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You may have heard of the cash envelope method of budgeting. It helps you control and monitor your spending.
If you find yourself overspending each month, this envelope system will help you get things under control.
But, what are the categories for the cash envelopes? And, how does it work exactly?
Read on to discover how to leverage this system of budgeting!
Table of Contents
What is a Cash Envelope Category?
A cash envelope category is a budgeting category. Each envelope is assigned to a category of spending, such as food, or entertainment.
These cash envelope categories are part of the cash envelope budget system, a well known guide to managing money.
However, in this day and age we all have a lot of items set to automatic payment out of our bank account such as rent or utilities. These items will not get a cash envelope. Unless you just want to write the amount on an envelope for tracking!
The cash envelope categories you have for spending money may not be the same as the next person’s. There are some that everyone will have, but they will be different by person.
*Make sure you opt for cute envelopes like these to stuff with cash.
More Reading: How Much is 20 Dollars an Hour a Year?
What is Cash Envelope Budgeting?
The cash envelope budget is a system that Dave Ramsey actually talks a lot about. To help yourself stick to a budget, you set aside a specific amount of cash in an envelope for each budget category.
Once that cash is gone for the month, that is it, you can’t spend money anymore in that category. So, for instance you might have a food category envelope with a certain amount of cash in it.
Before you start, you will need to sit down and take a hard look at your income and how much you can realistically put in each budget category.
At the beginning of the month, you will set aside an envelope for each category, write down the category name and amount of money on the front.
Put the set amount of cash in that envelope, and then use that for those expenses. Again, once the cash in the envelope is gone, you can’t spend anymore! The cash envelope system categories help you stay on track.
This is an excellent way to help yourself control your spend and also find a way to save money. It can also prevent you from using credit cards and getting yourself into debt which is damaging to your finances.
More budget reading:
- What is the 30-30-30-10 Budget Rule?
- 21 Free Printable Budget Templates
- How to Save Money from Your Salary
- Sinking Fund Categories
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Cash Envelope Categories You Need
As we already mentioned, cash envelope categories may vary from person-to-person. How many envelopes you have is also up to you. The cash envelope categories list below is not all inclusive, you can add whatever needed to it.
Some of what you might expect to see as a major budget category for a cash envelope, like rent or mortgage won’t be one since you don’t typically pay these items with cash.
You may have them set up on auto-pay, straight out of your bank account. Because these are set expenses, you don’t really need to have an envelope for them anyways. Since you can’t technically overspend on your mortgage as it is the same, fixed amount each month.
But, here are some ideas for categories for cash envelopes for budgeting.
Check out this helpful list of needs and wants examples.
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One item you can definitely use cash for is groceries. The food cash envelope category would include any regular food items you purchase.
Groceries, food at places like Costco, and if you are really being vigilant, even that snack from the vending machine. Pet food can even go in this envelope.
However, you might not include going out to eat at restaurants in this category. That should be in your “entertainment” cash envelope.
We just mentioned going out to eat. While budgeting and controlling your finances is important, you still want to leave some space each month for a little fun.
So, you need a cash envelope category for entertainment. This is also a really important cash envelope category because entertainment is something we all tend to overspend on.
Having a designated amount of cash each month to spend will help you keep things in control and not waste money. When you run out of money in the entertainment envelope, you’ll just have to stay home!
Here are some examples of what is part of the Entertainment category of cash envelope:
- Going out to eat
- Spa visits: facials, massages etc.
- Going to a sports event
- Fun activities like bowling
Here are some tips to save money when eating out at restaurants.
Another cash envelope system category is transportation. Obviously, this is anything for getting around and anything related to your car.
We all know gas prices have been up and down a lot lately! This envelope may fluctuate some.
Here are transportation-related items for this money envelope category:
- Repair and maintenance on your car
- Parking fees
- Taxes, registration fees, license renewal
- Subway/Bus fees if you don’t own an automobile
- Uber or Lyft
The great thing about the cash envelope system of budgeting is there is flexibility. If you want, you can separate your automobile expenses out into more than one envelope. You could make gas by itself one of your cash envelope categories instead of just lumping it all into one.
