diff --git a/app/assets/stylesheets/application.tailwind.css b/app/assets/stylesheets/application.tailwind.css
index d09dd635..c08078e0 100644
--- a/app/assets/stylesheets/application.tailwind.css
+++ b/app/assets/stylesheets/application.tailwind.css
@@ -57,4 +57,16 @@
 
 /* Small, single purpose classes that should take precedence over other styles */
 @layer utilities {
+  .scrollbar::-webkit-scrollbar {
+    width: 4px;
+  }
+
+  .scrollbar::-webkit-scrollbar-thumb {
+    background: #d6d6d6;
+    border-radius: 10px;
+  }
+
+  .scrollbar::-webkit-scrollbar-thumb:hover {
+    background: #a6a6a6;
+  }
 }
diff --git a/app/controllers/transactions_controller.rb b/app/controllers/transactions_controller.rb
index 396694eb..484fd7c8 100644
--- a/app/controllers/transactions_controller.rb
+++ b/app/controllers/transactions_controller.rb
@@ -35,7 +35,7 @@ class TransactionsController < ApplicationController
 
     respond_to do |format|
       if @transaction.save
-        format.html { redirect_to transaction_url(@transaction), notice: "Transaction was successfully created." }
+        format.html { redirect_to transaction_url(@transaction), notice: t(".success") }
       else
         format.html { render :new, status: :unprocessable_entity }
       end
@@ -45,7 +45,13 @@ class TransactionsController < ApplicationController
   def update
     respond_to do |format|
       if @transaction.update(transaction_params)
-        format.html { redirect_to transaction_url(@transaction), notice: "Transaction was successfully updated." }
+        format.html { redirect_to transaction_url(@transaction), notice: t(".success") }
+        format.turbo_stream do
+          render turbo_stream: [
+            turbo_stream.append("notification-tray", partial: "shared/notification", locals: { type: "success", content: t(".success") }),
+            turbo_stream.replace("transaction_#{@transaction.id}", partial: "transactions/transaction", locals: { transaction: @transaction })
+          ]
+        end
       else
         format.html { render :edit, status: :unprocessable_entity }
       end
@@ -56,7 +62,7 @@ class TransactionsController < ApplicationController
     @transaction.destroy!
 
     respond_to do |format|
-      format.html { redirect_to transactions_url, notice: "Transaction was successfully destroyed." }
+      format.html { redirect_to transactions_url, notice: t(".success") }
     end
   end
 
@@ -68,6 +74,6 @@ class TransactionsController < ApplicationController
 
     # Only allow a list of trusted parameters through.
     def transaction_params
-      params.require(:transaction).permit(:name, :date, :amount, :currency, :notes, :excluded)
+      params.require(:transaction).permit(:name, :date, :amount, :currency, :notes, :excluded, :category_id)
     end
 end
diff --git a/app/javascript/controllers/dropdown_controller.js b/app/javascript/controllers/dropdown_controller.js
index 610455a0..3a5bf58b 100644
--- a/app/javascript/controllers/dropdown_controller.js
+++ b/app/javascript/controllers/dropdown_controller.js
@@ -4,20 +4,32 @@ import { Controller } from "@hotwired/stimulus"
 export default class extends Controller {
   static targets = ["menu"]
 
-  toggleMenu(event) {
-    event.stopPropagation(); // Prevent event from closing the menu immediately
-    this.menuTarget.classList.toggle("hidden");
+  toggleMenu = (e) => {
+    e.stopPropagation(); // Prevent event from closing the menu immediately
+    this.menuTarget.classList.contains("hidden") ? this.showMenu() : this.hideMenu();
+  }
+
+  showMenu = () => {
+    document.addEventListener("click", this.onDocumentClick);
+    this.menuTarget.classList.remove("hidden");
   }
 
   hideMenu = () => {
+    document.removeEventListener("click", this.onDocumentClick);
     this.menuTarget.classList.add("hidden");
   }
 
