of an emotional response in the consumer, so it’s easier to repeat than parting with tangible, limited cash. Smaller vendors might offer discounts for paying in cash, Schinka said, something Franks said she experienced recently when repairing her air conditioner.

Millions of American households rely on cash because they are “unbanked,” meaning no one in the household has a checking or savings account. According to the Federal Deposit Insurance Corporation (FDIC), about a fifth of those households in 2021 said they did not having enough money to meet minimum balance requirements. Others said they don’t trust banks or prefer more privacy than a bank account affords.

“If we no longer have cash as a society, it forces people into using lines of credit, usually, so either credit cards or PayPal loans or maybe more predatory loans,” said Kara Pérez, founder of financial education company Bravely Go. “And I don’t think that’s good for people’s individual finances, and I don’t think that’s good for us as a society.”

Still, there are drawbacks to relying on cash. Though it can feel more secure than a bank account or credit card, consumers have little recourse if it’s stolen. And in this era of high rates, saving in cash can mean losing out on valuable interest, Schinka said.

Ashley Feinstein Gerstley, founder of personal finance platform the Fiscal Femme, offers a 30-Day Money Cleanse program that involves using cash for any expense that’s not a bill. But for some participants, cash does more harm than good.

“There is a group of people, it’s a small group, that I found that once the cash is out of their account, it’s almost feels like Monopoly money because it’s already gone,” she said. “So definitely not a tool if that is you.”

For those who don’t want to use cash or who balk at tracking their expenses so closely, Feinstein Gerstley recommends using a separate debit or credit card that’s just for discretionary spending and allocating a specific amount each month for that. Like cash, when it’s gone, it’s gone.

Budgeting, whether it’s cash stuffing or something else, is a habit that can, and likely will, fall by the wayside from time to time. What’s important is to plan ahead as much as possible — Schinka recommends building an emergency fund that will cover three to six months of expenses — and try not to throw in the towel when something goes wrong.

“Our financial fails are actually perfectly curated lessons for us,” Feinstein Gerstley said. “And so if we can take the emotion out of it, and I think a lot of compassion and forgiveness for ourselves helps with that, we can actually look at what happened … and we can work to make it so it doesn’t happen again or try something else to see if it works.”

Love works with clients to figure out the “why” for rethinking how they handle money. Rather than focusing on a reason like “I want to pay off my debt,” she encourages them to go further, like, “I want to pay off my debt so I have more freedom and can spend more time with my kids.”

There’s also value in simply making the budgeting process something to enjoy, Pérez said, rather than a dreaded chore.

“A lot of people look at (budgeting) as punishment, like, ‘Oh God, I have to sit down and budget today,’ instead of, ‘Let me put on my favorite musician, let me get my Thai food out, this is my moment of me time, and I’m going to run my numbers, and I’m going to feel good about my life and spending,’” she said. “So I think that mindset shift also needs to happen of: Budgeting is fun, budgeting is self care, budgeting is good for me. As opposed to: Budgeting is punishment, no matter how you’re doing it.”