If you have struggled to stick to your budget in the past, the cash envelope system is going to be the game-changer for you.  The cash envelope system can be amazing at helping you not overspend in certain areas, but what cash envelope system categories should you be using?

If you are just starting to use the cash envelopes you may want to go nuts and use cash for everything!  In theory, this could be a great idea, but practically, it could get a bit overwhelming if you have tons of envelopes you are trying to manage.

If you are new to the idea of the cash envelope system, you need to check out:

What is the Cash Envelope System?

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How many cash envelopes should I have?

There is a sweet spot for the number of envelopes you should have and that number is between four and seven.  Anything beyond seven can be unmanageable. I currently only operate out of four envelopes which helps keep my life simple (I have also controlled my spending in some categories I previously used cash for)!

You can have as many or as few as you want, but I want to caution you if you have less than four envelopes.  Sometimes it can be hard to admit when we have a tendency to overspend in certain areas.

Like, we keep telling ourselves we will do better next month.  If you have one of those categories, for example, clothing, where you always spend more than you meant to, this category needs to become one of your cash envelopes.

Makes sense right?  You want those high-risk categories where you have the most temptation to go over budget to be the ones with a finite amount of cash to spend.  Once it’s gone, you are done.

If you only have two cash envelopes, I want you to really look at your spending and add in a couple more cash categories in areas where you have the risk of spending too much money.

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What qualifies a budget category for a cash envelope?

When you look at your budget, it can typically be broken down into fixed and variable expenses.  

Fixed expenses are those expenses that always stay the same.  Things like:

• Mortgage/rent
• Utilities
• Giving
• Insurance
• Dues/subscriptions
• Loan payments

The other stuff in your budget falls into the variable category of expenses.  This means the cost for these categories can change from month to month. These are things like:

• Groceries
• Clothing
• Car repairs
• Gas
• Childcare
• Entertainment
• Toiletries
• Cosmetics
• Pets
• Pocket money

These variable categories are great candidates for your cash envelope system because you can determine the amount of money you are designating to them every month.  It will change every month based on what your goals and priorities are.

How do I choose what categories to use cash envelopes for?

Okay, now it’s time to decide which categories you want to carry around cash for.  

3 qualities of a good cash envelope category:

1. You have a tendency to overspend in this category.
2. You do your shopping for this category in a physical store (meaning you aren’t trying to use cash for online purchases).
3. You feel comfortable carrying around this amount of cash throughout the month.

If your category fits all three of these criteria then Ding! Ding! Ding!  We have a winner! This is a great candidate for a cash envelope category for you.

Look through your entire budget to figure out which categories you need to be turning into your cash envelope categories and shoot for four to seven of them.

What do I do if I tend to overspend in a category where the purchases are made online?

Okay, this can put you in a bit of a tricky spot because it is really hard to give yourself a true spending limit when you are purchasing items online.  It’s like a budget cheater’s paradise. You can just keep spending money with no physical limitations.

The solution is something I have not personally done, but I have heard of other people who have had success with it.  

Instead of having a physical cash envelope, you have a pre-paid Visa gift card.  You gift it to yourself at the beginning of the month with the amount of money you are budgeting for that cash envelope category for the month.  You ONLY USE THIS CARD when making purchases for that category. When the money is gone, it’s gone.

You can refill this card every month for the same category.  In essence, the card is the envelope, but it is capable of living in the online purchasing space.

Temptation removed!

Getting your cash envelopes set up should be super simple.  Just review your budget, list out your variable expenses, pick the ones you tend to overspend in and make sure they meet the three criteria!  

If you haven’t used the cash envelope system before, this is going to be a total game-changer for you!

What are your favorite cash categories??

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