-  connect() {
-    document.addEventListener("click", this.hideMenu);
+  disconnect = () => {
+    this.hideMenu();
   }
 
-  disconnect() {
-    document.removeEventListener("click", this.hideMenu);
+  onDocumentClick = (e) => {
+    if (this.menuTarget.contains(e.target)) {
+      // user has clicked inside of the dropdown
+      e.stopPropagation();
+      return;
+    }
+
+    this.hideMenu();
   }
 }
diff --git a/app/javascript/controllers/modal_controller.js b/app/javascript/controllers/modal_controller.js
index 8d0773d4..87cdd3cd 100644
--- a/app/javascript/controllers/modal_controller.js
+++ b/app/javascript/controllers/modal_controller.js
@@ -8,7 +8,7 @@ export default class extends Controller {
   }
 
   // Hide the dialog when the user clicks outside of it
-  click_outside(e) {
+  clickOutside(e) {
     if (e.target === this.element) {
       this.element.close();
     }
diff --git a/app/javascript/tailwindColors.js b/app/javascript/tailwindColors.js
index 6031ee02..709d5da0 100644
--- a/app/javascript/tailwindColors.js
+++ b/app/javascript/tailwindColors.js
@@ -2,6 +2,22 @@
  * To keep consistent styling across the app, this file can be imported in
  * Stimulus controllers to reference our color palette.  Mostly used for D3 charts.
  */
+
+export const categoryColors = [
+   "#e99537",
+   "#4da568",
+   "#6471eb",
+   "#db5a54",
+   "#df4e92",
+   "#c44fe9",
+   "#eb5429",
+   "#61c9ea",
+   "#805dee",
+   "#6ad28a"
+]
+
+export const categoryDefaultColor = "#737373"
+
 export default {
   transparent: "transparent",
   current: "currentColor",
@@ -138,4 +154,43 @@ export default {
     600: "#7839EE",
     700: "#6927DA",
   },
+  fuchsia: {
+    25: "#FEFAFF",
+    50: "#FDF4FF",
+    100: "#FBE8FF",
+    200: "#F6D0FE",
+    300: "#EEAAFD",
+    400: "#E478FA",
+    500: "#D444F1",
+    600: "#BA24D5",
+    700: "#9F1AB1",
+    800: "#821890",
+    900: "#6F1877",
+  },
+  pink: {
+    25: "#FFFAFC",
+    50: "#FEF0F7",
+    100: "#FFD1E2",
+    200: "#FFB1CE",
+    300: "#FD8FBA",
+    400: "#F86BA7",
+    500: "#F23E94",
+    600: "#D5327F",
+    700: "#BA256B",
+    800: "#9E1958",
+    900: "#840B45",
+  },
+  orange: {
+    25: "#FFF9F5",
+    50: "#FFF4ED",
+    100: "#FFE6D5",
+    200: "#FFD6AE",
+    300: "#FF9C66",
+    400: "#FF692E",
+    500: "#FF4405",
+    600: "#E62E05",
+    700: "#BC1B06",
+    800: "#97180C",
+    900: "#771A0D",
+  },
 };
diff --git a/app/models/transaction/category.rb b/app/models/transaction/category.rb
index 5c7b370d..042e4edd 100644
--- a/app/models/transaction/category.rb
+++ b/app/models/transaction/category.rb
@@ -5,14 +5,14 @@ class Transaction::Category < ApplicationRecord
   before_update :clear_internal_category, if: :name_changed?
 
