Cash Envelope System Categories
If you are struggling to create a budget that really works for you, perhaps it is time to give the Cash Budget a try.
If you have tried it before, and it didn’t work, then maybe you need to tweak how you did it.
Using cash REALLY does help you to spend less at the stores where you are purchasing WITH cash. There is an actual physical response to watching the cash be spent (and disappear) versus just swiping a plastic card. Spending cash actually hurts a little bit.
And when something hurts, we want to do it less, right? So spending cash makes you more aware of how much you are spending, which causes you to spend less overall.
But where do you start with using cash envelopes? How do you organize them? Well, I am so glad you asked!
How do you do a cash envelope system?
To start using cash envelopes, you need a basic breakdown of how to utilize them properly
- Go through your budget. If you don’t have one set, that is more like step 0. You can get your budget going by using our free budget planner, which you can get here: Free Budget Planner Printable
- Cross off your fixed expenses (bills that are the same month after month). Using cash here won’t help you to save any extra money.
- Look over your variable expenses (the ones that do vary in amount spent each and every month). Circle the ones that are the most problematic for you–the ones that you tend to go over budget on month after month. THOSE are the ones you want to start with for cash envelopes.
- Make a cash envelope for each budget item you plan to pay for with cash.
- Decide how much cash needs to go into each cash envelope category.
- Fill your cash envelopes with the allotted amount.
RELATED ARTICLE: Money Envelopes for Budgeting
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How to Organize Your Cash Envelopes
If you don’t have a system for keeping your cash envelopes organized, it can soon become a course of chaos and stress. So here are some tips for organizing your cash envelopes.
- Don’t go overboard on the number of cash envelopes you use. When you are just starting, keep things simple. I suggest starting with 5-8 cash envelopes, TOTAL, when starting out. As you get more confident with using cash, you can add more if you want to.
- Designate a safe place in your home where your cash envelopes live, when you aren’t using them. You want this to be somewhere easily accessible, and that is ONLY for cash envelopes. You might consider an unused drawer, or get a photo box from the craft store to put on a shelf, or even a safe (if you have one). Somewhere safe where they won’t get lost but you know where they are. Then always put your cash envelopes there when you aren’t using them.
- Use a cash envelope wallet. This is the best way to make sure that you take your cash envelopes with you when you plan to go shopping. There is nothing worse than taking your wallet, but forgetting your cash. Using a cash envelope wallet also helps keep your cash envelopes easy to find in your purse. (Anyone else’s purse turn into a black hole when you need to find something???) This is my favorite cash envelope wallet: Cash Envelope Wallet.
Check out the other cash envelope wallets that I recommend!
Basic Cash Budget Envelope Categories You Should Have
Okay, now that you know how to use the cash envelopes, and how to organize them, you can start prepping your cash envelopes. When just beginning to use cash envelopes, I suggest you pick from this list:
Food/Grocery
Eating Out
Fun
Hair Cuts/Beauty
Free Spend
Clothing
Babysitter
Pets
Gas
Misc
Clothing
Other Cash Envelope Category Ideas
Once you have used cash envelopes for a while, you can start branching out into using more of them, for more reasons. You can use cash envelopes for small sinking funds, or any other expenses that use, or will use, cash. Some ideas for these categories are:
Christmas
Birthdays
Holidays
Car Maintenance/Repairs
Coffee
School Supplies
Home Repairs
Donate/Tithing
Sports/Activities
Any other choice you can imagine….
How much cash to put in each envelope
Now that you have your cash envelopes decided upon, the next step is to put cash into the envelopes and start using them! But how much cash should go into each one? Well, that will depend on your budget, and your paycheck.
You need to fill the envelopes with each paycheck. So if you are paid two times per month, you should divide your budget category in two. Then put that amount into the cash envelope.
For example:
Monthly grocery budget =$400 per month
1st paycheck= $200 into grocery cash envelope
2nd paycheck= $200 into grocery cash envelope
If you are paid more and less often, apply the system the same. If you are paid just once per month, then put the whole $400 in the envelope. If you are paid weekly, then put how much you need for a week’s worth of groceries, and so on.
Continue with this process until you know how much you need for each envelope category. If you are using cash envelopes for some sinking funds, then make sure you plan for how much to save, in your budget, and add that amount to the cash envelope each month/paycheck.
Do Cash Envelopes Work? Making the Cash Envelope system work for you
It is all fine and good to create cash envelopes, stuff them with cash and then use them. But the way to REALLY make the cash envelope system work for you is to track every single expense paid with the cash.
You will want to have a cash envelope tracker, included with each of your cash envelopes. When you add money to a cash envelope, document how much cash you add/how much is in the envelope.
Then when you make a purchase at the store, track how much you spend from that particular envelope. For example, if you have $250 in your grocery envelope, and you spend $32.50 at the grocery store, then your new balance for your grocery envelope will be $217.50.
Tracking every expense and transaction will help you know how you much you have left in each category. Then, the idea is that, when the money is gone, there is no more spending in that category. This helps you be very mindful of what you are buying and how much you are spending.
Truly, a cash budgeting system only works if you track your spending and don’t let yourself use the credit card to make up the difference.
How to Handle Online Spending with a Cash Budget and Envelope System
We know that online shopping is HUGE in our modern world. Amazon is definitely a go-to resource, pretty much whenever you want to buy something online.
But when you are working with a cash only budget, how is that supposed to work? This is where you need a specific cash envelope category named: Online Shopping.
The way this special cash envelope works is that you pay for your online purchases, with your credit or debit card, as normal.
However, you need to determine which cash envelope category your purchase would normally fall into. For example, we are working on building up our 72 hour kits and have purchased some items online. I am categorizing this purchase into our Miscellaneous category in our budget. So I would take the amount we spent FROM my miscellaneous envelope and put it IN the Online Shopping envelope.
Then, when I am ready to close out my budget, I would take the online shopping envelope and deposit it back into my bank account, so the money is there to pay for the balance on my credit card.
What to do with Leftover Cash from Cash Envelopes?
When you get to the end of the month, and you are working on closing out your budget, you may find that you did not spend all of the money you had allotted for your cash envelopes.
If that is the case, first of all YAY! You came in under budget for that category!! Well done!
But then, what do you do with that leftover money? Well, you have a couple of options.
- You can Rollover that amount. This means that you keep the leftover amount in that particular cash envelope category and add your regular amount to it the next month. This means that you will have a higher starting balance for that category for the next month.
This is a good idea if you know you will have some upcoming expenses in that category and will need more money to cover those expenses in the future.
- You can put that amount towards debt. If you are working on paying off debt, a great idea is to throw every extra dollar you can at those loans. So if you have some leftover cash in an envelope, throwing that money towards your debt would be a great way to use it.
- Save it. You can also put any leftover money towards any savings goals you have. This is probably my favorite thing to do with any cash that is leftover in my cash envelopes. I love saving for specific goals.
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Final Thoughts on Cash Envelope Categories
I hope you can see that the cash envelope budgeting system really can be adapted to fit your budget. You can choose what cash envelope categories you want to use (preferably trouble spots in your budget) and what you don’t need to use cash for.
Using the cash system really helps you to be more aware of what you are spending, which ultimately helps you to stop spending as much.
Do you use cash envelopes? Which categories do you use that help? Let me know in the comments!
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