Cash Envelope Categories [2024] Proven Ideas for Your Budget

Everyone knows saving money is important, but that doesn’t make it easy. In fact, 69% of Americans report having less than $1,000 saved.

If you’re struggling to save money yourself, it might be time for a new budgeting approach: cash envelope categories. 

The idea is simple. You create different spending categories, give each category an envelope, and put money inside. Then, you only spend the money that’s in the envelopes.

Sounds intriguing, right? And it really works! 

Below, I’ll explain exactly how to benefit from cash envelope budgeting. You could be on the verge of a brighter financial future!

What Are Cash Envelope Categories?

Cash envelope categories are specific spending categories that you use to break down your budget – with each category getting its own envelope. 

Each month, you’ll decide how much to spend in every category. Then, you’ll withdraw the cash and put the physical dollar bills into the corresponding envelopes. During the month, you can only spend the cash that’s in the envelope – nothing more.  

Popular categories include:

• Groceries
• Clothes
• Restaurants/bars
• Gas
• Entertainment 
• Gifts
• Travel

You can choose whatever cash envelope categories make sense for your lifestyle and budgeting goals. Are you a big-time hiker? Then, maybe hiking equipment deserves an envelope. Is coffee a major weakness? Then, you could create a special envelope for Starbucks or another local cafe.

You may also want to learn how to get a free Starbucks gift card.

The key is to stick with the budget and only spend the money in the envelopes. 

What is Cash Envelope Budgeting?

Cash envelope budgeting is a strategy where you put dollar bills into envelopes as a way to control your spending. 

You’ll start by deciding how much you want to spend in different categories each month. Some categories are inescapably digital, including subscriptions and rent payments. These categories won’t get a physical envelope.

You may also want to learn how to cancel all subscriptions on your debit card. 

But for any category that allows you to spend in cash, you’ll take an envelope and write the category name on the front. Then, you’ll decide how much you can spend in that category and put that amount of money in the envelope. From there, your job is simple: Make the money in the envelope last for the entire month.

This strategy represents a “back to the basics” form of budgeting. With physical bills and cash payments, you’ll be partying like it’s 1999! 

And by using cash instead of credit cards, you’ll avoid the type of overspending that can quickly kill a budget. 

Are Cash Envelope Categories Worth It?

Cash envelope categories are definitely worth it for anyone who struggles to stick with a budget.

For lots of people, creating a budget is relatively easy. Actually following through is the hard part. You might claim you’ll only spend $100 on clothes this month – but when you find yourself in a department store with a credit card in your wallet, do you stay below the limit? 

Cash envelope budgeting makes it easier to stay disciplined. Imagine if the $100 for clothes was stashed in an envelope. When heading to the store, you could take the bills with you and leave your credit and debit cards at home. You’ll have no choice but to stick with the plan!

Of course, using cash envelope categories doesn’t guarantee you’ll stay within your budget. There are always ways to cheat. 

But, sometimes, a trick or two can help keep you honest – and cash envelope budgeting is a trick that plenty of people have found helpful.

There are also other budgeting strategies you could try. 

Check out this guide to the 52 week money challenge, then read this article on the biweekly money saving challenge. You could even complete these challenges alongside your cash envelope budgeting. 

How Do Cash Envelope Categories Work?

Using cash envelope strategies is super simple. That’s part of what makes it such an effective strategy!

Here are the steps you should take. 

1. Set Your Budget

Before you can start putting cash into envelopes, you need to decide how much money you can spend in different areas. 

Start by figuring out how much you earn each month. 

Remember that you can only factor “after-tax” income into your budget. With some jobs, the taxes will already be removed, meaning you can count your whole paycheck as after-tax income. But if you’re self-employed, you’ll have to calculate your own taxes and then subtract tax payments from your initial income. 

Once you’ve determined your after-tax monthly earnings, you should divide them into several broad categories. Some of the money will go toward necessary monthly expenses – things like rent or mortgage payments, utility bills, and insurance. You’ll also want to set some money aside as savings.

Learn which savings account will earn you the most money. 

The rest of your money is what you can spend throughout the month. This is where the cash envelope categories come in!

And what if you’re disappointed by how much money you have to spend? 

Well, the best way to boost your budget is by increasing your income. Check out this article for a list of apps that pay cash.

2. Create Your Categories 

Once you’ve set aside some money for savings and necessary monthly payments, the money you have left is what you’ll put into cash envelope categories.

What categories should you create? That depends on your personal habits and the areas where you tend to overspend.

Pretty much everybody will need a “groceries” category. “Entertainment” and “restaurant” envelopes can also make a lot of sense. Beyond that, the categories should really be personalized. 

Do you tend to spend more than you should on fishing equipment? Then, create a fishing category. Are you constantly overspending on nights out with friends? Then, maybe “bars” should get their own envelope. 

You could also take a look at your bank and credit card statements. Look for expenses that seem excessive, and then create envelopes for them.

And, of course, just coming up with cash envelope categories isn’t enough. You also need to decide how much money you’ll allocate to each category. This could take some time. Just make sure the total amount matches your larger budget goals. 

You might get to the point where you’re hemming and hawing, trying to decide whether to sacrifice some spending in one category so that you can spend more in another. Agonizing? Yes, but budgeting often involves a little bit of pain. And remember, you can always adjust your totals in future months if something’s out of whack. 

Once you’ve got a list of categories, it’s time for the fun part: Writing the category titles on envelopes. You could even get creative with doodles and stickers – that’s up to you!

3. Fill the Envelopes With Cash

You’ve got your plan. You’ve got your envelopes. Now, it’s time to actually start budgeting. 