   DEFAULT_CATEGORIES = [
-    { internal_category: "income", color: "#fd7f6f" },
-    { internal_category: "food_and_drink", color: "#7eb0d5" },
-    { internal_category: "entertainment", color: "#b2e061" },
-    { internal_category: "personal_care", color: "#bd7ebe" },
-    { internal_category: "general_services", color: "#ffb55a" },
-    { internal_category: "auto_and_transport", color: "#ffee65" },
-    { internal_category: "rent_and_utilities", color: "#beb9db" },
-    { internal_category: "home_improvement", color: "#fdcce5" }
+    { internal_category: "income", color: "#e99537" },
+    { internal_category: "food_and_drink", color: "#4da568" },
+    { internal_category: "entertainment", color: "#6471eb" },
+    { internal_category: "personal_care", color: "#db5a54" },
+    { internal_category: "general_services", color: "#df4e92" },
+    { internal_category: "auto_and_transport", color: "#c44fe9" },
+    { internal_category: "rent_and_utilities", color: "#eb5429" },
+    { internal_category: "home_improvement", color: "#61c9ea" }
   ]
 
   def self.ransackable_attributes(auth_object = nil)
diff --git a/app/views/shared/_category_badge.html.erb b/app/views/shared/_category_badge.html.erb
new file mode 100644
index 00000000..b29f5426
--- /dev/null
+++ b/app/views/shared/_category_badge.html.erb
@@ -0,0 +1,4 @@
+<%# locals: (name: "Uncategorized", color: "#737373") %>
+<% background_color = "color-mix(in srgb, #{color} 5%, white)" %>
+<% border_color = "color-mix(in srgb, #{color} 10%, white)" %>
+<span class="border text-sm font-medium px-2.5 py-1 rounded-full cursor-pointer" style="background-color: <%= background_color %>; border-color: <%= border_color %>; color: <%= color %>"><%= name %></span>
diff --git a/app/views/shared/_sidebar_modal.html.erb b/app/views/shared/_sidebar_modal.html.erb
index 52f557d2..796326d6 100644
--- a/app/views/shared/_sidebar_modal.html.erb
+++ b/app/views/shared/_sidebar_modal.html.erb
@@ -1,5 +1,5 @@
 <%= turbo_frame_tag "modal" do %>
-  <dialog class="bg-white border border-alpha-black-25 rounded-2xl max-h-[calc(100vh-32px)] max-w-[480px] w-full shadow-xs h-full mt-4 mr-4" data-controller="modal" data-action="click->modal#click_outside">
+  <dialog class="bg-white border border-alpha-black-25 rounded-2xl max-h-[calc(100vh-32px)] max-w-[480px] w-full shadow-xs h-full mt-4 mr-4" data-controller="modal" data-action="click->modal#clickOutside">
     <div class="flex flex-col h-full p-4">
       <div class="flex justify-end items-center h-9">
         <div data-action="click->modal#close" class="cursor-pointer">
diff --git a/app/views/transactions/_category_dropdown.html.erb b/app/views/transactions/_category_dropdown.html.erb
new file mode 100644
index 00000000..46fe8b44
--- /dev/null
+++ b/app/views/transactions/_category_dropdown.html.erb
@@ -0,0 +1,42 @@
+<%# locals: (transaction:) %>
+<div class="relative" data-controller="dropdown">
+  <div class="flex cursor-pointer" data-action="click->dropdown#toggleMenu">
+    <%= render partial: "shared/category_badge", locals: transaction.category.nil? ? {} : { name: transaction.category.name, color: transaction.category.color } %>
