What is Envelope Accounting?
Envelope Accounting has been around for quite some time. Some refere to it as "Bag" accounting or the "Accounts" system. The concept is the same no matter what you call it.

Envelope Accounting is a method of budgeting where on a regular basis (ie monthly, biweekly, etc) a certain amount of money is set aside for a specific purpose (or category) in an envelope marked for that purpose. Then anytime you make a purchase you look in the envelope for the type of purchase being considered to see if there are sufficient funds to make the purchase. If the money is there, all is well. Otherwise, you don't make the purchase, at least not until the next allocation is made. The flip side is true as well, if you don't spend everything in the envelope this month then the next allocation adds to what is already there resulting in more money for the next month. And if you don't spend anything from that envelope for the entire year then you have enough money in it to pay cash for Christmas, property taxes or car insurance without having to scramble or go into debt (Assuming of course that you have been putting a twelveth amount of the final amount into the envelope every month).

Why use Envelope Accounting?
It is a proven fact that when individuals set goals, write them down and measure themselves regularly against those goals that performance improves. The performance we are trying to improve is to spend our money on the things that we really want to spend our money on. The goal setting comes from deciding where to allocate the money that comes in to your control. Writing it down consists of physically putting the money into the envelope for each desired goal. Measuring yourself consists of looking in the envelope often and realizing how much is there.