The Money Jars System

 

The Money Jars System

The Money Jars System is suitable for everyone, no matter how much money you have. This system is simple, easy to start and it has worked for hundreds of thousands people’s lives over years. All you have to do is to divide your money into 6 categories for specific purposes:

1.          Necessities (50%):

The first jar is your living jar, called Necessities (NEC): put 55% of your money into this jar. This amount of money is for food, loan payments, bills, petrol/diesel, insurance, etc… If you need more than 55% of your money to live on, it is time you cut down on your spending. For example, open your closet and make use of your last season clothes instead of buying new ones. It might seem difficult at first but once you get used to the jars system.

If you can’t cover all your necessities with 50% of your income, you need to do one (or both) of these things:

1. Simplify your life– figure out how you can spend less
2. Earn more – figure out how you can earn more

2.   Financial Freedom Account (10%):

The second jar is your freedom jar, you can put a label on this jar as FFA (Financial Freedom Account). Every time you receive your money, you will put 10% of it into this jar. This is your most favourite jar as it will only grow bigger and you MUST never spend money from it. You will use this amount of money for investment as you know there are Three Pillars of Wealth: real estate, businesses and the stock market. In economics, these are also called as assets and the goal of investing into assets is that eventually it will create enough Passive Income for you even when you are not working. You may consider this FFA jar as your golden mother goose that lay you precious golden eggs. Therefore, never kill the goose and only use the eggs when you are not working. The more you put on this FFA jar, the more you will have in the future.

 

3.   Long Term Savings (10%):

The third jar is where you put 10% of your money for Long Term Savings for Spending (LTSS). The purpose of keeping the money inside this jar is for future expenses. You want to go to Europe next summer? Your child is going to college soon? Better save from today. Monthly saving can add up to a big amount later. This jar is also very important when your retirement time comes so do not bother, save now and spend later.

The objective of this jar is to save money for future expenses (e.g. a new car, a vacation, a new couch, gifts, repaying debts…).

4.   Education (10%):

The fourth jar is called Education (EDU). Remember that education is never expensive so always invest 10% of your money in this jar. Successful people constantly invest in and grow themselves. The more knowledge and skills you acquire, the greater your earning capacity. And the more you earn, the more you need to learn (how to manage your additional wealth, how to bring your income to the next level etc.). Use the money from this jar for personal or professional development (e.g. books, courses, seminars).

You never lose when you invest in growing your knowledge and skills better.

5.   Play (10%):

Now this jar is very interesting as its name is the Play Jar. How often do you have a fancy dinner? Do you want a weekend getaway? Now as you have been working hard all month, you should really give yourself a little reward. Remember, use up money in this jar every month to prevent playing too much or not playing at all. It’s important to occasionally indulge yourself with a nice massage, some new clothes, a fancy dinner. To avoid over-spending or under-spending, make sure you use up the money from this jar at least every few months. This allows you to spend without guilt, and to also gradually improve your standard of living as your income increases.

6.   Give (10%):

     And the final jar is the jar too many of us often forget which is named the Give jar. As you are much better at managing your financial account now, take time and money to help others. Donate and help people who are in need or simply just buy your friends or your parents a gift on a special occasion. Giving inspires giving, you are making this world a better place.

However poor your circumstances may be, there will always be someone who is in an even more dire state. Besides the feel-good factor of helping others, giving away part of your income also helps you to sub-consciously develop the wealth-mentality that you have more than enough to give away.

 

Financial Freedom Jar: Finally, create a Financial Freedom Jar and deposit something into it daily, however small. The idea is to keep financial management top-of-mind, and a daily commitment made towards your financial freedom.

GETTING STARTED

Obviously, these numbers are just guidelines.  Depending on your financial circumstances, you may need to adjust the percentages slightly. If you are heavily in debt, there’s all the more reason to start implementing this system.

 

Here are 3 simple steps to get started:

1. Know your percentages.  You can’t manage your money without knowing how much you are earning and spending. You can start by calculating your current monthly income and the amount to be put into each of the 6 jars. Then, track how much money you spend daily. Just by becoming aware of your spending patterns is already a first step in the right direction.

2. Shift your mind set. Understand that money management isn’t about restricting your freedom; it is to create eventual financial freedom. Several years from now, you can be happily retired while your friends (who are enjoying the “good life” now) are still slogging away to pay for their expensive lifestyle. Constantly remind yourself out loud “I am an excellent money manager!”

3. Don’t entertain any excuses. It’s easy to say “I’ll do it tomorrow”, or “I don’t have time for it”.  The big question to ask yourself is – how badly do you want to be rich and financially free? If you are serious about your financial goals, then no excuses should be permitted.

Start NOW and stick to your plan.