+  </div>
+  <div class="absolute z-10 hidden w-screen mt-2 max-w-min cursor-default" data-dropdown-target="menu">
+    <div class="w-64 text-sm font-semibold leading-6 text-gray-900 bg-white shadow-lg shrink rounded-xl ring-1 ring-gray-900/5">
+      <div class="flex flex-col">
+        <div class="grow p-1.5 cursor-not-allowed">
+          <div class="relative flex items-center bg-white border border-gray-200 rounded-lg">
+            <input placeholder="Search" class="placeholder:text-sm placeholder:text-gray-500 h-10 relative pl-10 w-full border-none rounded-lg cursor-not-allowed" disabled/>
+            <%= lucide_icon("search", class: "w-5 h-5 text-gray-500 ml-2 absolute inset-0 transform top-1/2 -translate-y-1/2") %>
+          </div>
+        </div>
+        <%= form_with model: transaction, namespace: dom_id(transaction), html: { data: { controller: "auto-submit-form" }, class: "flex flex-col gap-0.5 p-1.5 mt-0.5 mr-2 max-h-64 overflow-y-scroll scrollbar" } do |form| %>
+          <% Current.family.transaction_categories.each do |category| %>
+            <% is_selected = (!transaction.category.nil? and category.id == transaction.category.id) %>
+            <div class="flex items-center <%= class_names("bg-gray-25": is_selected) %> hover:bg-gray-25 border-none rounded-lg px-2 py-1 group">
+              <%= form.radio_button :category_id, category.id, class: "hidden" %>
+              <%= label dom_id(transaction), :transaction_category_id, value: category.id, class: "flex w-full items-center gap-1.5 cursor-pointer" do %>
+                <span class="w-5 h-5">
+                  <%= lucide_icon("check", class: "w-5 h-5 text-gray-500") if is_selected %>
+                </span>
+                <%= render partial: "shared/category_badge", locals: { name: category.name, color: category.color } %>
+              <% end %>
+              <button class="ml-auto flex items-center justify-center hover:bg-gray-50 w-8 h-8 rounded-lg invisible group-hover:visible cursor-not-allowed" type="button" disabled>
+                <%= lucide_icon("more-horizontal", class: "w-5 h-5 text-gray-500") %>
+              </button>
+            </div>
+          <% end %>
+        <% end %>
+        <hr/>
+        <div class="p-1.5 w-full">
+          <button class="cursor-not-allowed flex text-sm font-medium items-center gap-2 text-gray-500 w-full rounded-lg p-2 hover:bg-gray-100" disabled>
+            <%= lucide_icon("plus", class: "w-5 h-5") %>
+            Add new
+          </button>
+        </div>
+      </div>
+    </div>
+  </div>
+</div>
diff --git a/app/views/transactions/_transaction.html.erb b/app/views/transactions/_transaction.html.erb
index bc801e38..0a1eace0 100644
--- a/app/views/transactions/_transaction.html.erb
+++ b/app/views/transactions/_transaction.html.erb
@@ -1,7 +1,12 @@
-<%= link_to transaction_path(transaction), data: { turbo_frame: "modal" }, class: "text-gray-900 flex items-center gap-6 py-4 text-sm font-medium hover:bg-gray-50 px-4", id: dom_id(transaction) do %>
-  <div class="w-96 flex items-center gap-2">
