After people learn about the money jars system, I get a few who say, “I like the idea of dividing my money up into different jars but I hate using cash.
I’m not a big fan of using cash either. To be honest, I don’t.
After the first two years of using cash, I changed my jars to digital jars. I opened up a few bank accounts when I was 18 years old (it was more like six), but it has been extremely effective in helping me reach my goals. The banker was probably like, “what is this 18-year old doing opening up a bunch of bank accounts? This can’t be good.”
Here’s how to get started.
OPEN ONE CHECKING ACCOUNT
I encourage you to first start out using actual jars — even if you don’t like using cash. You can get started dividing up $100 or less. Physically doing the act is very powerful.
I also encourage you to get the jars if you have kids to teach them how to be smart with money. This is such a simple thing to teach your kids that when they understand it, you’ll be doing a great job as a parent raising money-savvy kids.
After you’ve mastered the physical jars go to your bank and open up a checking account. I imagine most of you reading this will already have a checking account so you really don’t need to do anything here.
OPEN FIVE SAVINGS ACCOUNTS
If you don’t like using cash, it’s time to transition everything online. You need at least five savings accounts (not checking accounts). Most people only have one saving account so you’re most likely going to have to speak to your bank about this.
Most people are terrible savers because they try to keep a running tab in their head and then at the end of the month they tell themselves that whatever is leftover they will transfer it to savings. And guess which account never grows? Yep, you guessed it. You have to learn how to pay yourself first!
Think of your checking account like the hub and everything else stems from it. The checking account is like the trunk of a tree and the savings accounts are like branches. Your money comes into your checking account and the first thing you do is divide 10% here and 10% there.
I’ve never run into an issue of having to withdraw money from a savings account more than six times in one month. But it’s worth mentioning.
FIND A BANK THAT DOESN’T CHARGE FEES
This next idea is extremely important. If you have a bank that will let you open five savings accounts with no problems, you’ve got a great bank. But if you’re bank tells you, “sorry, we’re going to have to charge you to open up more than one bank,” I want you to switch banks.
What you might be thinking:
“First Scott tells me to use this budgeting system for the rest of my life, and now he’s telling me I need to change banks, is this guy crazy?” Yes, most of the “BIG” banks, Wells Fargo, Chase, Bank of America may charge you additional fees for having additional savings accounts if you don’t maintain a minimum balance, or set up automatic transfers.
Here’s your script when you go to sit down with your banker and they tell you they have to charge you a fee for more than one savings account:
Mr. Banker: We will have to charge you a fee for more than one savings account.
You: Thank you mister banker, but it’s important that I have five savings accounts and pay no fees. A bank down the road said they would do it so I guess I will have to take my business there.
Mr. Banker: I will see what I can do.
THE BANK WANTS YOUR BUSINESS
The bank wants to keep your business and I’ve heard they will wave the fees in many cases. But, if they say, “sorry we cannot change that,” I promise there are hundreds of other banks that will. I’ve never heard of a credit union not willing to do that for you.
I asked my credit union how many bank accounts I could open without paying fees, and they said, “as many as you would like.” I said, “really?” She said, “we have a customer who has 63 bank accounts with us and that’s totally fine.”
My bank is USAA and I’ve had a great experience paying no fees and having multiple savings accounts. I would highly encourage you to open your accounts with them if you have access to them. Most people don’t unless you or a family member is or has been in the military.
The bottom line is DO NOT PAY FEES.
THIS WORKS IF YOU SPEND LESS
I already know many of you are thinking, “this isn’t possible in my situation because I don’t make enough money.” You can read ways to make more money here. However, the most overlooked way to make this system work is by spending less.
If you’re serious about financial independence, not only do you need to make more money, you need to keep as much of it in your wallet as possible.
We’re constantly bombarded with marketing messages telling us we need to spend money to be happy. This is not true! Live simply and be grateful for what you have and you’ll be amazed how much you can save.
Let’s be honest, there are hundreds of ways to manage your money. But today, I’m going to tell you why the money jars system that I use to manage my money is the most effective.
I tried the cash envelope system (which became messy), I tried saving everything in one savings account (which felt like deprivation), and I even tried not managing my money at all.
