1. Put your income in envelopes.
The cash for each month's expenses is taken out and divided into envelopes for each budget category. Like groceries, transportation, eating out, and rent.
2. Spend from the envelope.
Along the way, you take money out of an envelope to spend. For each category, spend out of the designated envelope -- and only that envelope!
3. Stop spending and see how much you saved.
Stop once you've emptied the envelope -- or before if you're really disciplined.
Rather than figuring out that you overspent after the fact, you plan your spending beforehand and only spend what you have.
The problem is, carrying around a lot of cash in this age of debit cards and credit cards isn't really convenient or safe.
Envelope budgeting in the 21st century
Use Goodbudget. Goodbudget helps you to stick to your budget limits without the hassle of keeping actual cash in physical envelopes. It's available on the Web, Android, and iPhone. Save for big expenses, share household expenses, and budget on-the-go. Goodbudget makes it easy to live out a budget based on the envelope budgeting system.