Having the correct cash envelope categories in your budget can be the difference between saving the right amount of money or spending more than you should.
Have you ever set $300 for groceries and ended up spending $500 because you didn't keep track of it or borrowed money from another budget category to cover that? Unfortunately, it happened to all of us, and that's why when you implement the envelope budget system, you need the proper envelope system categories.
What Are Cash Envelope System Categories?
Cash envelope categories are separate envelopes that represent different types of monthly expenses. They are part of the envelope budgeting system (also named the cash envelope system), a method where you organize your budget with cash in separate envelopes.
You choose what cash amount you want to put inside each envelope category and stick with that amount for the rest of the month. Once the envelope is empty, you can't spend any more money on the category for that month.
It's also vital to decide which categories you will spend cash on. For example, if you pay your rent and essential bills like electricity, gas, internet, and water by direct debit, you will not create a category for them and put that money on an envelope.
Essentially, your cash envelope categories are all the expenses that are not fixed or are not on auto-pay. You can create an envelope for any category you think you spend too much money on and want to regain control over. For example, if you think you spend a lot of money monthly eating out or having takeaways, create an envelope for that category and stick with that amount.
Why Should You Use Cash Envelope Categories?
It seems a bit crazy old school to use cash envelope categories in our digital era, but if you stop thinking about it, it's a great way to stop overspending your money and even get out of debt. Of course, you can also use apps like GoodBudget and Qube Money to create digital envelopes if you don't want to pursue the idea of paying in cash.
If you are someone that always overspends in specific areas, cash envelope system categories are the ones that will ensure you will not overspend. If the money on the restaurant's envelope finishes, you can't spend any more on that category, preventing overspending.
The cash envelope categories system will also help you to stick to a personal budget. When you assign money to a specific category, and that money finishes, you can't spend it more. This is a great way to ensure you don't grab cash from your savings or financial goals.
Cash Envelope Category Ideas
No person or family will have the same cash envelope categories, but I want to share with you the nine varieties I think most people will have on their budget. Don't forget that anything you pay by direct debit doesn't need an envelope, so I didn't consider things like mortgage/rent, essential bills, insurance, etc.
Transportation
You must put enough money in the transportation envelope to cover your transport-related expenses. You need to check previous months to see how much money you have spent on this category. Keep in mind that you need to keep up with the inflation in gas prices, so you may need to put more money into it every month.
Some examples of where you will spend money in the transportation category:
- Gas
- Parking Fees
- Car Maintenance
- Public Transports
- Licenses/Taxes/DMV
- Car Repair
- Taxi Fares
- Bike Maintenance
- Bike Repair
Groceries
Groceries are usually the category where we spend the most money (not including rent or essential bills), especially if you have a family to provide for. Therefore, this category should cover any items or food you purchase at supermarkets, warehouses, or local stores.
Some examples of where you will spend money in the groceries category:
- Food (dairy products, meats, vegetables, etc.)
- Household Supplies
- Pet Food
- Pet Accessories
Dates/Going Out
Spending some money on a date or going out with friends is something that everyone does, whether you are in a relationship or single. But unfortunately, this is also usually the category where most people overspend their income.
Some examples of where you will spend money in the dates/going out category:
- Restaurant meals
- Pubs and Bars
- Takeaways
- Coffee Stores
- Work Lunches
- Work Events
- School Lunches
- School Events
Entertainment
Under the entertainment category, you put anything that provides amusem*nt, enjoyment, and pleasure. It's also a category where people pay no attention to how much they are spending, and you need to be very realistic to ensure you don't overspend or borrow money from other areas of your budget.
Some examples of where you will spend money in the entertainment category:
- Cinema
- Theather
- Sport Activities
- Sport Events
- Music Events
- Spa Days
- School Excursions
- Hobbies
Personal Items
Personal items can be anything that you and no one else will use. This category is beneficial if you budget your money with someone else or family. This way, you ensure that your needs are also prioritized in the budget, and you can spend some cash on things you enjoy.
Some examples of where you will spend money in the personal items category:
- Personal Allowance
- Kids Allowance
- Beauty Products
- Books
- Technology
- Grooming
- Learning Courses
Shopping
I would consider the shopping category as anything you spend money on that you don't usually buy in the supermarket or local stores. It's essential to track how you spend your money in this category because you will be shocked if you check how much you have spent over the last months.
Some examples of where you will spend money in the shopping category:
- Clothing
- Footwear
- Accessories
- Home Decoration
- Home Repairs
- Home Maintenance
- Furniture
- Tools
- Craft Supplies
- Gym Equipment
- Gardening Supplies
Medical
The medical category includes any expenses you must pay for healthcare. Not only yours, but you should also have money here for your pet's healthcare.
Some examples of where you will spend money in the medical category:
- Doctor Bills
- Hospital Bills
- Dentist
- Medicines/Prescriptions
- Vitamins
- First Aid Supplies
- Vet Fees
- Pet Medicine
- Pet Vitamins
Gifts
This category is the one you will need to work on the most every month since every month is different from the last one, with different occasions to celebrate. In December, if you celebrate Christmas, you will spend a lot more money than in any other month.
Some examples of where you will spend money in the gifts category:
- Birthday Gifts
- Holidays Gifts
- Special Occasion Gifts (Christmas, Valentine's Day)
- Co-worker Gifts
- Donations
Miscellaneous
It's also good to have an envelope category for any categories you have missed or if you spend money on something you weren't expecting. However, remember that you don't want to put much money into this envelope.