None of these things worked for me.
When I Learned About the Money Jars System
We were poor growing up. And I never wanted to be poor again. I knew I needed to change things to make sure I never had money problems.
When I was 16, I learned the importance of managing my money over a long period of time so I could reach financial freedom one day. Luckily, I applied what I learned with a simple money jars system to manage my money.
This set the foundation for the rest of my life. I have successfully used the money jars system to manage my money for over 10 years. I’m well on my way to becoming financially independent by simply using the money jars system I’m about to share with you.
Before we jump in, download the free PDF so you can get started.
What is the Money Jars System?
After learning about the jars money system, I purchased 5 mason jars and used a random popcorn box because Walmart didn’t sell mason jars in packs of 6. To get started you’ll need 6 physical mason jars.
The second money jar is your financial independence jar. 10% of every dollar you make no matter what goes into your financial independence jar. Even if it’s a small amount of money, this will help you build the habit of saving money each time you get paid.
Should you save or pay off debt? The answer depends. I don’t think that you shouldn’t save money until all of your debt is paid off and you have an emergency fund of 3 to 6 months. I think you should be doing both. Saving while paying off debt?
Once you understand compound interest, this will make more sense. The more money you can save early in life the better off you will be. So get started saving 10% of your income no matter what even if you have student loans or a car payment.
Money Jar #3
The third jar of money is long-term savings of 10%. What’s the difference? Financial independence money will be spent when you become financially independent. That money will sustain your lifestyle.
Long-term savings has two functions: save for a down-payment on a house, pay cash for a car or to build up assets like starting a business. The second purpose this money jar serves is it can act as an emergency fund.
I’ve discovered setting money aside in a saving account labeled “emergency fund” doesn’t work. Because guess what happens? An emergency! And the money gets spent.
I building an emergency fund over and over again and the money always gets spent. The only thing that allowed me to actually have money in case of an actual emergency was if the money was going towards something else like a down payment on a house. In case of an actual emergency, the money was there and it meant we had to delay when we would buy a house.
Money Jar #4
The fourth money jar is tithing/give. I believe in paying a 10% tithe to my church. It goes a lot deeper than simply giving 10% to my church. I truly believe that when you have the mentality to give, you’re looking at life with an abundance mentality. This will spill over into other things.
I don’t want you to have a scarcity mindset. That’s no way to live! 10% doesn’t have to go to a church, it could go to your favorite charity or you could even use the money for birthday and Christmas gifts. Either way, when you give, you look at life in a different lens.
Money Jar #5
The 5th money jar is play money to blow. 10% of your income will be set aside and spent on whatever your heart desires. This is non-guilty spending and it will help you to maintain balance in your life.
10% of your money should be going toward things you love to spend money on and if you could choose to spend more, you would totally do it. Things like weekend getaways, expensive date nights, massages, concerts, fairs, whatever you want.
“Life is meant to be enjoyed, not just endured.”
If you’re paying more than 5 – 7% interest on any debt, you should be paying that off and not spending money on play. This is about priorities and you can’t afford to be flushing money down the drain each money on high-interest debt. Pay off that high-interest debt, then you’ll be able to start spending more money on things that you value.
Money Jar #6
The last money jar is for education and is probably the most flexible jar. Invest 10% in yourself and your skills. Pay for college, buy courses, books or anything that will help you increase your skills.
“The best investment with the highest ROI is an investment in yourself.”
Setting aside money for education could do more for you than any other jar. You should be doing this if you’re able to master all of the money jars above.
However, If you’re unable to live off 50% of your income or you’re paying off a lot of high-interest debt, you should be using the money from your education jar to pay for those things.
If you’ve tried managing your money in the past and it didn’t work, what do you have to lose by giving the money jar system a try?
This will help you build a foundation for financial wellness and allow you to live the life you’ve always wanted to live.
Using cash can be difficult for a lot of people and I get the question, “how can I use this money jars system digitally?” And my answer is you absolutely don’t have to use physical jars. I recommend it starting out but you can do the exact same time with your bank accounts.
I will be sharing an article next week about what to do if you don’t like using cash to manage your money.
