Everyone has their own budgeting tips and tricks, and they love to share them. It’s important to know their use and the risks involved.
Cash-stuffing is the latest budgeting ‘hack’ which has become popular recently through platforms like TikTok.
Here, we discuss what it is, why people do it and share how much you could lose by doing it.
What’s cash-stuffing?
Cash-stuffing, also known as the cash envelope system, involves withdrawing cash from your bank account and dividing it into labelled envelopes or wallets for different spending categories (like food shops, petrol, bills, leisure).
It restricts your spending to the exact cash you’ve set aside to save more money by physically categorising your outgoings.
Why do people cash-stuff?
Cash-stuffing can seem like a good idea to people looking to control their finances. It could lessen your debt by reducing the credit card interest you have to pay or your overdraft fees.
It may also be attractive to compulsive spenders, as it restricts them to an exact budget and leaves no space for impulsive purchases.
What are the drawbacks of cash-stuffing?
While it might seem like a good budgeting hack, using large amounts of cash or having it on you can come with certain risks:
- your money could be lost or stolen – our data shows that the average cash theft claim comes to £336, and cash claims have doubled in the first three months of 2023 compared to the first three months of 2022
- you can’t always use cash – many companies and services don’t accept cash anymore, which could restrict your spending
- less credit or debit card protections – you could lose out on the consumer rights you’re entitled to from credit or debit card providers if you use cash
- no interest – you won’t earn any interest on your money if you don’t keep it in a bank account
Does my insurance cover my cash?
If your cash is lost or stolen, you might want to claim on your home insurance to receive compensation.
You need to check your policy book to see if the amount of cash you have withdrawn is covered by your policy, as it might not be.
Noel Summerfield, our Head of Household Insurance, warns:
“Many insurance policies don’t cover theft of cash from your property unless force or violence was used to enter or leave your home.
Whilst cash is covered in the event of fire or flood, theft from gardens or outbuildings may not be covered.
In addition, most insurance companies have a limit to the amount of cash that is covered, and this often varies depending on the different policies they offer.”
Remember money kept in the home also covers gift cards or travel tickets. Your insurer might need proof of withdrawal or receipts if you need to make a claim for these.
If you’re thinking about how to begin cash-stuffing, consider what protection you have if your money is lost or stolen. As an alternative, some banking apps have a ‘saving pot’ feature which can help you budget similarly without having to withdraw large sums of cash.
