The envelope system, also known as the envelope method, is a popular method for visualizing and maintaining a budget. The key idea is to store the cash to meet separate categories of household expenses in physically separate envelopes.[1][2]
As currently used today, the envelope system is believed to have originated during the Great Depression of the 1930s.
Typically, the person will write the name and average cost per month of a bill on the front of an envelope. Then, either once a month or when the person gets paid, he or she will put the amount for that bill in cash on the envelope. When the bill is due, the money is taken out to pay for that bill.
This prevents the person from spending the money out of their pocket or bank account, because it is already allocated to the bill.
This is a budgeting mechanism often suggested to people by Dave Ramsey.[3][4]