You can also sign up for the free course on learning how to manage your money with the money jars system where I give you the step-by-step guide you need to get started in 7 days.
Imagine taking a trip. You don’t simply get in the car and start driving. You need a destination and Google maps to guide you. Otherwise, how do you know when you’ve arrived? Having clear set financial goals will guide you to your financial destination.
I’m going to walk you through a step by step process of setting clear financial goals. This is one of the first things I do when I meet with a new client.
I talk about financial goals first because they need to know where they’re going. Their knowledge of personal finance is apparent from the beginning because I can tell how much they’ve thought about their finances.
Newbies sit for a minute and struggle to come up with a financial goal. It’s something they’ve never thought about. They may say something like, “I just want to be debt-free or I’d like to travel more.”
Others who’ve given it more thought have goals on their mind that they’ve wanted to accomplish for years. They may say something like, “I have a credit card balance I would like paid off before the end of the year,” or “We’d like to buy a house in two years and need to save more for a down payment.” Better but still somewhat vague.
Financial Goals Are At The Center of Everything
When it comes to financial planning and coaching, goals are at the center of everything we do. Personal finance is PERSONAL. So take the time to set goals specific to your situation.
One client said to me after discussing their goals that no one had ever asked them what their financial goals were and that it was nice to discuss them out loud and have someone listen.
When I ask someone what their goals are, 9 times out of 10 they are very vague. Goals such as, I want to make more money or I’d like to save a down payment for a house lack clarity. These are wants and we all have them.
“A goal without a plan is just a wish” -Antoine de Saint-Exupery
Each Financial Goal Needs Two Things: A Date and A Number
When I help people set goals we spend a few extra minutes making them specific. One way to make sure each goal is specific, it needs two things: a date and a number.
For example, if your goal is to travel more, when do you want to travel and how much do you need to save?
If your goal is to save a down payment on a house. Your goal may look like this: Save $20,000 in my savings account by April 2020.
By being specific and putting the goal in writing you’re 40% more likely to reach your goal.
Limit the number of goals you’re working towards. It’s overwhelming listing 20 financial goals you would like to do this year. Keep the list to three to six top goals and prioritize what’s most important.
Here’s a list of financial goals my clients have set to help you get started.
Pay off $22,000 of credit card debt by December 2020
Save $20,000 for a down payment on a house by April 2020
Get my full match and save $300 a month for retirement starting today
Track all of my spending for three months
Save up $2,000 for a trip to Iceland in the summer of 2020
Build up $5,000 to move out of my parent’s house in May of 2018
Save $400 a month starting this month
Pay off my car loan of $13,000 in one year from today
Build up a net worth of $850,000 in 10 years in order to be financially independent
Max out my Health Savings Account ($6,900) in 2019 in order to have a kid next year
Pay $5,000 in cash for a used car in 6 months
Save $50 a month into my child’s 529 college savings plan
Throw a party for my 50th birthday. Save $2,000
Build up a $1,000 emergency savings in 3 months
Ask for a 20% raise at work this week
Going A Little Deeper
Each goal has an amount they’d like to save or pay off and a time frame to accomplish it.
After goal setting, think about this question. “If money wasn’t an issue, what would you like your life to be like?” When I ask that question, I can see their face light up. It’s not a question they’re asked often, but it’s something we think about. They describe their ideal life and I can see a different side to what they’re trying to accomplish and why they want to reach their financial goals.
While it’s fresh on their mind, I give them an assignment. Go to futureme.org and write a letter to your future self. Futureme.org will send the letter in an email to you one year from now. When they get their letter, they reach out to me and tell me how their progress is coming and what an experience it is to get that letter because they have forgotten they wrote it.
So much can change in one year. One year from now your goals probably won’t be the same. That’s why you continually scrutinize and change your goals as your life and priorities change.
Your goals don’t have to be perfect and honestly, they will change frequently. Now, I’m going to ask you to do something. 90% of you reading this aren’t going to do anything but I want you to be the one person that does. Promise me you’ll do this?
Your Assignment Is to Set Financial Goals
Write your top three short, medium and long-term financial goals down on a place you can refer back to them and write a letter to yourself with those goals that will be sent to you in one year. Will you do that? In one year you may be way off or realize that you actually accomplished each goal.
