Cash envelope categories help you stick to your cash budget and know where you can spend money. They are a great way to gain control of your finances and track your spending.
So, if you struggle with overspending and keeping your money organized, it can be a great system to follow. It’ll help you get your spending habits back on track so that you can reach your financial goals
Here’s everything you must know to make it work.
What is the cash envelope system?
The cash envelope system, or envelope budgeting method, helps you stick to a budget and keep track of your spending. You assign cash envelope budget categories, such as groceries, gas, household items, etc.
Each category has a budget, and the envelope has the assigned cash amount. Essentially, you take enough money to cover all of your monthly expenses and divide it into separate envelopes based on your budget. Ideally, you’ll do this every pay period.
You can organize your envelopes in a designated cash envelope wallet for easy access and secure storage.
How to use a cash envelope budget
The cash envelope budget works best on categories that you overspend. Everyone has different categories that are their ‘weakness,’ so the categories vary.
What expenses is the envelope system used for?
You can use the envelope system for any expenses, but the most common are dining out, entertainment, household goods, clothing, gas, and personal expenses. To tell which expenses you should use the cash envelope system for, look at your bank statements for the last few months and notice where you overspend.
How do you organize cash envelopes?
Decide which organization method suits you the best. For example, do you prefer to carry all your cash envelopes for budgeting with you, or is that too tempting? Some people prefer to keep the envelopes at home in a safe or another safe area, only taking out the envelope they need at the time.
Getting started with the cash envelope budget can feel overwhelming, but it’s much easier with these steps.
1. Select your categories
The first thing that you’ll need to do is to choose the cash envelope categories that make the most sense for you. Include all the areas you spend money on, but focus on those variable categories or the categories you tend to overspend or not track how much you spend each month.
2. Evaluate your budget
With your envelope categories chosen, the next step is to figure out how much money you can put in each envelope. This may take the extra step of breaking your budget down further. For example, if you have $500 a month budgeted for entertainment, you might want to break it down further into dining out, kid outings, and adult outings.
3. Label and fill envelopes
After you create your cash envelope budget, create an envelope for each category by labeling it and filling it with the allotted amount of money.
You can use plain letter envelopes to do this, or you can get custom envelopes designed for cash stuffing. You can find these on Etsy and on Amazon.
4. Don’t spend more than what is in each envelope
Here’s the hardest part. You must stick to your budget. The cash is there to limit your spending or to make you think before you spend since every dollar you spend today is an opportunity cost for other options.
What are the categories for the cash envelope system?
Restaurant spending includes money spent on fast food, drive-thrus, and dining inside restaurants. It can also include bar hopping or going out for a drink after work.
Your grocery envelope should include the amount of cash that you need to cover the food you buy to prepare at home. This can include money spent at grocery stores, local convenience stores, or warehouse stores like Sam’s or Costco.
Medical expenses include money toward your deductible or out-of-pocket expenses you must pay for healthcare.
Create envelopes for any insurance you pay for, including health, life, car, and home insurance.
5. Car payment
If you financed your car, include an envelope for your car payment. The amount will likely not change, but knowing you have it covered each month is reassuring.
With today’s rising gas prices, it’s important to set aside a large enough budget to cover your gas expenses. Until prices decrease again, it’s a good idea to include a buffer in this category.
7. Car maintenance
Car maintenance is one of those expenses that can sneak up unexpectedly. Put any money aside that you don’t spend on car repairs in a month in this category, letting the money accumulate. Then, if something goes wrong with your car in the future, you’ll have enough funds.
If your utility costs vary each month, this should be one of your cash envelope categories. Budget accordingly for the time of year too. For example, your gas costs are likely higher in the winter than in the summer.
Your housing expenses are likely fixed, but it’s a good idea to have a category for them so you know they are paid each month. If you own your house, keep in mind your real estate taxes and homeowner’s insurance amounts might change.
If you don’t have an all-inclusive phone plan, you should budget for your average phone bill each month, leaving a small buffer in case you use more data or send more texts than your plan includes.
11. Household Items
Household items include anything you buy for the house that isn’t food or cleaning supplies. For example, furniture, accessories, art, kitchen supplies, or anything for the house could fall into this category.
12. Cleaning products and supplies
Keeping a category for cleaning products and supplies can keep you from overspending, especially on those ‘viral’ products you see online that you think you must have.
13. Lawn and garden
Include any lawn and garden supplies you must buy, like lawn bags, lawn mower gas, or tools.
