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Are you relieved of the jumble of crispy dollar bills you count, stack, sort, and shove into labeled envelopes? Having trouble tracking where your money goes? Let me tell you about TikTok’s “money top up” phenomenon. Also known as the “envelope method”, this is a budgeting system in which expenses are paid only with allocated physical cash. The idea is that once your valuable paper dollars are tangible and accounted for, you’re less likely to throw them away with whatever sales tab is currently open.
The original envelope method, popularized over a decade ago by radio host (and dubious pundit) Dave Ramsey, followed a strict formula. With each paycheck, I paid my fixed bills (house, phone, etc.) and cashed out the rest. Then, for each budget category (grocery, transportation, hobbies, etc.), we divided the cash into envelopes and used only the amount in them. (In Ramsey’s words, “When it’s gone, it’s gone.”)
This version of the strategy has helped many people (including me) with their finances. You can also purchase special pre-labeled cash binders and money holders from Amazon. But until recently, I hadn’t thought about an envelope system for several years. Paying everything in cash is not only annoying, it’s almost impossible these days, and sometimes even rude. (Look at the faces of everyone in line behind you as you start fiddling with bills at the checkout counter.)
Like most adults who are busy and hate carrying stuff, I do most of my shopping online. Cash is just an abstract concept. But even if not, there are many cashless stores in my neighborhood. Plus, no credit cards. every Poor — Most offer benefits such as points, better consumer protection, and credit building opportunities. Or I tell myself as I use it to pay for my life.
Still, the cash-only case is compelling. Studies show that using cash increases the “pain of payment.” This is also referred to as the sinking feeling of parting with financial resources when buying (or considering). Other studies have found that people tend to spend less when using cash. They also feel more connected to the things they buy. When I tried the cash-only method a few years ago, it helped me take responsibility for my expenses and saved me a lot of money.
So how do you reconcile the benefits of cash budgeting with the frictionless reality of money-hogging cards and payment apps? When I spoke to people who make cash replenishment a part of their daily lives, they all admitted that while it’s not perfect, it’s worth a try.
First and foremost, you don’t have to go. completely Cash only — Think about what is realistic. Most fixed bills (such as rent and Internet) can only be paid by check or card. Don’t fight it.
Instead, focus more on voluntary spending that you do on the fly and that you actually need to budget for. If you overspend, you can also use a cashback for a short period of time (such as a month, a week or a few days) to correct your course. The combative precision you might assume is not always necessary.
In its strictest form, the envelope method divides your cash according to different budget categories, or “buckets,” and then spends accordingly. But how does it actually work?
For Carmen Perez (she’s the founder of Make Real Cents, a financial coaching service) who stuck with the envelope method for four years to pay off $57,000 in debt, buy a house with his wife, and start his own business, some flexibility at first. “When we first started, the expenses were huge,” she says. “Three out of five Americans have no idea how much they spent last month. I was one of them.” She had to keep track of her expenses and using her cash worked better than anything she tried.
When Perez got paid every two weeks, he withdrew cash for budgetary expenses and put the rest in the bank (deposits and debt payments were automatically withdrawn from his account). She then distributed her cash across different expense categories. “There were bags for groceries, gas, outings, dates, therapy, Uber, and upcoming trips,” she says. “If I used my card to spend money on an Uber or Venmo to share a group dinner, I would take the cash out of that envelope and deposit it back into my account the next time I went to the bank. ”
It may sound complicated, but cash makes it easier for Perez to do the mental arithmetic for budgeting. “I managed all my expenses for two weeks at a time. When a certain amount is allocated in a physical envelope, it is easier to know exactly how much is left,” she says. Sure, sometimes she’s had to overspend a bit in one area and dip into another envelope. “But it was fine. The envelope was there to provide organization,” she adds.
It was also important to budget realistically. “I wasn’t trying to be too restrictive,” she says. “I still had the envelope for the fun stuff because I knew it would fail otherwise.”
If this still sounds like over-exertion and effort, I understand. A more modified path may be used. I know people who selectively use cash to curb spending in situations where impulse shopping is more likely. One of my friends doesn’t leave the house with more than $20 on the weekend (and doesn’t even have a backup card; technically, she can use Apple Pay over the phone in emergencies, but she didn’t have to). When the $20 is gone, that’s it. she has to go home
Another friend switches to cash when he gets home from a trip or when he wants to control his spending. About two weeks until the cash runs out,” he says. “It’s not budget specific per se, but it creates more friction when buying things. And as long as the cash lasts, you will always spend less than usual.” Of course, he says, the cashier sometimes gives him a messy look when he pulls out a wad of bills from the grocery store. But in most cases, it’s a useful exercise.
I only tried cash. But instead of following a segmented budget (with specific amounts allotted for food, drinks, coffee, etc.), you set yourself a maximum amount you can spend per day. When you reduce your spending, the remaining amount is carried over to the next day. It’s almost like giving yourself pocket money.
Prior to this week, I hadn’t used the daily allowance method in years. But after a few days of restoring it, it’s strangely satisfying and easier than I expected (like Carmen, when I pay for something using a card, it “counts” by removing the cash I spend against my daily total). Reviewing your daily cash quota will make you more accountable. I have a responsibility to give that money something to do and I want to think about it.
For now, I plan to hold out longer. At least it reminds me that money isn’t just something I pass through on my way to buy clothes for my kids or buy groceries for dinner. You get to decide where you go.
Charlotte Cowles, financial advice columnist for The Cut, answers readers’ personal questions about personal finance. Email your money problems [email protected].