In order to fund the envelopes, you’ll need a lot of cash on hand. So, if you don’t have the money lying around, head to the bank or ATM to get the bills you need.

From there, this task is easy. Just spend a few minutes putting the right amount of money in each envelope! 

Then, store the envelopes somewhere safe and secure. Losing an envelope would be a serious bummer. A safe could be a good place to keep them. 

4. Only Spend the Money in the Envelopes 

This is the part of cash envelope budgeting that requires discipline. The whole system has a single rule: For each cash envelope category, only spend the money that’s in the envelope. 

That will require some new habits. No more buying things with credit or debit cards. No more impulsive online purchases. Every dollar you spend in your chosen categories must come from the bills in the envelopes. 

But hey – you might learn to love the new system. Isn’t there something nice about having a crisp, clean dollar bill in your hand? Plus, shopping in person has its benefits over placing online orders. Real people! Remember them?

Of course, the main benefit of this routine is that you’ll avoid overspending. And that will have long-term effects on your general financial health.

Once you’ve spent all the cash in an envelope, you can’t buy anything else in that category until the month is over. Don’t cheat (unless there’s a true emergency). An exception here, an exception there – and next thing you know, you’ll have abandoned your cash envelope categories altogether. 

5. Account for Non-Cash Spending

Cash envelope budgeting is a fantastic tool, but it only works for purchases that you can make with cash. What about payments like digital subscriptions and utility bills, where using cash is impossible?

There are a few ways to account for non-cash spending:

• Create envelopes for these categories, then write the amount you can spend on pieces of paper and slip them into the envelopes.
• Write down these non-cash expenses on a sheet of paper that you store alongside the envelopes.
• Use digital tools to track these expenses.

If you decide to track expenses digitally, it could be worth downloading a budgeting app. Learn more with this Rocket Money review and these comparisons of Rocket Money vs other top budgeting apps:

• Rocket Money vs YNAB
• Rocket Money vs Simplifi
• Rocket Money vs Copilot

And if you ever buy something online that matches up with an existing cash envelope category, make sure you write the purchase down on the envelope. Then, aim to have that amount of money leftover in the envelope at the end of the month.

Pros and Cons Of Cash Envelope Categories

Cash envelope categories can help you keep your budget on track, but the strategy also has its limitations. Let’s take a look at the benefits and drawbacks. 

Pros:

• Using cash can prevent overspending. Lots of people report that they spend less when they’re using cash instead of a card. 
• It’s easy to personalize. You create your own cash envelope categories, so you can match them to your goals and spending habits. 
• It can be fun! Are you the crafty type? You might get a real kick out of making the envelopes. It’s like a scrapbook that’s good for your finances!

Cons:

• You’ll have lots of cash on hand. Losing an envelope would be devastating, so make sure you store them in a safe location and be extra aware of your surroundings when carrying cash.
• You’ll miss out on the potential benefits of credit cards. You can’t accrue credit card points or build credit if you make all your purchases in cash.
• The categories can be thrown off by unexpected expenses. Let’s say you’ve got $30 left in your “clothes” envelope, but then you find your hiking boots have a hole in them the day before a big trip. You’ll have to make an exception. And that’s okay – but you need the exceptions to remain truly rare.

Commonly Asked Questions About Cash Envelope Categories 

What To Do With Coins For Cash Envelope Categories?

If you’re using cash envelope budgeting and you get coins as change, just put the coins back in the envelope that the bills initially came from. Then, spend the coins later on something in that category. Alternatively, you could set all coins aside and use them for a special treat or roll them and exchange them for bills at your bank. 

How Do You Organize Cash Envelopes?

You can use something as simple as a box, drawer, or filing cabinet to organize your cash envelopes. Just make sure they stay safe. You could also keep the envelopes in alphabetical order so it’s always easy to find the one you need.

How Do You Divide Cash Envelopes? 

Dividing money into cash envelopes is an inexact science. Just try to consider how much you can spend in each category and still meet your overarching budgeting goals. You can also change the amounts each month. For example, putting more in the “gas” envelope and less in another spending category when you have a trip planned. 

What Is An Example Of a Cash Envelope Budget? 

Let’s say you make $4,000 in a month. Of that, $1,500 goes to rent, $1,000 to savings, and $500 to utilities. That leaves $1,000 for spending. Get that money in cash and put it into envelopes labeled “groceries,” “travel,” etc. Then, only spend the cash in the envelopes. 

What Is Dave Ramsey’s Envelope System? 

Dave Ramsey’s envelope system calls for putting your earnings into labeled envelopes, with each envelope representing a category of spending. For example, you could put $500 in the “groceries” envelope and then spend only that much money at the supermarket that month. 

How To Start Cash Envelope System?

Start by making a list of cash envelope categories, choosing categories that match your spending habits. From there, decide how much you want to spend in each category. Next comes the fun part – labeling the envelopes and stuffing them with cash!

Best Cash Envelope Categories?

These should be personalized based on your lifestyle and spending habits, but here are some examples of smart cash envelope categories:

• Groceries
• Coffee
• Clothes
• Restaurants
• Bars
• Gas
• Concerts
• Gifts

Envelope Saving Method 1-100?

The envelope saving method works like this: Take 100 envelopes and label them 1 through 100. Each day, pick an envelope and fill it with the amount written in dollars. You can go in order or choose envelopes randomly. After 100 days, you’ll have saved $5,050. 

Envelope Budgeting App?

Here are some budgeting apps you could use alongside cash envelopes:

• Rocket Money
• YNAB
• Simplifi
• Copilot
• Monarch
• Goodbudget
• PocketGuard
• EveryDollar