8 Best Cash Envelope Categories for your Envelope System 2023
Are you ready to take the first step toward a budget that works for you? Have you decided that cash envelopes are the way to go? My guess is if you’ve made it this far, then you must be looking for essential cash envelope categories to add to your new budget.
No worries – keeping your finances organized and staying motivated can seem overwhelming at times so let’s explore the most important cash envelope categories together!
Cash envelopes allow us to limit our spending while holding ourselves accountable by showing us where our money is going! Let’s get started and identify the key areas of life which need their own allocated envelope budget.
What is the Cash Envelope System?
The cash envelope system is a great budgeting strategy for anyone looking to take control of their finances and get out of debt. It can be especially helpful for those searching for a way to stay on top of their expenses and keep them from overspending.
The idea behind the cash envelope method is to divide your money into designated categories and allocate an envelope for each one. This allows you to easily track how much you are spending by budget category, with each envelope containing only the amount assigned to it—once the money in an envelope runs out, there’s no more spending from that particular category!
With the cash envelope budget, it’s easier than ever to spend less and save more each month while keeping your budget on track and reducing your overall debt.
Why use a Cash Envelope System?
The cash envelope system is a great way to stay mindful of where your money is being spent, and how much is being spent. It helps with budgeting by allowing you to allocate a certain amount of money to each envelope. That truly forces you to stay aware of what you are buying, and if that amount runs out that means it’s time to say no.
This system will teach you how to save money and recognize how much needs to be allocated for important expenses like groceries or transportation costs, while still reserving enough money to enjoy yourself.
Also, since it relies on the psychological pain of spending physical cash, it can help people keep their financial goals in mind when tempted by unnecessary purchases. Ultimately, the cash envelope system holds us accountable for our spending behaviors, which in turn helps us spend less and live better within our budgets.
How to use the Cash Envelope System?
The cash envelope system is as easy as it seems, there is no magic trick here. But, just in case you have any questions on how the cash envelope budget works let’s take a quick look at how to set it up.
1. Determine Your Budget
First things first, determine your budget and how much you make each month. After determining your income you will next need to decide on a type of budget and how it specifically allocates money. If you don’t have a budget here are two you can try.
The 60 30 10 budget puts a priority on savings!
The 30 30 30 10 budget is a well round beginner-friendly budget!
2. Create Categories for Your Cash Envelopes
The next step and why you are probably here is to create the cash envelope categories you are going to use for your cash envelopes. More on this is below.
3. Set Up Separate Cash Envelopes for Each Category
The next step is to physically set up separate envelopes for each category where you spend money. You can do this however you want, either the old-fashioned way with paper envelopes or there are plenty of fashionable cash envelope wallets you can buy.
4. Decide How Much Money to Put in Each Envelope
Deciding exactly how much money you put into each envelope will depend on how much you make, as well as how much your budget allocates for that specific category. You will definitely not get this right on the first try so don’t beat yourself up too much.
Choose an amount that “seems right” and go from there. If you have a bunch of money left in an envelope at the end of the money then congrats you have more money to allocate to other categories.
On the other hand, if it’s clear you didn’t allocate enough then simply pull money from other categories. After a few months you should have a better understanding of how much you spend in each category and budgeting will become much easier.
5. Stay on Track and Monitor Spending from the Cash Envelopes
Consistency is the cornerstone of success; making sure to stick to your plan, regardless of how difficult it may get, is essential for achieving lasting results. Each month you are going to need to be diligent about reviewing the previous month’s spending and refilling each envelope.
At first, this can be exciting, but as time goes on you will start to look at it as a chore. Hopefully, the financial success you are gaining will help push you through the monotony of a plan.
6. Re-evaluate Your Cash System Periodically
Every so often it is a good idea to review your budget, including income and expenses, and re-evaluate your cash envelope system. If you are doing a good job at staying on track reward yourself with a small splurge and then quickly get back on track.
What are some Recommended Cash Envelope Categories?
Finally, we made it! Let’s take a look at the recommended cash envelope category ideas that every budget needs. I only added the budget categories I feel are necessary to most budgets as well as fit great into the cash envelope system.
These categories contain spending that is likely to vary from one month to the next or may otherwise pose a temptation for overspending. Therefore, self-regulating with the cash envelope system is recommended for these expenses.
Groceries
In 2023 shopping for groceries can be one of the most expensive items you have to budget for every month. Unfortunately, it’s also one of the easiest areas to overspend due to all the additional items that can draw your attention in the store.
If you’re looking for an effective solution, consider creating a grocery envelope for your budget. Allocating a fixed amount of cash at the start of each month and placing it in this envelope will serve as a reminder to stick to a certain limit each time you enter a supermarket. With this system, you don’t have to worry about exceeding your budget at the checkout and derailing your financial plan.
Restaurants
When it comes to monthly budgets, your spending at restaurants can quickly become a major expense if you aren’t monitoring it. That is why the restaurant category is one of my favorite cash envelope categories.
If you eat out regularly you may not realize how much you are spending every month. Once you start using cash and see how much you are spending it will likely turn your stomach. This is one category where people tend to overspend the most, so start tracking your restaurant spending and improve your budget.
Transportation Costs
Keeping track of variable expenses like transportation costs is a great way to ensure you are aware of your spending habits. By utilizing money-saving methods such as carpooling or even walking to work instead of seeking public or private transportation, you can extend your income.
