Money Management 101 - The Jar System

I pride myself as someone who manages my money well. I know exactly how much money comes in and how much goes out. I was quite happy with my money management system.

However, recently I learned a new money management system that makes it easier to allocate money for different purposes - the jar system.

Here's how it works. Divide your money between 6 jars and label the jars as follows:

1. Financial freedom account (FFA): This jar if for your financial freedom. Each month put 10% of your income in this jar. Money you put in this jar can be used to invest, start a business, create a passive income streams etc.
2. Necessities (NEC): Put 55% of your income in this jar for your necessities. It's for things like paying bills, food, necessary clothing etc.
3. Long term saving for spending (LTSS): Put 10% in this jar. You may have more than one LTSS jar. It's for things like a plasma TV, your family vacation, contingency fund, your children's education etc. If you have more than one LTSS, divide the 10% between the jars according to your priority.
4. Education (EDU): 10% that goes in this jar if for your own education. It could be used to attend seminars, buy books etc. Basically, it's for your continual education and learning.
5. Play: Allocate 10% of your income for you to have fun guilt-free. Use it to go to a fancy restaurant you've been eyeing, or a massage at a spa. Just do something fun. Let your inner child play.
6. Giving (GIV): Allocate 5% of your income to give to charity. If you want to allocate 10% for giving, take 5% off your NEC jar.

Many people think, "But I don't have money. I'm barely getting by. How can I manage money if I don't have money." If you're one of those people, that is exacly why you need to use this jar system. If you have very little money, you can start by dividing $1 between the jar.

The amount you put in the jars doesn't matter. It's the habit of managing money that's important.

So find yourself a few jars and start dividing whatever money that comes in into the jars. 6 months from now, come back to this page and post a comment to let me know how you're doing.

Where did I learn about the jar system? At T.Harv Eker's Millionaire Mindset Intensive seminar.