I am first introduced to the Jars System when I attended the Millionaire Mind Intensive seminar in 2011. It is billed as the world’s simplest, easiest and most effective money management system. I have come to believe in its power.
The fundamental behind the Jar Money Management System is very simple and elegant. Basically, you divide your monthly income into 6 jars according to a specific percentages. And then rearrange your life & your spending habits so that you stick to those percentages. So what are the categories?
|FFA||Financial Freedom Account||10||This is by far the most important category. This jar is what leads you to financial freedom. This is not taken out for anything other than investments to build your PASSIVE income. Put something in this account everyday…even if it’s your pocket change.|
|LTSS||Long-term Saving for Spending||10||Going on a cruise? Buying a big-screen TV? This is the jar for such expenses. And of course you ought not to engage in said activity until the jar contains sufficient funds – that’s the hard part!|
|NEC||Necessities||55||This category includes expenses such as housing expenses (mortgage/rent, utilities, insurance, HOA dues), groceries and car-related expenses.|
|PLAY||Play||10||You spend this money every month or at the most every two months. He suggests using this money to do or buy something a wealthy person would. A limo ride?…a massage?…fancy shoes?…a Rolex?…it’s up to you but make sure it’s something that really makes you happy and/or is fun!|
|EDU||Education||10||This would include all expenses towards education, from personal coaching seminars to tap-dancing lessons.|
|GIVE||Give||5||These are your charitable contributions.|
Note that these are recommended percentages. It is more about a way of thinking than about sticking to “arbitrary” and externally imposed percentages.
How do I implement it? Of course, it is a bit impractical and unsafe to put all that cash into jars sitting in the kitchen. So here is what I do instead…
- For FFA jar, main objective is to allow the money to accumulate over time. So it is necessary not to have easy access. I started a new bank account for this purpose. Looking at the interest rate banks are giving currently, it makes no difference which institution I open the account with. In addition, I also have a physical FFA jar for FFA. I contributed my small change into this jar. I contribute SG$1 gold coin into this jar daily.
- For LTSS jars is also in the form of a bank account. I would get the dream item when I have reach sufficient amount for it. I charge it to my credit card(cc) first and then settle the c bill using the LTSS account.
- For NEC, EDU and PLAY jars, I leave it in my main account i.e. the account my monthly paycheck is credited into. The NEC are for bills. Some of them are on auto deduction. I would monitor the bank statement for those. I have others that I settle through credit card, which i would pay immediate when i get the statement.
- For GIVE, I set aside the cash into a real physical jar. I make most of my donations and alms in cash. Occasionally, I made them through electronic payments.
This is how I implement. Immediately after my pay day, I have a spreadsheet to plan the allocation. This spreadsheet will contain breakdown of expenses planned for every jars e.g in NEC I have the mobile bill, cable tv subscription, insurance premiums, transportation, food, etc. In EDU, I have course fees and books I have want to buy. These are all planned items. For GIVE, it is a bit different. I would record as and when I make donations and alms. In LTSS, I strike off the dream items that I have made real. I added formulas in the spreadsheet to make calculation easy. More on the spreadsheet in future post.
It is not that I am bad in managing my money prior to this. However, I overlooked on areas like giving and play. As a saver, I try to minimize spending as much as possible by only spending on what is necessary. I skip any big ticket item as I can’t afford it. Adopting JAR has changed my habit of money management. It has been repeated in a few books I have read now on the power of giving. I have to give what I want more of. I don’t feel the guilt after spending on big ticket item as I have planned and saved for it in LTSS. In my opinion, it is necessary to manage your money. It is not a matter how much you are managing but more importantly, the habit. There are other advises on personal money management but to me JAR suits me.