Cash Stuffing: The Budgeting Method That Can Help You Save $20K
If the money you earn feels like it’s slipping through your fingers and your debt is increasing, you may want to consider cash stuffing.
Cash stuffing, also known as the envelope system, can help you track your expenses, manage your spending, and put more money in your savings.
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MoneyLion spoke with Ashley F. Morgan, an attorney and owner of Ashley F. Morgan Law, PC, a debt and bankruptcy law firm in Northern Virginia that helps clients with debt, financial and credit issues. She tells us how you can potentially put away $20,000 using the cash-stuffing budgeting method.
Is It Really Possible To Save $20K With Cash Stuffing?
If someone wanted to save $20,000 over the course of a year, the math is actually pretty straightforward, said Morgan.
“They would need to save approximately $385 per week or about $1,667 per month," she said. "If your goal is to save that $20,000 in one year, you basically have to set aside the $385 per week into your savings envelope."
However, she said many households may not find $1,667 sitting around in the budget overnight.
"You want to be gradual and realistic with your numbers," Morgan added.
If your current budget only allows you to save $300 per month, that goal feels out of reach. However, by cutting spending, you can get closer.
Someone spending $600 per month dining out might reduce that expense to $250 per month, saving an additional $350 per month, said Morgan. To increase savings, you can spend less by preparing your meals at home.
Another way you can curb your spending is by reducing online shopping by $200 per month or entertainment spending by $100 per month. Morgan recommends redirecting a monthly bonus, tax refund or side hustle income of $500 to $1,000 into a savings account.
“Suddenly a $20,000 goal starts looking achievable,” said Morgan.
Create Multiple Cash Stuffing Envelopes
Putting all your money in one envelope and labeling it “savings” may not be much of a motivator because you can’t see how the money you save is applied to your goals. Morgan said cash stuffing works best when paired with specific savings goals.
“I would rather see someone create separate categories like emergency fund, house down payment, vacation, vehicle replacement, or debt payoff,” Morgan said.
People tend to stay motivated when they can see exactly what they are working toward, Morgan explained.
“$20,000 can feel like an arbitrary goal, but saying you need $20,000 for [a down payment on a house] can give you tangible goals," she noted.
Create a 'Fun Money' Envelope
It may seem counterintuitive to put away money for fun when you’re trying to save, but it’s important to save for activities you enjoy. Otherwise, “your budget can feel too restrictive, and increase the chances that the budget will fail,” said Morgan.
Set aside an amount of money for the week or the month to treat yourself to things that bring you joy, such as hair and beauty services, flower subscription boxes or a museum visit.
“If you have a larger expense you want to save for, like a trip to the beach, allocating funds toward savings can keep you on track,” said Morgan. Whether you set aside $25, $50, or $100 a week depends on your income and savings goals.
Start an Emergency Savings Fund
An emergency fund provides a financial cushion for unexpected emergencies and events, such as a layoff, needing to take time off work, a household appliance breaking down and other unpredictable life events.
Instead of incurring debt on your credit card, you can tap the money in your emergency savings. The suggested amount to start an emergency fund is $1,000, according to Fidelity, who recommends three months of savings if you’re single and six months for families.
Morgan noted, “She regularly sees people throw every extra dollar toward regular expenses and debt payments, leaving them to turn to credit cards when a car repair, medical bill or unexpected expense arises.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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