by Dave Brahimi
Budget Your Money With The Jar System
You may think that it's pretty simple and that you know how to budget your money - even if you admit to yourself you don't do it, or do it well. But I learned a great way to budget your money so that you can actually grow your wealth - and not starve yourself of necessities or fun in the process!
I'm going to assume you are a business owner. You will need 7 jars. Now these don't have to be physical jars, but can be 7 bank accounts where you divide your money. Each jar, or account, will represent a category where you will place your money.
1. Tax Jar
The tax jar is first. If you are an employee and not a business owner, you don't need this jar because taxes are taken out for you. However, if you own a business, remember that you have to pay taxes on your profits. Consult a tax professional to find out how much you need to put aside.The rest of your money is your personal funds: let's say that that represents 100%. You divide up your money as follows:
2. Necessities - 50%
Half of your money goes into this jar/account for necessities. This represents all of the money that you will need to live. Bills get paid from this jar. Groceries, cell phone, transportation, clothing - all the usual "budget" stuff goes here. Now, I get that your situation might be that ALL Of your money goes to necessities - or most of it, and you can't live off of half of your money. Join the club of, well, mostly everyone! I'll get to how to handle that in a minute. But for now, just keep in mind that you need a necessities jar and don't get hung up on the percentage right now.
3. Financial Freedom - 10%
This jar is your golden goose that will lay your golden eggs. It is the account that you will use to invest in passive and residual income sources. This includes conventional sources like stocks & bonds but also other types of passive income (like my favorite, Bitcoin). You can also use these funds to start and grow your business.The most important thing you need to know about this jar is that for a long time, any funds that you make from this jar (dividends from stocks, profits from investments) you feed BACK into the jar. Feed the golden goose so to speak so that it can make more eggs. Keep doing this.When do you stop? You stop when the income from this jar exceeds your expenses. At this point, you are financially free. You can keep feeding this jar to grow your income (and at that point, it could possibly be exponential!)
4. Long Term Savings For Spending - 10%
This is the jar where you save for big purchases, like a refrigerator or a new car. It could also be a smaller (big) purchase like a computer. Remember that "big" is relative. The point is that you will need to make a larger purchase and you should pay cash for it and avoid credit if at all possible. Don't get me wrong, there are some scenarios where a credit purchase may be very smart, but overall, cash is king. (And remember, I'm not a financial adviser, so always consult a professional for advice)Also remember that there will always be a large purchase in your future. Something will always come up. So this is an important jar.This is ALSO the jar you keep for emergencies! Try not to withdraw from this account unless you have a true emergency. When your car breaks down, unexpected medical expenses, or you have to fly somewhere to help a family member, those are emergencies. Your goal is to fill this account so that you have a minimum of a year's income in this account.Don't let that amount scare you. That's optimal. Dave Ramsey suggests that you start with the bare minimum of $1,000. That will put you ahead of many Americans who sadly don't have the income to save for emergencies! You can then grow from one thousand to one month's savings, then 3 month's, and then 6 month's and so on.Can you save more than a year? Of course! And when you are financially free, you'll be able to do this faster. In fact, you want to make sure this account has at least a year before you quit your job. The home based business industry can be lucrative, but also volatile.
I learned the Jar System from T. Harv Eker in his book Secrets of the Millionaire Mind. It is a genius system that I've seen modified all over the place. However, I have found that his original system assumes that you have a decent amount of income and little expenses. So I'll explain his system and then show you how I modified it for us regular folk. LOL
5. Education Jar - 10%
This jar is for YOUR education, not your children. I know that seems weird, but this isn't for your kids' college fund. It is this fund where you purchase courses, pay for expenses like flights and food for seminars and conventions, or get books and other materials. Coaching would also come out of this jar.This jar is for YOUR self development - personal development and business development. You cannot grow if you don't invest in yourself.So, where does the savings for your kids go? That's Long Term Saving for Spending. Your financial freedom jar will help too - remember that that jar will grow so when you are financially free, all of your other jars will increase.
6. Gift Jar - 10%
This is your tithing jar if you are religious and or your for charitable giving. Giving is important - what you give will come back to you!
7. Play Jar - 10%
This is the most fun - but also the one that surprisingly, people don't use. This is the jar that you MUST spend every month on something very expensive and decadent. Think of using the funds of this jar for items only the truly wealthy would buy. Don't think you have enough for that? Of course you do. Here are some ideas:Book a reservation to a 5 star restaurant and only order appetizers and drinks. Get a massage for an hour. Buy that really expensive handbag. Hire a limo to go to the grocery store (yes, seriously lol).In the beginning, this jar may not be very big and you may not have enough funds to do something very expensive. That's ok. Treat yourself to a movie! Or buy something you normally won't allow yourself to buy. If you *really* want something, then save the jar for a couple of months and then buy that expensive item or have that expensive experience.The point of this jar is that you be able to dream about what you want if you don't seek it and experience it - at least in some way! Google stuff if you have no idea what you could do. Go crazy. Enjoy yourself.The other point of this jar is that being financially responsible can involve a lot of sacrifice, but it doesn't mean you have to sacrifice your entire life. Give yourself a change to indulge every once in awhile. You know, like they advise you on our diet. This way you can enjoy the fruits of your labor.Ok - now that I gave you what the jars SHOULD look like, let's look at what this means realistically.Most people can't afford to just live off of half their take-home income. Especially if you live in an expensive place like NY or LA. But that doesn't mean that you can't do the jars! First of all, keep that 50% in mind as a goal. When your income grows so that you can put away 50% of your salary? You are doing better than most people! Congratulations!But until then, put together a realistic necessities budget. Cut out and sacrifice where you can. Assuming that you have some money left, even if it is only $10, then you divide the rest of that money in the 5 remaining jars. So put 20% of the balance in each jar until your financial freedom jar grows large enough for you to start getting profits and income from it. Once you are financially free, you can keep increasing your income so that you can reach that 50% goal.Realistically, unless you move things around, it may take some time to build that financial freedom jar before you can invest in some passive income sources. But starting a home business and investing in bitcoin are two ways to invest a little bit of money and you can start to get returns to feed your golden goose.Want to know something cool? When you get really wealthy, you'll see that your necessities will be way less than 50% and you'll have more to invest and to play with. Awesome.Do you want to learn more about the jar system? Get more info from the man himself, T. Harv Eker on this blog post.So, hope this helps. In most of my posts, I'll be focusing on what to do with our financial freedom jar. But this is a start.* * * * * *
Did this help you? I'd appreciate it if you commented and let me know! Also, please share this blog post - I want to help as many people as possible.
*Please note that I am not guaranteeing that anyone gets a profit, gain, or significant income. See my income disclaimer. Your efforts and results will vary. Is it possible? Yes. But it is NOT guaranteed!