Plus, at the end of the month when you see those saved funds in your envelope, it will bring an indescribable feeling of satisfaction and accomplishment.
Becoming aware of how much you’re spending on transportation can help reveal where you can save money—and even invest it in other areas! With careful budgeting, those newly-saved funds will open up a world of saving potential.
Car Maintenance
Car Maintenance is one of those tricky budget categories that can really catch you off guard with large expenses. Fortunately, setting aside a sinking fund for these unexpected car maintenance bills can help to ease the burden on your wallet.
Allocating an amount in your budget determined by the kind of car you own and how many miles it has can help you efficiently save up for future repairs, providing a much-needed cushion. To learn more about how to use sinking funds for your car maintenance costs, be sure to check out my post reviewing all the necessary information to get started!
Child Care
Child care can be a large expense for many families and budgeting for it should not be overlooked. If you work a fairly regular schedule then perhaps you won’t need to use these cash envelope categories, as you will just be paying the same amount each month.
Where this process can prove especially useful if your work schedule changes frequently since you won’t have a specific amount to save each month. On those months when you don’t require as much childcare, feel free to save the leftover funds in the envelope for those times when it may be necessary. It’s a great way of ensuring you don’t blow your monthly budget on expenses that may not line up with your earnings.
Pet Care
Pet care is an important expense that can often creep up on you and leave you feeling unprepared. To manage pet care expenses, setting aside a designated amount each month in a cash envelope can be a great way to stay on top of the costs.
This system helps make budgeting for your pet care a much smoother operation, as well as lets you adjust your budget plan easily when unexpected expenses arise. It makes it easier to plan and track spending throughout the year while maintaining financial discipline and sticking to your long-term savings goals.
Personal Items
The cash envelope system provides a great way to manage personal expenses that can vary month-to-month. By setting aside specific amounts of money each month, you can easily determine how much you are able to spend on each item without having to worry about going over budget.
This system shines in the personal items category as it allows for flexibility when spending – if you have light months with low expenses, you can roll the money from one envelope into another or save it for those heavy months with higher bills. Ultimately, this system gives you more control and peace of mind knowing that all your expenses are accounted for.
Fun Money
The fun money category is the most popular envelope for everyone for good reason. It allows you to put aside a small amount of spending money each month so that you can enjoy guilt-free spending every once in a while when the time comes.
If you can stick to the plan and not touch your fun money, you will accumulate extra cash over time and surprise yourself when you most need it – like when trying to pay down debt or wanting to indulge in a special experience. You’ll be able to motivate yourself knowing that you are saving not just for the future but also for those priceless moments with friends or family that no amount of money can buy.
What Budget categories should you avoid?
When it comes to the cash envelope system, using categories that are fixed expenses each month doesn’t make a ton of sense. If your mortgage is $1,000 a month and is auto-debited from your checking account then why bother creating an envelope for it?
Another category I suggest avoiding is one for financial goals you may have. You can of course save your down payment for a home in a cash envelope but it may not be the safest idea. Not only is it at risk for burglary or fire, but it also won’t be gaining any interest sitting on top of your refrigerator.
What are some other cash envelope categories?
Let’s look at some other cash envelope categories that could also help improve your budget.
- Car Payment
- Utilities
- Insurance
- Mortgage Payment
- Clothing
- Tuition
- Phone Bill
- Gym Membership
- Christmas Gifts
- Birthday Gifts
How many Envelopes should I have?
After reading through this post you may be asking yourself how many cash envelopes should I have. The answer is as many as you need. If you find yourself having trouble overspending in a specific category, then it is a good idea to create an envelope for that category.
On the other hand, if you find you are putting the same amount in an envelope every month and never find yourself over or underspending, then most likely you can just get rid of that category.
Finding the right cash envelope categories takes time and commitment to the process. Don’t worry too much about having too many or too few cash envelopes and just do what feels right to you. There is no perfect amount of cash envelope categories.
Conclusion
By using the cash envelope system, you can rein in your spending habits with ease. You’ll be able to see what areas require more attention and you can also reward yourself without burning a hole in your pocket.
Once you get the hang of it, you’ll find it isn’t as complicated or daunting as it initially seems, instead feeling like a great relief that money worries can finally be put at bay. Allocating cash envelopes is financially responsible and puts you firmly in control of your own financial decisions.
So why not give this method a go and see if it works for you? I’m sure you’ll find yourself better off for doing so. Let me know if you have used cash envelopes before – I’d love to hear what worked for you!
FAQ
What are some of the most popular cash envelope categories?
Some of the most popular cash envelope categories include expenses like transportation, groceries, eating out, child care, and fun money.
What is the best way to organize cash envelopes?
The best way to organize your cash envelopes is by using a cash envelope wallet that keeps all your envelopes and cash in one easy-to-access spot.
What do you do with the leftover cash in your envelope?
If you don’t spend all the money in your cash envelope, simply roll it over to the next month. If it’s a variable expense you will have extra money to cover extra costs in the future. You can also move the money over to another category you overspent in, or use the extra cash to pay off debt.
What is the easiest way to get cash?
The easiest way to get money is to withdraw cash from the ATM at the beginning of each month. If you have a local bank close by it may be cheaper to pull the money out of your bank account that way. Either way, staying consistent is most important.
What is cash stuffing?
If you’re looking for a system to help with budgeting, cash stuffing is the perfect solution. It’s the same thing is the standard envelope system – by allocating physical money into its own designated category, you can easily track and manage your spending throughout the month.
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