Some examples of where you will spend money in the miscellaneous category:
- Emergencies
- Expenses that don't fit into other categories
What To Not Include In The Cash Envelope Categories?
Now, if you pay everything in cash, you should have all these categories below in your budget's cash envelope categories list. This is because all these categories are usually paid by direct debit, and the money goes from your bank account to pay them directly.
Mortgage/Rent
Usually, your mortgage/rent is likely to be the same amount monthly, with slight variations. It's also an expense that most people pay directly by transferring money from their bank account or direct debit.
Essential Bills
In this category, you want to consider all the essential bills you pay by direct debit (groceries and transportation you usually pay by card or cash somewhere). Now, subscription streaming services and gyms may not be essential bills, but if you pay them directly, you can include them here when setting your budget.
Some examples of essential bills you pay by direct debit:
- Electricity Bill
- Water Bill
- Heat Bill
- Cable Bill
- Internet Bill
- Phone Bill
Loans
Almost every loan is paid by direct debit or transferred from one bank account to another. Unless a friend or family member lent you money in cash, and you pay them monthly (in that case, you can have a cash envelope category for loans). I will not consider home loans in this category since I have mentioned mortgages already.
Some examples of loans you pay by direct debit:
- Car Loans
- Educational Loans
- Home Improvement Loans
- Personal Loans
- Debt Consolidation
- Small-Business Loans
Insurances
Like loans, most insurances are paid by direct debit, and that money will be taken out of your income from the bank, not representing a cash envelope category.
Some examples of insurance you pay by direct debit:
- Life Insurance
- Home Insurance
- Car Insurance
- Health Insurance
Financial Goals
Now, you can have a cash envelope for your financial goals if you prefer to save money that way, but I think you should create a savings account in your bank and put the cash there since it's safer.
Of course, with envelopes, you can better understand how much you have allocated to each financial goal, but you can have $5,000 in your savings and an excel sheet to tell you how much is allocated to each objective.
Some examples of financial goals:
- Buying a House
- Emergency Fund
- Debt Payments
- Real Estate Investments
- Starting a Business
- College Savings For Kids
- Retirement Contributions
- Stock Investments
- Sinking Funds
Other Cash Envelope Categories
Since everyone's needs are different and no budget is the same, I want to show you some other categories that may make sense for you to have when creating your cash envelope categories.
These categories are basically the same ones I have presented to you above inside the nine main cash envelope category ideas. You can make them have their own envelope if you think it will benefit you and if you prefer to be more specific than general.
Some other cash envelope categories include:
- Gas
- Parking Fees
- Car Maintenance
- Public Transports
- Licenses/Taxes/DMV
- Car Repair
- Taxi Fares
- Bike Maintenance
- Bike Repair
- Food (dairy products, meats, vegetables, etc.)
- Household Supplies
- Eating Out
- Drinking With Friends
- Cinema
- Theather
- Sport Activities
- Sport Events
- Music Events
- Spa Days
- School Excursions
- Hobbies
- Personal Allowance
- Kids Allowance
- Beauty Products
- Books
- Technology
- Grooming
- Learning Courses
- Fashion
- Home Decoration
- Home Repairs
- Home Maintenance
- Tools
- Craft Supplies
- Gym Equipment
- Gardening Supplies
- Doctor Bills
- Hospital Bills
- Dentist
- Medicines/Prescriptions
- Vitamins
- First Aid Supplies
- Pet
- Birthday Gifts
- Holidays Gifts
- Donations
- Emergencies
- Expenses that don't fit into other categories
How Many Cash Envelopes Should You Have?
I would say that most budgeters will need between 5-9 cash envelopes to cover all the cash payments and expenses they have. You want to avoid having too many envelopes since it makes it challenging to organize, will take you a long time to do it, and you will end up feeling overwhelmed and giving up.
Also, who wants twenty different envelopes with them when they go out? No one. It's even more demanding to carry envelopes if you don't have a bag or somewhere to put them.
My rule is always if you have too many cash envelopes and feel confused about them, it's because you have too many and you need to reduce them. I have done the cash envelope system with nine envelopes, which worked very well for me.
Common Questions About Cash Envelope Categories
These are the most common questions about cash envelope categories.
How Often Should You Withdraw Cash?
You should withdraw all the cash you need once per month, but you can also do it weekly or every two weeks if you build your budget that way. I think it's easier to withdraw all the money at once and put the cash in the envelopes. This way, you will know you will stick with your budget no matter what happens.
How Do You Know How Much Money To Put In Cash Envelopes?
First, you must create a budget and subtract all the future debit direct payments. After that, you will have a certain amount of money you will withdraw and split the cash to each envelope according to what you think you will spend on that category for that month. It's beneficial to check the past three months for an accurate value.
What Do You Do With Leftover Money In Cash Envelopes?
You can do whatever you want. You can use that money for your financial goals, to spend on something you want, or add that amount to next month's budget.
Conclusion
When you decide to implement the envelope budget system, you will know precisely what cash envelope categories will benefit you the most to ensure your budget is a success every month.
Never forget that some cash envelope ideas fit better for some people than others, so you need to find where you spend your money, especially the cash payments you make. That way, you will ensure you will not overspend, get in debt or have the wrong cash envelope categories on your budget.
