The envelope system is a budgeting method that helps individuals manage their finances by allocating cash into different envelopes for specific spending categories. Each envelope represents a category, such as groceries, entertainment, or transportation. Once the cash in an envelope is spent, no more money can be used for that category until the next budgeting period. This system encourages mindful spending and helps prevent overspending by providing a visual representation of available funds. It is particularly useful for those who struggle with credit or debit card usage, as it promotes the use of physical cash to control expenses effectively.