-    <div class="w-8 h-8 flex items-center justify-center rounded-full bg-gray-600/5 text-gray-600"><%= transaction.name[0].upcase %></div>
-    <p class="text-gray-900"><%= transaction.name %></p>
+<%= turbo_frame_tag dom_id(transaction), class:"text-gray-900 flex items-center gap-6 py-4 text-sm font-medium px-4" do %>
+  <%= link_to transaction_path(transaction), data: { turbo_frame: "modal" }, class: "group", id: dom_id(transaction) do %>
+    <div class="w-96 flex items-center gap-2">
+      <div class="w-8 h-8 flex items-center justify-center rounded-full bg-gray-600/5 text-gray-600"><%= transaction.name[0].upcase %></div>
+      <p class="text-gray-900 group-hover:underline group-hover:text-gray-800"><%= transaction.name %></p>
+    </div>
+  <% end %>
+  <div class="w-48">
+    <%= render partial: "transactions/category_dropdown", locals: { transaction: } %>
   </div>
   <div>
     <p><%= transaction.account.name %></p>
diff --git a/app/views/transactions/index.html.erb b/app/views/transactions/index.html.erb
index aedcb523..cb6e8afb 100644
--- a/app/views/transactions/index.html.erb
+++ b/app/views/transactions/index.html.erb
@@ -50,7 +50,7 @@
         </div>
         <div>
           <%= form.select :date, options_for_select([['All', 'all'], ['7D', 'last_7_days'], ['1M', 'last_30_days'], ["1Y", "last_365_days"]], selected: params.dig(:q, :date)), {}, { class: "block h-full w-full border border-gray-200 rounded-lg text-sm py-2 pr-8 pl-2", "data-transactions-search-target": "date" } %>
-          
+
           <!-- Hidden fields for date range -->
           <%= form.hidden_field :date_gteq, value: '', "data-transactions-search-target": "dateGteq" %>
           <%= form.hidden_field :date_lteq, value: '', "data-transactions-search-target": "dateLteq" %>
@@ -68,12 +68,15 @@
           <div class="w-96">
             <p class="uppercase">transaction</p>
           </div>
+          <div class="w-48">
+            <p class="uppercase">category</p>
+          </div>
           <div class="grow uppercase flex justify-between items-center gap-5 text-xs font-medium text-gray-500">
             <p>account</p>
             <p>amount</p>
           </div>
         </div>
-        
+
         <div class="space-y-6">
           <% @transactions.group_by { |transaction| transaction.date }.each do |date, grouped_transactions| %>
             <%= render partial: "transactions/transaction_group", locals: { date: date, transactions: grouped_transactions } %>
diff --git a/config/locales/views/transaction/en.yml b/config/locales/views/transaction/en.yml
new file mode 100644
index 00000000..685a56c9
--- /dev/null
+++ b/config/locales/views/transaction/en.yml
@@ -0,0 +1,9 @@
+---
+en:
+  transactions:
+    create:
+      success: New transaction created successfully
+    destroy:
+      success: Transaction deleted successfully
+    update:
+      success: Transaction updated successfully
diff --git a/config/tailwind.config.js b/config/tailwind.config.js
index 60660f0b..f8b82f40 100644
--- a/config/tailwind.config.js
+++ b/config/tailwind.config.js
@@ -1,4 +1,5 @@
 const defaultTheme = require("tailwindcss/defaultTheme");
+const colors = require("../app/javascript/tailwindColors");
 