Get started by downloading the free PDF I put together to help you set your top financial goals.
I hope this helps you get clear on where you’re trying to go. Otherwise, you’re going to look back 10 years from now and wish you had taken your finances a little more seriously. I want to help you avoid feeling like that at some point in the future. It’s time to take action!
Once you know how to read a credit report, you’ll have a better sense of what to look for.
The credit report.
Most people know it exists, but few know how to find it — for free.
You have a different credit report at each of the 3 national credit bureaus: TransUnion, Experian and Equifax. Each bureau’s report may have information from different sources reported at different times. If this sounds overwhelming, don’t worry. Once you know how to read a credit report, you’ll get a good idea of the categories of information all credit reports show. You’ll also have a better sense of what to look for. So let’s jump right in.
Each of your 3 credit bureau reports shows basic identifying information like: name, current and past addresses, date of birth and employer. There’s also a space for a consumer statement, a place where you can explain certain parts of your credit report.
Inaccurate information. Sometimes you’ll see your name or address spelled in different ways because whoever reported your information had it that way in their records.
Unfamiliar addresses. This could be a sign someone is using (or is trying to use) your information fraudulently.
This section lists creditors who’ve asked to see your credit report. When you apply for credit—a mortgage, credit cards, car loans and all sorts of other kinds of financing—the company considering giving you that credit will almost always pull your credit report to evaluate whether giving you the credit is worth the risk. The name of this is a credit inquiry.
The reports you see show “hard” and “soft” inquiries. Hard inquiries are those that happen when you apply for credit cards or other types of loans and they stay on your report for 2 years. “Soft” inquiries, which aren’t listed on the reports creditors see, come from companies making you credit offers.
How many inquiries are listed. This is a good way to pay attention to how often you’re applying for credit. Too many hard inquiries may be viewed by creditors as a negative.
Unfamiliar inquiries. If you see any of these, investigate them immediately. You may have just forgotten about a credit application you made last year, but it also may be a sign a criminal has applied for credit in your name. Better to double check now than be sorry later.
This area of the credit report lists all your accounts, open and closed, active and paid, individual and joint. For each account, you’ll see information on:
The loan/credit itself
The creditor (including contact info)
Monthly payment history
Whether or not you paid on time
Unfamiliar accounts. If you see an account you don’t recognize, follow up with the creditor to verify it. It may be a sign someone has fraudulently opened an account in your name.
Negative information. Look for any late payments or accounts in collections. By law, the credit bureaus must remove most kinds of negative information from your report 7 years after the information first appeared on the report.
If you have court judgments against you, they will be listed along with the settlement amount and the date the record will be expunged. This section also may show information about tax liens and bankruptcies.
Look for any listings, whatsoever. Public records showing up on any of your 3 credit bureau reports can seriously impact your credit. If there is anything listed in this section, make sure it’s accurate. If it isn’t, dispute it with the credit bureau as soon as possible.
Take the next step: protect your credit and start saving money.
Check your credit report every four months
By law, you’re allowed to check your credit report once a year. But here’s how I check my report three times a year, for free. On January 1st of each year I check my Experian report. On May 1st of every year I check my Equifax Report and on September 1st of every year I check my TansUnion report. Because yesterday was September 1st I was able to check mine and my wife’s credit report.
This report was an important one because we bought a house in July and I want to make sure all of the information mentioned above is accurate.
The first time I heard of Personal Capital, I was working as a Financial Counselor at the University of Utah. This was back in 2016 and we were working on revamping our website.
We got a call from someone in Denver, Colorado and they asked if we would be willing to place a financial calculator on our website that was created by Personal Capital. I politely declined because I had never heard of the company before and didn’t want a bunch of noise on our website.
However, I decided to create an account for myself, I connected a few accounts and then completely forgot about it for about 6 months. It felt like a lot of work up front and so I didn’t take the time to do it.
Later, I was reading a post from Millennial Money and saw that he was a big fan of Personal Capital. I decided to spend a little more time setting it up and I’ve been hooked ever since.
What is Personal Capital?
