Dave Ramsey Said This Is a 'Fantastic' Way to Organize Your Money. Is He Right?

Before adopting this system, here's what you need to know.

Finding an effective way to manage your money is very important. When you're able to control what you spend your money on, you can use your hard-earned cash as wisely as possible. You can build up a bigger bank account balance, for example. You can also avoid credit card debt, while spending your money on things you value the most.

Unfortunately, discovering a money-management technique that works for you is easier said than done.

Finance expert Dave Ramsey has suggested one approach he says is "fantastic," but it may not be the best one for everybody. Here's what you need to know about it to decide if it's right for you.

Ramsey's recommendation for a money-management system

Ramsey says a money management technique called the "envelope system" is a "fantastic way to (literally) organize money."

The envelope system, as the name suggests, involves dividing up your funds into different envelopes. Basically, you'd make your budget and allocate a certain amount of money to different spending categories such as groceries, gas, and clothing. You'd then get the cash allocated for each of these things and put it directly into the relevant envelope.

So, you might, for example, put $500 cash into your grocery envelope and $50 cash into your clothing envelope.

Ramsey is a big proponent of this approach for one key reason. "You can see, right in front of you, how much is left for groceries after that Aldi run," Ramsey explained. "You'll know if you can afford brunch and goat yoga with friends, because you've got the cash right in front of you."

Will the envelope system work for you?

While Ramsey's approach sounds great, there are a few practical problems with it.

For one thing, you have to get a hold of all the cash you need for each budget category up front and put it into the relevant envelope for the coming month. That's sometimes easier said than done, as you'll have to go take the money out of an ATM, and you need to be at least a month ahead on being able to cover all your expenses to fill your envelopes at the start of the month.

For another thing, you'd have to carry your envelopes with you whenever you're going to make a particular kind of purchase -- or remember exactly how much to take out of the envelope. If you stop to pick up some lettuce on the way home, for example, are you going to remember to take the $4.29 you paid for it out of your grocery envelope?

While there are apps that allow you to do the envelope system virtually, this approach would mean missing out on the tangible aspects of an envelope system that can make this money-management method work. You won't be able to physically see the cash available to you, so it wouldn't be much different than just using a spreadsheet to track your budget.

While you may be willing to live with these downsides if you really struggle with staying on budget, it's worth thinking about them when deciding whether to embrace the envelope system in your own life.

You may find that this approach really does help keep you on track, in which case dealing with the hassle is worth it. But if it doesn't work for you, there are plenty of other approaches to budgeting worth trying out, too.