What is an envelope system used for?

The envelope system is a budgeting method that involves dividing cash into different envelopes designated for specific expense categories. This approach enables individuals to allocate a fixed amount of cash for various spending categories such as groceries, entertainment, transportation, and savings. By using this system, people are more likely to stick to their budget because they can physically see how much money they have available for each category and avoid overspending.

When cash within an envelope runs out, it serves as a clear indicator that the budget for that category has been exhausted, encouraging more disciplined spending. This method is particularly helpful for those who struggle with managing their finances or keeping track of their spending habits without the use of digital transactions or credit cards.