Your car payment will not be in this category since you likely don’t pay that in cash. But, it should still be part of your overall monthly budget.
Another budget item that is one of the best cash envelope categories to make is shopping.
You should definitely do everything you can to keep your shopping spending low. And, making an envelope with cash for it will help.
Shopping includes anything you buy that isn’t maybe an absolute necessity. So new clothes or home decorating items.
Here are items you should pay for with your shopping cash envelope:
- Home decor
There are some items you need to spend on that don’t fall into the other categories. This would be your personal items. Makeup and beauty supplies fall into this budget bucket.
So, shaving cream, razors, hair care items and any type of grooming item would fall into this category.
More Reading: How to Live Below Your Means
Gifts & Holidays
Another budget item you need to make room for is gifts and holidays. Christmas comes around all too fast, and can be all too expensive.
Designating a certain amount of cash each month for gifts and holidays will help you stay on track.
Plus, if some months you don’t have to spend all the cash, you can keep saving that cash for the big holidays like Christmas where you will need more money.
Medical & Pharmacy
Another common item from cash envelope categories is medical expenses. You need to allocate funds for doctor’s trips and prescribed medicine.
You might also have to buy headache relievers or anti-nausea for times you get sick throughout the year.
One of the problems with budgeting is it isn’t fun. And, it is hard to keep doing it month-after-month! So, it is helpful to include something fun in your cash envelope categories list..
To help yourself keep going with your budget, add a fun money cash envelope in your cash envelope categories.
Technically, if you already have the entertainment envelope, you sort of already have a fun money category.
But, having an extra one for special, splurge purchases is a good idea. You can use this for something you might want to buy each month that is extra. Something you want to splurge on like a trip, or an expensive pair of shoes you are dying to have.
You can also contribute funds to your fun money envelope over time by taking any unused money left from other categories at the end of the month and placing it here.
More Reading: How to Save $5,000 in 6 Months
If you have a pet or pets, you know they can be expensive! From food, to medicine, to veterinary visits.
My dog is a senior now so I spend a lot on her these days with medicine and trips to the vet. So, including a budget envelope for you pet is a good idea. This is one where if you don’t spend everything in the envelope one month, you should keep it in there as extra for the future.
Expenses like these can come up out of the blue and be more than you allocated.
You may find there are many things you spend on that you didn’t think about when creating your cash envelopes categories list. Or, there may be small things that come up that are new from month-to-month.
You can create a miscellaneous envelope to capture all of these random and unexpected expenses.
Related: The 60-30-10 Rule of Budgeting
Other Cash Envelopes
You can get even more detailed with your cash envelopes if you want. For instance, you can break the entertainment envelope down into its own categories.
Here are some other ideas for cash envelopes that might help you:
- Charitable giving and tithing
- Vacation fund
- Restaurant spending
- Streaming services
- Date nights
- Clothes shopping
How do I use Cash Envelopes for Budgeting?
Here is a step-by-step guide on how to get started with with the cash stuffing budget system.
Designate your cash envelope categories
Figure out what cash envelopes you need and organize your cash envelopes. So, look at your income each month and what you spend and in what budget categories.
Create cash envelopes for all the categories you need and everything you spend money on. Understanding your spending habits before you do this will help.
Withdraw Cash you Need from Your Bank Account
Now you need to go get the cash you will stuff into your cash envelopes!
Designate an amount of cash for each of your cash envelopes that is based on what you should be spending each month.
Stuff each envelope with the designated amount of cash that you can spend money with for that category.
Use the Cash Envelopes For Spending
Put the cash envelopes in your purse (or glove box) and whenever you need to purchase something, pull the cash out from the labeled envelope.
Once you are out of cash in an envelope, that’s it, you can’t spend money on that anymore!
Related reading: YNAB vs. Personal Capital
What Should You Do if You Buy Something Online?
In this day and age, shopping online is something we all do. We even can buy our groceries online these days!
So what happens to your budget envelope categories filled with cash if you buy something online?
This is an easy fix. When you buy online, simply take out that same amount of cash from your envelope and deposit it at the bank.
That way you are still keeping track of what you are spending and making sure you don’t spend too much. You can keep track of all your envelope system categories this way.