 module.exports = {
   content: [
@@ -8,184 +9,7 @@ module.exports = {
     "./app/views/**/*.{erb,haml,html,slim}",
   ],
   theme: {
-    colors: {
-      transparent: "transparent",
-      current: "currentColor",
-      white: "#ffffff",
-      black: "#0B0B0B",
-      success: "#10A861",
-      warning: "#F79009",
-      error: "#F13636",
-      gray: {
-        25: "#FAFAFA",
-        50: "#F5F5F5",
-        100: "#F0F0F0",
-        200: "#E5E5E5",
-        300: "#D6D6D6",
-        400: "#A3A3A3 ",
-        500: "#737373",
-        600: "#525252",
-        700: "#3D3D3D",
-        800: "#212121",
-        900: "#141414",
-      },
-      "alpha-white": {
-        25: "rgba(255, 255, 255, 0.03)",
-        50: "rgba(255, 255, 255, 0.05)",
-        100: "rgba(255, 255, 255, 0.08)",
-        200: "rgba(255, 255, 255, 0.1)",
-        300: "rgba(255, 255, 255, 0.15)",
-        400: "rgba(255, 255, 255, 0.2)",
-        500: "rgba(255, 255, 255, 0.3)",
-        600: "rgba(255, 255, 255, 0.4)",
-        700: "rgba(255, 255, 255, 0.5)",
-        800: "rgba(255, 255, 255, 0.6)",
-        900: "rgba(255, 255, 255, 0.7)",
-      },
-      "alpha-black": {
-        25: "rgba(20, 20, 20, 0.03)",
-        50: "rgba(20, 20, 20, 0.05)",
-        100: "rgba(20, 20, 20, 0.08)",
-        200: "rgba(20, 20, 20, 0.1)",
-        300: "rgba(20, 20, 20, 0.15)",
-        400: "rgba(20, 20, 20, 0.2)",
-        500: "rgba(20, 20, 20, 0.3)",
-        600: "rgba(20, 20, 20, 0.4)",
-        700: "rgba(20, 20, 20, 0.5)",
-        800: "rgba(20, 20, 20, 0.6)",
-        900: "rgba(20, 20, 20, 0.7)",
-      },
-      red: {
-        25: "#FFFBFB",
-        50: "#FFF1F0",
-        100: "#FFDEDB",
-        200: "#FEB9B3",
-        300: "#F88C86",
-        400: "#ED4E4E",
-        500: "#F13636",
-        600: "#EC2222",
-        700: "#C91313",
-        800: "#A40E0E",
-        900: "#7E0707",
-      },
-      green: {
-        25: "#F6FEF9",
-        50: "#ECFDF3",
-        100: "#D1FADF",
-        200: "#A6F4C5",
-        300: "#6CE9A6",
-        400: "#32D583",
-        500: "#12B76A",
-        600: "#10A861",
-        700: "#078C52",
-        800: "#05603A",
-        900: "#054F31",
-      },
-      yellow: {
-        25: "#FFFCF5",
-        50: "#FFFAEB",
-        100: "#FEF0C7",
-        200: "#FEDF89",
-        300: "#FEC84B",
-        400: "#FDB022",
-        500: "#F79009",
-        600: "#DC6803",
-        700: "#B54708",
-        800: "#93370D",
-        900: "#7A2E0E",
-      },
-      cyan: {
-        25: "#F5FEFF",
-        50: "#ECFDFF",
-        100: "#CFF9FE",
-        200: "#A5F0FC",
-        300: "#67E3F9",
-        400: "#22CCEE",
-        500: "#06AED4",
-        600: "#088AB2",
-        700: "#0E7090",
-        800: "#155B75",
-        900: "#155B75",
-      },
-      blue: {
-        25: "#F5FAFF",
-        50: "#EFF8FF",
-        100: "#D1E9FF",
-        200: "#B2DDFF",
-        300: "#84CAFF",
-        400: "#53B1FD",
-        500: "#2E90FA",
-        600: "#1570EF",
-        700: "#175CD3",
-        800: "#1849A9",
-        900: "#194185",
-      },
-      indigo: {
-        25: "#F5F8FF",
-        50: "#EFF4FF",
-        100: "#E0EAFF",
-        200: "#C7D7FE",
-        300: "#A4BCFD",
-        400: "#8098F9",
-        500: "#6172F3",
-        600: "#444CE7",
-        700: "#3538CD",
-        800: "#2D31A6",
-        900: "#2D3282",
-      },
-      violet: {
-        25: "#FBFAFF",
-        50: "#F5F3FF",
-        100: "#ECE9FE",
-        200: "#DDD6FE",
-        300: "#C3B5FD",
-        400: "#A48AFB",
-        500: "#875BF7",
-        600: "#7839EE",
-        700: "#6927DA",
-        800: "#5720B7",
-        900: "#491C96",
-      },
-      fuchsia: {
-        25: "#FEFAFF",
-        50: "#FDF4FF",
-        100: "#FBE8FF",
-        200: "#F6D0FE",
-        300: "#EEAAFD",
-        400: "#E478FA",
-        500: "#D444F1",
-        600: "#BA24D5",
-        700: "#9F1AB1",
-        800: "#821890",
-        900: "#6F1877",
-      },
-      pink: {
-        25: "#FFFAFC",
-        50: "#FEF0F7",
-        100: "#FFD1E2",
-        200: "#FFB1CE",
-        300: "#FD8FBA",
-        400: "#F86BA7",
-        500: "#F23E94",
-        600: "#D5327F",
-        700: "#BA256B",
-        800: "#9E1958",
-        900: "#840B45",
-      },
-      orange: {
-        25: "#FFF9F5",
-        50: "#FFF4ED",
-        100: "#FFE6D5",
-        200: "#FFD6AE",
-        300: "#FF9C66",
-        400: "#FF692E",
-        500: "#FF4405",
-        600: "#E62E05",
-        700: "#BC1B06",
-        800: "#97180C",
-        900: "#771A0D",
-      },
-    },
+    colors,
     boxShadow: {
       none: "0 0 #0000",
       inner: "inset 0 2px 4px 0 rgb(0 0 0 / 0.05)",