You’ve probably heard of the money jar system before. It’s a budgeting technique that is popular among people who want to be more in control of their finances. The idea is simple: you put your income into jars and spend from those jars accordingly.
I used to be overly obsessed when it comes to budgeting. I’ve tried so many budgeting systems, from budgeting apps to spreadsheets. But most of the time, I end up frustrated because I couldn’t stick to it.
It was only when I tried the money jar system that things changed for me. And not just with budgeting, but my financial well-being in general!
I first heard about the money jar system from Nomad Finance Girl. In fact, she included it in her book “How to YOLO Wisely. But the Money Jar System was originally introduced by T. Harv Eker, the author of the world-renowned book, Secrets of the Millionaire Mind.
So how does the Money Jar system works?
You need six jars where you distribute your money. Well, it doesn’t have to be physical jars. It could also be envelopes, wallets, coin purses, containers, or bank accounts. In my case, I found using multiple bank accounts more convenient as I do most of my financial transactions online.
Using the Money Jar System
The basic concept of the Money Jar System is to divide any money you receive into six jars.
Jar 1: Necessities (55%)
This jar includes everything you need for daily survival. Your rent, food, phone bill, medicine, health, and life insurance policies should fall into this jar.
If you have a car, then you should include your fuel and toll expenses in this jar as well. If you have debts, paying them off should be your priority.
Your secondary needs are considered important but not crucial for survival such as cable TV, internet connection, subscriptions, and gym membership. If you find that most of your money is only enough for your primary necessities, then you have to consider either cutting your budget on your secondary needs or finding ways on how to increase your income.
Jar 2: Financial Freedom Jar (10%)
To be financially free, your passive income must exceed your expenses. Even if you don’t work, your passive income continues to grow as a golden goose does. Rental fees, royalties, dividends, interests, and capital gains are all examples of passive income. You can allocate your financial freedom jar in investments that suit your risk knowledge and risk appetite.
Jar 3: Long Term Savings (10%)
This jar is intended for huge purchases like a house, dream wedding, dream vacation, a car, or anything that will take a long time for you to save up.
As a rule of thumb, save your money in this jar if you are not sure whether it will be necessary for expenses coming up soon. You can also allocate this portion to build your emergency fund.
Jar 4: Education (10%)
The millionaires who made their own way in life are often equipped with skills and knowledge that can be converted into cash. They spend money on courses, books, or coaches to help them upgrade themselves so they’re better able-bodied for success
High-income earners invest heavily in personal development: from investing time learning new things like languages and hobbies all the way up to hiring experts when needed!
Investing in education is not just an investment for yourself, it’s also one of the best ways to build new relationships that are beneficial for your growth.
Jar 5: Play (10%)
Do you want to reward yourself for all your hard work? Use the Play Jar. Guilt-free! Spend money on whatever makes you happy, when it’s time. You deserve personal experiences that enrich your life.
Jar 6: Give (5%)
Using the give jar to buy birthday gifts, fund special occasions, or do volunteer works can be a great way for you and your friends/family members to have some fun while also contributing in a meaningful manner.
The money jar system is just one of many ways you can better manage your finances, but it’s a good starting point. As long as you’re flexible and willing to change the percentage allocation if necessary, this method should work for most people.
For more invaluable tips about money management, click here.