Personal Capital is an online investment advisor that believes the power of technology can make the financial services industry more affordable, accessible, and honest.
I see it as two divisions. Online financial planning and a software of free resources. I have never used their paid online financial planning services and so I’m not going to be reviewing that today, only their free tools.
They offer a free online and mobile personal finance and investment management app.
Let me point out that since creating a Personal Capital account myself, Simplifnances has become an affiliate of the company, meaning we may receive a commission for referring new users. If you decide to check it out, you’re helping support our free content at no cost to you, so thanks!
After the initial set up, it’s really just about monitoring it. Here are five things that I love about Personal Capital.
1. Visual Graphs
One of my favorite things is being able to see your financial dashboard and how it has changed day today. By connecting all of your financial accounts, it’s able to create a nice-looking picture of your finances.
If you set this up while you’re young, in ten years you’ll be able to look back and remember how broke you were and just how far you’ve come.
It also integrates with the real estate website Zillow to provide daily updates on your property values.
2. Account Aggregation
I love being able to see all of my accounts in one place. As many of my readers know, I’m a HUGE fan of the JARS Money Management System which requires six bank accounts. It’s nice to see all of those along with my credit cards, mortgage, and investments. If I wasn’t able to see all of my accounts in one place I would probably forget that some of them existed. Seriously.
It also shows you all of your spending in one place and compares that with the previous month to see how you’re doing.
3. Investment Performance
When I first set up Personal Capital, I was in business school learning about investments. I was becoming very familiar with terms like index, benchmark, blended, S&P 500, DOW, foreign markets, and so on. These terms didn’t play a role in my personal life too much though.
After connecting my investments to Personal Capital, I started understanding these terms. I was able to see how my portfolio was doing compared to the S&P 500, DOW and so on.
Before that, any time I heard on the radio how to markets did today, it didn’t really matter to me. I love being able to see the percentage change of my investments for the day and see the dollar amount change.
Each week, I get a summary email of how I did.
4. Net Worth Tracker
This goes back to being able to visually see how you’re doing. But not only that, when you track your net worth, you’re more motivated to make better financial decisions. Personal Capital has literally forced me to make better financial decisions because I want to see that graph going up. It causes me stress to see it go down.
I probably shouldn’t be focusing on this too much but because of the way I manage my money, I force myself to spend money on fun things as well. I don’t believe in being 100% extreme all the time with your savings. You have to have balance.
5. Fee Analyzer
Writers in books and blogs talk about keeping fees low but I never really knew how much I was paying in fees until I was able to see the expense ratio for each individual security.
Investment companies make it difficult to see just how much in fees you’re paying. This made it really easy to see how much money I was paying for each investment and get rid of the ones that were too expensive.
You can see that there is a lot to like about Personal Capital. The only thing I don’t really like is as soon as you have $100,000 in investable assets, their financial planners will start reaching out to you. You don’t have to work with them though unless you want to. You can politely decline and they won’t reach out to you again.
I’ve you’ve heard of PC before but have never given it a try. I encourage you to try it out. Don’t get overwhelmed at first like I did and give up. Take the time to accurately set it up and I promise it will help you make better financial decisions because you’ll understand where you are financially.
Mint vs. Personal Capital
Personal Capital and Mint’s features are quite complementary. I started out using Mint probably five years ago and found it to be great for tracking expenses and staying on top of my finances, but it lacked big time when it came to investments. I now use both because they each serve a different purpose.
I’m a big fan of Personal Capital free tools and I think it’s the best online financial software to help you reach your retirement goals. If you haven’t signed up for an account before, I encourage you to get started by clicking the link below!
If you haven’t taken the time to track your income and expenses it can be hard to find the time to do it.
As involved as I am in finance, at times I forget about my own. Maybe you thought I spend hours a day tracking my finances and budgeting. That’s totally not true.
I may not get as much time as I would like but I’m still able to stay on top of them. So how do you stay on top of your finances with everything you’ve got going on?
It comes down to priorities for me. My priorities are God, my family, my health, my career and then my finances. I’m sure your priorities are similar and sometimes budgeting doesn’t rank very high on the priority list.
Because finances come at the bottom of the priority list for most people, you have to schedule in time to stay on top of things. What does that look like?
