In short: The separate-accounts ("envelope") method splits money by purpose — bills, reserve, goals, free spending — into separate accounts or envelopes so that it does not get mixed up.
Simply put: Personal money is not company money, and company money is not project money. In a family, a separate account for shared costs saves arguments. Envelopes use the "mental accounts" described by Richard Thaler: money in different boxes feels different. That helps protect the reserve and the goals, but it can also mislead — a euro is a euro wherever it came from.
Example: From a net income of €1,500: €900 to "Bills and food", €300 to "Reserve", €150 to "Goal — holiday" and €150 to "Free". When "Free" runs out, it is out until the end of the month.
Watch out: Saving at 1% interest in one "envelope" while paying 20% on a loan in another is expensive. Once a month, look at all the envelopes together.
Source: Thaler, "Mental Accounting and Consumer Choice", Marketing Science, 1985 — https://doi.org/10.1287/mksc.4.3.199