When shopping online, try these guilt-free online shopping tips!
What Can You Do with Leftover Cash in Your Envelopes?
If you are truly following your budget system categories to a tee, you may find that sometimes you don’t use all the cash in your envelope.
So, what do you do with this leftover, unused extra cash? Well, it is totally up to you!
You can leave the cash in that same envelope system category for next month as extra padding.
Or, you can move that cash to another envelope, like maybe your fun money or entertainment envelope.
Or if you have already run out of money in one of your cash envelopes you can put it in that one. You can use that money in the same month, or move it to next month.
You can also consider taking that cash and putting it in your savings account. (Make sure you are opting for a high-interest yielding account like CIT Bank offers.)
Want to know how much you should be saving each month from your paycheck? Check out this guide to saving with the 50-30-20-rule.
The last option you have for leftover cash in your envelopes, is to put it toward debt. While this is last, to be honest, this should probably be your first choice if you have debt.
Credit card debt is dangerous and you should do everything you can to pay it down!
What About Bills I Pay with Automatic Draft?
As we mentioned above, any bills you have set to auto-pay digitally, will not get an envelope. Things like your car payment or rent or mortgage are set expense.
You can’t overspend on these and you can’t change them. They should however be incorporated into your overall budget. And, they do reduce the amount of cash you will have for your envelopes.
Some automatic expenses like utilities which should be in your budget, while not in an envelope, can still be kept track of for too much spend.
There are many things you can do to reduce your utility bill each month, so stay on top of these items as well!
What Should You Do with Coins?
When using cash envelope categories, you might be wondering what to do with coins when you get change back on your spending.
There are a few options actually! You can put the coins back in the envelope but they may fall out.
You could also just put them in your wallet, and use them as needed with any of your cash envelopes when spending.
Or, you could drop the coins into a jar and collect them. When you get a lot of coins together, you can exchange them for dollars and put them back into your cash stuffing system in whatever envelope you choose.
Why Should You Use the Cash Envelope System?
Really, it is all about psychology! When you use a card to pay for things, it is easy to not realize how much you are spending. But, using cash helps you not overspend.
It is easy to overspend when all you are doing is swiping a piece of plastic. Especially with credit cards which you can pay for later.
But, credit cards are super dangerous to your financial health. You can get trapped in a cycle of paying the minimum fees while interest charges rack up. It truly is a waste of your money to use credit.
But, when you use the envelope system, you are being held more accountable for what you spend. Plus, you get to see the actual dollars and cents going out. It can also help you find a way to save money.
You also get to know what is left, and how you might want to keep more of that cold hard cash. So using this system helps you be more in the reality of what you are spending so you won’t waste money or overspend.
When the cash is gone from the envelope, you literally can’t spend any more! So if you are struggling to stay on budget, try the envelope system of budgeting.
Cash Envelope Categories FAQs
How Many Envelopes Should I Have?
It really depends on you and your family budgeting needs. Each person may have a different number of envelopes. Maybe there are extra ones you need, for instance for your kid’s activities.
Are Cash Stuffing Envelopes the Same as Envelope System For Budgeting?
Yes, the cash envelope system is sometimes now referred to as “cash stuffing.” It is the same thing.
What Should I do if I Run Out of Money?
If you run out of money in any one category, you should stop spending on that. However, let’s say you run out an essential category like food, or gas. You don’t have a choice on eating!
In this case, try taking cash from other envelopes that aren’t as important and moving it into the one where you ran out. The entertainment category is a good one to take from.
If you find you are consistently running out of a needs envelope food, you might need increase the cash you are placing in that envelope moving forward.
Does the Cash Envelope System Work?
Yes, the cash envelope system is a guide to budgeting and controlling your finances that works for many people.
If you find you can’t control your spending, or are using credit cards too much, you might want to start benefitting from the cash stuffing system. It can help you start to meet your financial goals.
This is a list of cash envelope system categories to get you started. But, you can add or subtract your own cash envelope ideas from these in whatever way you want.
It may sound strange to use this budget system and put cash into envelopes each month but this is a tried-and-true way to get your finances under control!
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