You may have probably heard this before; it’s called the Money Jar System. This is Step 3 in becoming the best money manager from the previous blog, Unlock the Secrets of Becoming the Best Manager of your Own Money, and Step 2 on your way to Financial Freedom.
What is a Money Jar?
The money jar system segregates your income into different divisions before saving or spending.
The money jar, maybe an actual jar or a representation of this Jar. In my case, it’s different bank accounts.
The ideal money jar looks like this:
Once you receive your income, you will have to delegate the money where it should go and how it will be spent.
This is where YOU take the reins and become the master of your money and not the other way around.
Ideally, these are the percentages:
10% Give Jar
20% Financial Freedom Jar
10% Education Jar
10% Play Jar
50% Expenses Jar (further divided into)
– 40% Expenses now
– 10% LTSS (Long-Term Saving for Spending) Jar
Let me discuss each of these:
10% Give Jar
Why do we need to give? Giving is a vital jar, whether to the church or your favorite charity.
The principle of “the more you give away, the more comes back to you” works. It’s written in the bible or being taught as a universal principle.
Why do I think it works? It’s also connected with “The Principle of Attraction.” The Principle of Attraction states that – you attract WHO YOU ARE and not WHAT YOU WANT.
You can only give if you are abundant inside. So if you are abundant inside because you are generous, then you attract abundance too.
For some of you, this may not be possible if your expenses are way too big to be able to give. Well, that’s what you think. You can always start with 1%.
It’s not the amount that matters; it’s the meaning and message you send the world.
Life is an echo; giving is shouting to the world, “I am Abundant,” which will also flow back to you.
20% Financial Freedom Jar
Another crucial money jar. Yes, for me, it’s one of the essential Jar you don’t want to skip. This Jar will help you become financially free.
This Jar aims to help you get out of the cycle of working-earning-spending. It’s the Jar that will buy your freedom.
Freedom to stop working if you want to.
Freedom to spend time on the beach or take a vacation without guilt.
Freedom to do what you want, with people you want, and as long as you wish.
Freedom to be passionate about your God-given purpose without holding back.
There will be a lot of time in your life that you will be offered an opportunity to a business, a very timely investment, or a very limited opportunity.
This Jar will give you that power to jump into that opportunity the moment it presents itself.
Rules in using this Jar:
1. You cannot use this for your needs or any other things.
2. You cannot use this for an emergency; you should have separate savings for emergencies.
3. It would be best if you put something in this Jar every time you earn; it may not be 20%, but put something. Again, it’s not the amount but the habit we build here.
4. Use this only in times of great opportunity for business, investment, or anything that you think will give you passive income in the future.
I have been building this Jar for our family for quite some time now. Yes, there are times that I can’t even put 20% into this Jar, but I put something on it just the same.
So, I have something to get from when an opportunity comes, like a business, an investment.
There are two types of income. Active and passive. For this Jar, the goal is to build as much passive income as possible. That passive income will buy the freedom that you want. More on to this in the coming blogs.
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10% Education Jar
I want to be clear on this. This part is not the TUITION FEE for your kids. This 10% is education for yourself. It is allotted for your self-development, business, financial, professional, or even spiritual development.
Why do we need to set aside 10% for education?
WHY DO YOU THINK?
Do you want to grow your income? Yes?
T. Harv Eker said that “Your income will only grow to the extent that you do.”
We are just the printed copy of the soft copy of your life. If you want to change the printout, you don’t erase it on the printed paper. You have to go back inside the computer, change the programming (soft copy) then print it again.
There are a lot of things to learn after school; let me give you some of the things I enrolled into:
Personality development, mastering yourself
Money Management 101
Business development and salesmanship
Taxes
Leadership
Speaking
Writing
New investments like Cryptocurrencies, Global Investing
Learning Books (Not included books for entertainment, there is a Jar for that)
There are so many more. Albert Einstein once said, “Once you stop learning, you start dying.”
There are so many things to learn about, so Education Jar is important. So, when you have an opportunity to learn, you have money set aside just for that.
To tell you honestly, I am learning how to cook healthy. Currently, I am enrolled in a Culinary Medicine Course for the prevention of diseases.
So many things to learn, too little time. By educating yourself, you can learn new skills and discover new income-generating opportunities; these will open doors so that you will not be dependent only on your profession.
10% Play Jar
Another important Jar you don’t want to miss. Yes, some people skip this because of too many expenses. But for some, this Jar dominates the whole expenses.
Either way, in this Jar, you must know yourself, particularly your Money Personality.
There are five common personality types when it comes to spending money. Two of those are considered major personality types: the Savers and the Spenders.
WHO ARE THEY? (Check yourself, where do you fall from these two)
SAVERS
Savers are not concerned about following the latest trends. They turn off the lights when leaving the room, shop only when necessary, and rarely make purchases with credit cards. Saving money comes naturally to them; spending makes them cringe.
Are you a Saver?
SPENDERS
Spenders are the opposite of savers; they love nice cars, new gadgets, and brand-name clothing. Big spenders aren’t bargain shoppers; they are fashionable and always looking to make a statement. Spending money is easy for them, but saving is difficult.
Are you a Spender?
This play Jar is important in keeping the balance in your personality whether you are a saver or a spender.
Let me give you my own experience.
I have been a saver ever since I can remember. It’s good that I can save, but the problem with me is I feel so guilty every time I spend. So if you are a saver, you can relate to what I am saying.
For savers, the problem happens when you don’t reward yourself. You feel guilty every time you are on vacation, having fun, and just spending. This play jar can balance that. Play jar finally permits you to spend without feeling guilty. You can reward your inner child within you who wants just to feel free and have fun. Rewarding yourself is important because you’ll feel less and less worthy if you don’t. It’s essential for your self-worth and confidence.
For spenders, like my husband and a majority of people I know. Spenders love to spend and don’t know when to stop. They usually stop when they don’t have any more to spend. This Play Jar also helps by balancing their spending. The play jar gives them the cap or maximum limit to spend every month for play or wants or things they don’t necessarily need.
This Jar balances your personality. So, never skip this Jar. If you can’t do the 10% because you have too many expenses, start with 1%. You just need to put something here.
50% Expenses Jar
This is the only Jar you usually have if you don’t have a system. It’s like this, you work, receive an income, and then spend. Yes, then this goes on and on and on. It’s a cycle, and this is what Robert Kiyosaki is telling, the Rat Race. Imagine a rat in a cage running into this wheel and never getting anywhere.
If you don’t plan your finances and manage them well, this would be your default. And you won’t get anywhere with this, even if you think you are doing a lot.
Expenses Jar can be further divided into “Necessity Jar” and “LTSS.”
40% Necessity Jar
This Jar is for your everyday expenses: food, shelter, bills, kids’ education, etc. This dominates 100% of their income for some people, or for others, 100% is not enough. You can start at 95% and put 1% in all other jars. That would be fine at the start.
10% LTSS (Long-Term Saving for Spending) Jar
This Jar is still for necessities, but big purchases usually need more time to save up. So the best thing to start this Jar is for: Building your emergency fund, tuition fee for the kids, that refrigerator you are dreaming of, that smart TV that you want, or anything that needs more saving up.
I know this blog is so long, but I hope you have read it. This is the easiest and most effective money management system I tried, and this can change your whole life if you do this.
It is a crucial part of becoming financially free.
Watch out for STEP 3 towards Financial Freedom on our next blog.
For Our Financial Freedom,
Read more:
– My Finance MD is BACK!
– How To Save 50% At the Grocery by Doing This One Simple Step
– Unlock the Secrets of Becoming the Best Manager of your Own Money
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