Tools can include anything you need for special projects or just tools you need around the house daily.
Kids are expensive! Budget your spending by creating a monthly budget for kids’ activities, childcare, money for them to go out, and school expenses.
Clothing is one of those cash envelope categories you can budget either individually or for the family.
Treat your shoe envelope like your clothing envelope, setting them up either individually or for the family as a whole.
Keeping track of how much you spend on toiletries can avoid overspending and keep the clutter down at home.
19. Makeup and beauty items
The cost of makeup and beauty items can quickly add up. Creating a cash envelope budget for this category can keep your spending in check or allow you to save up for the more expensive items.
Pets are part of the family too. Include costs for the vet, pet food, litter, vitamins, and toys in your budget.
21. “Fun” money
Fun money is money you can do whatever you want with, even though it doesn’t have its own category.
Entertainment can cover a lot of ground but include any money you spend on things like movies, concerts, and nights out with friends.
23. Events/date night
Some couples/families create a separate envelope for date nights or special events, such as weddings or events your family regularly attends.
If you have specific hobbies, consider a category for them. This could include hobbies at home or recreational activities you pay for to keep yourself busy.
A vacation slush fund can help make a vacation more affordable. Consider an envelope to put money away each month toward your dream vacation.
Putting money aside each month for gifts can help offset the cost when you suddenly have many gifts to buy, such as around the holidays.
27. Charitable giving
If you have a little money you can put aside for goodwill, consider a charitable giving envelope. Every penny you can save helps.
If there are any categories you missed or you want a ‘catch all’ category, consider a miscellaneous envelope to catch anything the other categories didn’t.
Cash Envelope Benefits
- Makes you aware of your spending
- Helps you save for your financial goals
- Prevents impulse purchases
- Easy to swap funds between categories if necessary
Why Cash Envelopes Work
The cash envelope system keeps you on track. Rather than swiping plastic and not realizing how much you spend, you see how your purchase affects your finances in real-time. You’ll make more informed decisions and have a better chance of staying within your budget, all because you can see what you’re spending.
Cash Envelope Categories FAQ
Is the envelope system the same as cash stuffing?
Yes, the cash envelope wallet system and cash stuffing are the same methods. Cash stuffing is a newer term used on social media sites for the envelope system.
How often should I withdraw cash?
It’s easiest to withdraw cash once a month, but it can be down weekly or every two weeks depending on your pay schedule. You fill your envelopes and set your budget for the month. This eliminates the risk of overspending.
What if I have expenses that need to be paid online?
If you still want to leverage the cash envelope system to make online purchases, you can use a digital cash envelope app called Qube Money. This app comes with a debit card that’s linked to your Qube bank account. It’s a great way to be able to make purchases from your digital cash envelopes while still maintaining your cash envelope system categories without having to carry physical cash.
How many envelopes should I have?
No two families will have the same number of envelopes. It depends on how you spend your money and how many envelopes you want to manage.
Are there downsides to a cash envelope budget?
It can feel unsafe to carry a lot of cash, and it can be harder to track where you spent your money. If you don’t keep your receipts, you might wonder where your money went since there’s no electronic record.
What if there is an emergency?
Life happens. If you have an emergency, discuss how to switch your categories to have the money needed to take care of the emergency.
What if I run out of money?
If you run out of money, ideally, you should not spend in that category for the rest of the month to hold true to the system. If it is a category that you must make additional purchases, such as food or gas, rearrange funds and reevaluate that category for next month. Do you need more money in that category or do you need to make wiser purchases?
Can I steal from other categories?
If you have a surplus of funds in other categories, you can swap funds to cover any overspending in one category.
What if there is leftover cash in a category at the end of the month?
You can do what you want with the money left at the end of the month. You could reward yourself, save it for future needs, or put it into your next month’s budget. One idea is to put aside money into a sinking fund so that you can save up for future expenses.
Another great idea would be to put the leftover money toward your student loans, or credit card debt, or start some savings funds to put it toward your savings goals.
If you find that you have a lot of money left over, you’ll want to start adjusting the budget amount for your spending categories so that you can use that money for other expenses or financial goals.
Which sort of expenses does the envelope system work best for?
The cash envelope system works best for any expense that can be paid for in cash. If you’d still like to use the envelope system for things that require online payment, consider using a digital cash envelope system.
Final thoughts on cash envelope categories
Creating cash envelope categories that work with your budget can help you stay on track. Evaluate what categories are most important for your family and get started today! Pay attention to what you have left each month to see how your budget works for you.