Finally! An Easy Way to Manage Your Money
Money seems to be a hard substance for many people to manage. If you think about money as little employees, however, with different jobs, you begin to have a powerful financial system that makes managing your income and expenses a whole lot easier.
You see, the wealthy, financially free people of the world have devised a money management system that helped them get, and stay, wealthy.
The great thing about a system is that you set it up and it works—if you stick with it. Just like McDonalds has a system that allows all of their hamburgers to taste the same across the nation, you can have a money management system that provides you with all the money you need and want for the rest of your life.
Your Money’s Many Jobs
This system has been passed down for decades from adults to children—using envelopes, jars, piggy banks and of course, bank accounts. The idea of using ‘jars’ to manage your money is conceptual but helps you understand the system.
The idea is to separate your money into different categories, or jobs. You see, most people learn that money is good for one thing: spending. If you’re lucky, someone taught you that money has two jobs: spending and saving. If you’re really lucky, you learned that money has three jobs: spending, saving and donating. And if you were really, really lucky, someone taught you that money had four jobs: spending, saving, donating and investing!
What if your money actually had six or more jobs? Jobs that if you made sure they were handled every single month, would allow you to always have money for the things you needed and wanted? Wouldn’t you want to make sure you set this system on autopilot as soon as possible? We thought so.
Enter The Money Jars
The Money Jar system consists of six basic places where you will want to allocate your money each month. All percentages are based on net income after taxes:
1.) Living Jar: For expenses like rent or mortgage payment, car payments, gas, utilities, insurance, food, clothing, etc.
- Strive for living 55% of your net income and use a regular checking account at a local bank or credit union.
2.) Freedom Jar: For money that you eventually invest in assets; things like real estate, stocks and business opportunities that produce a steady stream of cash flow or passive income for you to eventually live on. This is where you build financial freedom for yourself and you can do it as quickly or as slowly as you choose.
- Strive to invest 10-15%. Make it easy by having this money deducted from your paychecks automatically. Start an IRA (individual retirement account) at a local or online financial institution (TD-Ameritrade is great) and get some solid advice on what to invest this money in. Then start teaching yourself about other kinds of assets that produce passive income.
- Note: Women should invest the larger amount whenever possible; they live longer, have less earning power and fewer earning years and too often end up divorced, raising children with no alimony or child support.
3.) Savings Jar: This jar serves two purposes; your ‘just in case’ money (just in case something breaks, etc.) and your ‘saving up for’ money (saving up for a car or trip or new bike). The experts suggest your goal for the ‘just in case’ portion should be 3-6 months’ worth of living expense. You know, just in case!
- Strive for 10%, divided equally into both portions until you have 3-6 months’ worth of living expenses tucked away for that rainy day. Use two or more savings accounts for this money to keep it from being spent on other things.
4.) Education Jar: This money is for education after college. Most adults admit they learn more after college than in college so it’s great to be able to pay for more education after college—things like seminars, advanced degrees, online courses, etc.
- Strive for 10% in a savings account and simply save it up until you need it.
5.) Play Jar: Most people spend at least some of their Living Jar money on Play items and wonder why they don’t have enough money to make it through the month. By simply allocating a small percentage of your monthly income to play with, you’ll always have the money you need for expenses.
- Strive for 10% and spend it every month. Massage anyone?
6.) Donation Jar: Last but not least, this money allows you to give back on a regular basis. Most financially free people donate every month to causes and projects they believe in. You already know how good you feel when you help others. Having a Donation Jar makes it so you can feel good about helping others every month.
- Strive for 5% and donate it every month to an organization of your choice.
Bottom line: The sooner you set up a system, the more secure you’ll be in the future
There you go; a money management system you can tailor to fit your lifestyle and modify as your life changes. It’s only by developing a great money system early on that you attain your financial goals in life. And remember, your financial habits always add up in the future. Make sure you start some great ones today!
NOTE: All investments carry some level of risk, and may not be suitable for all investors. Before deciding on any investment, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. Seek advice from an independent financial advisor if you have any questions or doubts.
Elisabeth Donati is the owner of Creative Wealth Intl., LLL, creator of Camp Millionaire and The Money Game and the recipient of the 2010 Financial Educator of the Year Award from the National Financial Educators Council. She is known as The Financial Literacy Lady.
She is author of The Ultimate Allowance, the co-author of Rocks to Riches and writes a regular blog called Financial Wisdom with a TWI$T.
Elisabeth is an expert in teaching the basic financial principles people need in a way that is engaging, empowering and fun. For information, visit www.creativewealthintl.org or call (805) 957-1024. Connect with her on Facebook or visit on LinkedIn.
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