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.
Money Jar #1
The first money jar is for necessities. Each time you get paid, 50% of your money will go into this first money jar. This money will be used for things like housing, transportation, and food. Spending that takes up 70 – 80% of people’s budget. You’re going to learn how to get this spending down to 50% of what you make.
This requires decreasing your expenses and spending money on things you absolutely have to. This will require major discipline on your end.
Even after trying new things, you can only cut so far on your expenses. And in some cases, it requires increasing your income at your job or through a side hustle.
Learn more about how to increase your income if you feel you don’t make enough money.
Money Jar #2
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.”Benjamin Franklin
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.
Sign up HERE! You’ll be glad you did!