What is the envelope system?
The envelope system is a visual way of helping you stay on budget. All good working budgets have categories where you tell your money what to do. For instance, you have categories for food, toiletries, medical expenses, and hobbies.
Well, after you write your budget out on paper, you have to put it in action. The cash envelope system gives you better control over your budget because you simply withdraw the amounts you need for each category you typically pay in cash and put them in their individual envelopes.
For example, if your budget dictates that you will spend only $100 on groceries for the week, you would withdraw $100 and put it in an envelope labeled groceries.
Throughout the week, you will write down how much you spend on the envelope or just collect your receipts in the envelope. Once the money is gone from that envelope, you’ve spent your grocery money for the week.