In Year 2011, I embarked on my journey of Financial Education. Since then, it has been a totally rewarding and life-changing journey. I still remember I have attended a seminar called Millionaire Mind Intensive in September that year.
The seminar was powerful – in just a short few days, it removed many money limiting beliefs I have had and re-programmed positive and empowering beliefs into my mind. Ultimately, I believe it is these new beliefs that helped me to re-write my own life stories. You can read more about my story HERE.
One of the lessons I learned from this seminar is called the ‘Money Jars System’. It is a simple but yet powerful concept on how to manage your money effectively.
The Money Jars System
The idea of the ‘Money Jars System’ is that you should divide all the money that comes into your life into 6 jars according to certain target percentages. And then re-arrange your spending habits so that you stick to those percentages.
So what are the 6 jars?
1) Financial Freedom Account:
Target percentage is 10% (or more). This is THE most important jar – Pay Yourself First! This jar is what leads you to your business and investment capitals and ultimately to your financial freedom.
What most people do when they earn a dollar is that they pay everyone else first. They pay their landlord, the credit card company, the phone bill, the government, and on and on. And after paying everyone else, they then see how much money they have ‘leftover’ to pay themselves. And guess what, in most cases, there is nothing left at the end of the month for themselves (surprise surprise!)
So next time when you get paid, remember to always Pay Yourself First! Putting at least 10% into your ‘Financial Freedom Account’ will put you one step ahead towards financial freedom.
Obviously, if you are able to save more than 10% towards your ’Financial Freedom Account’ then you will have more money that can potentially “work” for you and help you to reach your financial goals faster.
Target percentage is 10%. This is a very important jar as well. This would include all expenses towards your education, from personal development books, seminars, online audio, video training programs to personal coaching. Over the years, I have invested tens of thousands of dollars into my own personal development, financial education and to learn how to build my business, and the education has paid me back many times over and still paying me every single day.
The greatest investment you could ever make is on your own personal development. Remember, you cannot live a rich life with a poor mind. Change your mindset, change your life. Once you commit to continuous personal growth every single day, you will see your life transform.
Target percentage is 10%. These are your charitable contributions or tithe to your church. The universe works in an interesting way – the more you give, the more you tend to get! Giving starts the receiving process. So go ahead, allocate 10% of your income to good causes!
Target percentage is 50% (or lower). Just as the name sound, this jar includes expenses such as housing expenses (mortgage/rent and utilities), cell phone bills, insurance, food & groceries, children’s school fees and transportation expenses. These are your every day expenses.
5) Long-term Saving for Spending:
Target percentage is 10%. Going on a cruise? Going on a family vacation? Buying a big-screen TV? Getting a new car? This is the jar for such expenses. The idea is that you ought NOT to engage in said activity until the jar contains sufficient funds (that’s the hard part!)
Target percentage is 10%. This jar is all about short-term fun! For a lifestyle to be sustainable, we can’t forget to have fun too, right (Woohoo!!!)? This is also to ensure that the “Super Saver” will have some fun in life and the “Super Spender” to not over-spend.
This jar includes your movie night out, dining out, spa treatments (we need that, don’t we, ladies?) and entertainment expenses. The good news is that you must EMPTY (yes, spend the money!) this jar every single month to ensure that you are including some fun in your life!
Of course, the above are just recommended percentages. It is more about a way of thinking than about sticking to “arbitrary” and externally imposed percentages. So feel free to adjust the percentages as you find appropriate.
If you find it troublesome to maintain 6 jars, you can also do this electronically or deposit your money into 6 separate bank accounts.
The important thing is that the moment your pay check comes in, you should divide the income into each ‘Jar’ according to your percentages such that you are on track with your budget and will not overspend on things you shouldn’t (that limited edition LV bag you have been eyeing on?). If you just start splitting your money and Paying Yourself First (regardless of the recommended percentages), you will start to see the results.
The important thing is to build the habit. In most cases, it will take at least 21 days for a new habit to form. So stick with it and you will see your Financial Freedom Account grow!
I hope this article has added value to you. If you have enjoyed it, please ’like’ it or ’share’ it so that more people can benefit from this. Sharing is caring!
With lots of love,