An Easy Way to Manage your Money: The Joy of Jars

A key part of putting your finances in order is to ensure you are balancing your financial activities — making sure that you are devoting funds to all the important aspects of your life.  Financial management can be scary, but it doesn’t have to be.  You can start with something as simple as dividing your spare money into labeled jars.  Really.  Your grandparents probably did something similar.   T. Harv Eker, author of Secrets of the Millionaire Mind, advocates a simple, proven formula to manage your money.

I was fortunate in taking T. Harv Eker’s Millionaire Mind workshop from the master himself.  Among the many valuable things I learned was his ‘Money Jars‘ system.  Basically, you set up labeled jars for different purposes and begin a weekly practice of depositing money into them. Initially, the amount of money doesn’t matter.  You can start with as little as $1 and divide it up into your money jars.  The important thing is to establish the habit of distributing your cash towards different, specific purposes.

So pick an amount that is comfortable for you to play with — $1, $10, $100, or more a week.

Now take six empty jars and label them as follows:

1.  Necessities — this is where you will put 50% of your money. This is earmarked for food, shelter and other fundamental domestic expenses.

2.  Financial Freedom Account: 10% will be untouchable money you will invest and grow and never spend.  In T. Harv Eker’s world, this is “the goose that will lay your golden eggs.”  He also advocates putting something into this account every day — even if it’s just a coin or two — as a way of establishing the daily habit of investing in your financial freedom.

3.  Long-term Savings Account(s): 10% will be allocated to one or two specific big ticket items.  For example, you might sock away the whole 10% in a ‘car’ account.  Or you might put 5% in a ‘vacation’ account and 5% in a different account, earmarked for a ‘dining table’.  If you don’t already have a “Contingency Account” — money you’ve set aside to cover unexpected expensive events such as illness or job loss — then it is highly recommended that you devote some or all of your Long-Term Savings Account to this purpose until you’ve socked away enough to cover four to six months of living expenses.

4.  Education/Personal Development: 10% of your money will be earmarked for courses, classes, workshops, books, coaching, skill development, personal enrichment and so forth.  This self-investment is the financial equivalent of putting yourself first.

5.  Play: 10% is for your guilt-free enjoyment.  Spend it on things that make you happy.  Eker would also advocate spending it on things that make you feel wealthy.  There is a catch here:  you MUST spend this money every month.  This won’t be an issue for some people — but those of you who are ‘savers’ — or those of you who tend to deny yourself simple pleasures — this will be a challenge.  The Play account is designed to force you to actually enjoy your money.  This is key in changing any negative deep-seated beliefs or fears you have about money or wealth.

6.  Give: 10% is for charitable donations.  Most wealth experts — folks like Eker and Suze Orman and their ilk — advocate giving as an automatic or even a spiritual practice.  Some advocate it from the perspective of the “Law of Circulation” — that giving is a way of tapping into a flow of resources — as you give, you will receive.  The point here is that part of balancing your financial activities includes giving to others.

Once you have your money jars set up, it’s a matter of making a weekly practice of dividing up your chosen amount into the jars.  As you feel more comfortable with the process — and as you have more money available — increase the amount you are investing each week.

At some point, you will have enough cash saved to create separate bank accounts for each money jar.  This is especially easy to do if you have an online banking account.  You can simply create and name different accounts “Financial Freedom”, “Vacation”, “Give”, etc.

Now the idea is that as you incur expenses, you will pay them out of the relevant money jar.  For example, you’d pay for your workshop out of your “Education/Personal Development” account.  You’d pay for groceries out of your “Necessities” account.  Eker goes so far as to pay his credit card bill with five checks instead of one — paying for each category of expenses from their corresponding accounts.  (Hey, you can call him crazy, but he’s also crazy rich).

The Money Jars Work

It seems surreally simple, but the Money Jar system works.  It’s a proven way to manage your money, to balanceyour financial activities — and it’s another great example of how small changes can have a huge impact on your life.  One broke woman began by investing a ten cents every week.  Seriously.  She took ten pennies and divided them up into her jars every week.  Within a year, she had dug herself out of considerable credit card debt, started a contingency fund and built up a Financial Freedom account which was earning her passive income.

Why The Money Jars Work

1.  They ensure you will establish good financial habits.

2.  They automatically balance your financial activities.

3.  They ensure that “spenders” will save for their long-term financial freedom as well as for short-term financial expenses.

4.  They force “savers” to spend money on things like their Education/Personal Development and Play.

5.  They help you overcome financial fears.  By taking weekly, well-balanced financial actions, all the bases are covered, and your financial anxieties dwindle.  Instead you will feel relief.

6. The “Play” account guarantees you will get enjoyment out of your money.  This is gratifying in the short term and helps disrupt any negative, deep-seated beliefs you may have about money or wealth. Until you do that, it’s pretty much impossible to put your finances in order.

7.  By definition, they put your finances in order.  You’re managing your money, despite yourself.

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Activity: What amount of money would you be comfortable investing in the Jars system each week?

Activity: Take empty jars and label them “Necessities”, “Financial Freedom”, “Education/Personal Development”, “Play” and “Give”.  Label your “Long-Term Savings” jar(s) with the specific thing you’re saving — “Contingency Fund”, “Car”, “Dining Table” or whatever.  Now take the amount of money you’ve selected and divide it into your jars according to Eker’s formula:  50% into “Necessities” and 10% into every other jar.  Mark your calendar for a check-in in four week’s time.

Activity: Every day, add a little something to your Financial Freedom jar.

Activity: Every week, divvy up your chosen amount into your money jars.

Activity: As your cash grows, set up specific bank accounts for each money jar.  Establish the habit of paying for things out of the relevant money jar or its corresponding bank account.

Activity: On the date you scheduled your one month check-in, take stock.  How many weeks, out of the past four have you divided cash into the money jars?  If you’ve done so four out of four weeks, congratulations!  You’re well on your way to putting your finances in order.  If you haven’t, what adjustments are needed?  Have you spent your Play money for this month?  If not, do.

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