How To Make Time to Track Your Income and Expenses
The truth is – if you don’t make time, you’re not going to reach your financial goals. For me, I love waking up early. Nearly every day I start my day at 4:30 – 5:00 am before all the hustle and bustle starts to kick in.
The first thing I do is exercise, followed by taking some personal time to meditate, study scriptures, read and relax. I also spend most of my mornings working on my business and writing posts like this. It’s currently 6:30 am on a Friday morning. I don’t know when else I would be able to get it done!
Once my son wakes up, it’s game over and so I have to be super productive with my time in the morning. As many of you know I work a full-time job for an RIA which requires a significant amount of my time. I work as a financial planner and also take care of their marketing needs.
Even with all of this going on, I will spend a few minutes in the morning or in the evening to check up on my income and expenses.
One of my productivity tools a blocking out time in my week. I’m able to see how many hours I spend on different activities during the week.
By blocking out my time I can make sure I’m getting enough sleep, spending time with my son and wife, and still being super productive with my time. Every hour of my week is accounted for.
I linked a copy of my excel spreadsheet if you want to do something similar with your week.
Those who find time to manage their money perhaps do all of their budgeting on one day of the month or a few days during the month. It’s easier for me to do a few things each day (sometimes every few days) to track my income and expenses.
Check my checking account – I hardly keep anything in my checking account and so I like to see what has cleared and what needs to be paid. This helps avoid any overdraft fees.
Log in to Mint.com and categorize any recent transactions. I even categorize sources of income so I can see how much I’m making from side gigs. I also track my online bills this way. When I pay a bill, I’m able to check the completed box. This helps to make sure I never miss a payment for anything.
At lunchtime or after work. I will log in to Personal Capital to check the performance of my investments for the day. I would encourage you not to check this every day but it’s a habit for me and I can’t help it.
At night I will take a few minutes to collect any receipts that I collected from that day or the previous day and snap a picture of them in case I need to return anything I don’t have to keep the physical receipt. I even get rewarded for taking pictures of grocery receipts with Fetch.
I get paid once a month where I work and so I have to carefully plan what I want to do with the income. On a weekly basis, I make sure all of the credit cards are paid off.
If I waited to pay the credit cards off once a month the chances of missing a payment goes way up as well as caring a balance.
If you’re wondering how to get manage your credit cards to best help your chances of increasing your credit score.
READ >>> How To Increase Your Credit Score
Because I get paid once a month I only have to divide up my money into different savings accounts once during the month. Random payments come through during the month from my business and my wife’s business and I will usually hold off on dividing those up along with my monthly paycheck.
As soon as the funds are deposited into my checking account I allocate those dollars into different buckets using the JARS budgeting system. It’s a system I’ve been using for many years that makes managing my money super easy. It’s like the 50/20/30 Rule on steroids.
READ >>> The Best Money Management System
At the end of the month, by staying on top of my finances I will be able to see a clear picture of how much I spent and how much I earned by looking at my Net Income on Mint.com. It will look something like this below (it’s not my net income. It was taken from Google).
I’m not perfect when it comes to tracking my income and expenses. I could be doing so much more. But this is what works for me.
I’m not a big fan of using cash for everything because it can be hard to continually go to the bank and the atm to withdraw and deposit it. I hardly use cash. Everything is online for me and can be accessed from my phone.
However, using the cash envelope system or paying cash for things can be really powerful if you’re just starting out and I would recommend it. Someone who is really great at teaching people to budget with cash is my fellow Accredited Financial Counselor, The Budget Mom. Check out her website if you’re looking for this type of budgeting system.
Looking at my income and expense system may seem like a lot at first, but as you do a few little tasks every day it will assure that your finances are organized. I don’t understand how most people spend 40+ hours a week working to make money but spend zero minutes managing it.
Managing your money has to become part of your lifestyle. Make it a habit and a permanent part of your routine and you will reach your financial goals.
How do you track your income and expenses? What works for you?
Hi, I’m Scott. Welcome to my website! I’m an Accredited Financial Counselor, husband, and father. I hope you’ll join me on the journey of reaching financial independence through simplifying how you manage your money.