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Paper-based envelope budgeting might seem old-fashioned, but the principles behind it still hold water in the digital world. Learn more here.

Everyone says that it's smart to budget, but few admit how hard it can be to do something so seemingly simple. "Spend less than you earn" is usually less straightforward than it looks on paper, and even though developing a budget is vital to keeping your financial health in check, most people struggle to really stick to it. It's all too easy to accidentally splurge and end up way outside of your budget.

Sometimes, don't you wish you had something to keep you within your set limits? 

That's just what envelope budgeting offers.

This classic budgeting framework originated long before the age of online transfers, mobile bank accounts, and direct debits. That makes it the perfect analogue alternative to digital budgeting systems and apps.

What does it involve? There are three basic steps:

1. Take paper envelopes (one for each of your spending categories) and label them, including the amount of cash allocated toward it.
2. As you get paid, put the money needed to cover the expense into each envelope.
3. When bills are due or you spend on a given category, use the cash from the corresponding envelope to pay. That's it!

When you use this system, the standard budgeting principles still apply. Prioritize envelopes to cover your main fixed expenses — the bills that don't change (think rent, car payments, or student loans). Say your fixed expenses include $2,200 for rent, $400 for car payments and car insurance, and $300 for student loan payments each month. In this example, your fixed monthly expenses total $2,900, so you'd allocate money to the envelopes for those expenses first.

Next, allocate money to your variable expenses, the costs that fluctuate from month to month. Withdraw the total needed for your variable expenses from your bank as cash. Then, put the appropriate amount into an envelope for each category of spending.

Say you have $600 left after paying for your fixed expenses. Your discretionary expenses might include:

• Groceries
• Clothing
• Entertainment
• Short-term savings

You would then split the $600 between the four envelopes, say $450 for groceries, $50 for clothes, $50 for entertainment, and $50 for savings.

A key feature of this budgeting method is that once an envelope is empty, it's empty: you have to wait until the following month to spend more in that category. This forces you to know your budget ahead of time and then stay within it, two of the building blocks of personal money management. No more dipping into your savings because you overspent on a new pair of shoes. If you want to buy something in a given category, you're forced to save month after month until you have enough money in that envelope to afford it.

As a bonus, when you pay with cash instead of with a credit card or debit card, you may be more likely to spend less overall, since a dwindling stack of cash is a strong visual reminder of how much money is really leaving your pocket.