Over the years I have tried many methods in helping me manage my money. Being able to jot all incomes and expenses everyday is already a success! If you do this daily, I’d like to congratulate you!
As we grow older, with more sophisticated assets and liabilities, we need a more reliable money management system. I have tried budgeting, using excel files, spent hours at the beginning and end of the month but eventually those methods never last. I tend to abandon them easily, then went on a few months not managing my money and then back to square one restarting a new system.
Finally, at the Millionaire Mind Intensive seminar, T Harv Eker taught a street smart and easy method to manage using the 6-jar system.
SIX JAR SYSTEM
Basically we divide all incomes into 6 portions. The 6 are
1. NECC 55% – Necessities (for all necessary expenses like food, lodging, rental and bills),
2. FFA 10% – Financial Freedom Account (money saved which will NEVER EVER be spent unless is to grow or invest)
3. EDU 10% – Education (to spend on books, seminars, education programs which will help us learn)
4. LTSS 10% – Long Term Savings for Spending (savings to spend on things we like ie. Gadgets, Car, House, Yatch)
5. PLAY 10% – all work and no play makes us dull so this is to spend on sports, relaxation like a massage or spa
6. GIVE 5% – to give for charity
The % percentage given are mere suggested proportion for each jar. Say if your income is RM1000 per month, then 55% or RM550 goes into NECC, 10% or RM100 goes into PLAY, EDU, LTSS and FFA each, and the remainder 5% or RM50 goes into the GIVE jar.
The jars are adjustable. You may have debts to settle of which you want to create an extra jar called FREEDOM jar which takes 5%-10% off your NECC to pay off debts. If your NECC jar is not enough to support your lifestyle, you will need to rethink your expenses. For a whole month, try collect every single bills and receipts that eats into your wallet. Yes, every single bill and receipt even at the char kuey teow stall! Try to relook at the pile end of the month to see what you can cut, say for example
1. Downgrade your home? Getting a smaller home or a lower loan rate. A home is a roof over your head so as long as it serves the purpose, why not a smaller home which means you could spare more to invest now for the future?
If you think the size or luxury of your home is a show of wealth, think again. Even Warren Buffet stays at the same house most of his adult life! Read here
2. Cutting bills. Recently, I have cut one of my handphone lines as well. Am now using only 1 phone line and even contemplating cutting the home broadband or downgrade it because the current package seems to be quite a lot! Phone is a mean of communication so if one line is enough, why two or three?
3. A less expensive car? Or walk to your nearest groceries, saving petrol
4. Cut on expensive gourmet coffees
5. Off electricity and tap when not in use. The little little things could save a pile!
6. Buy just enough food so you don’t throw expired food often
7. Clean your own home so you cut on maids
8. Eat at home – learn easy simple recipes instead of eating out. Pack lunch to work or school – a healthier choice too!
9. Cut down on alcohol and smoking
10. Reuse or restyle your clothes so you don’t need so much for new clothes
11. Cut on monthly pay TV or downgrade the package. Free TV has enough movies and dramas for you to waste your time on
Many people now complain that their income is never suffice with their lifestyle. In fact, people determine the insufficient income by looking at their expanded expenses. Yet, very few will determine their expenses and lifestyle by the income they bring home.
The 6-jar system allows us to relook at our budget and live according to what our income allows. Look at our parents or grandparents’ time. They too became frugal and adjust their lifestyle or worked extra hours to make ends meet. My parents did.
APPLICATIONS AND SOFTWARE
Harv suggested having 6 bank accounts for each jar. When your salary comes in monthly, write a cheque to divide the portion into each bank account. When the credit card bills come, check each item if it is NECC, EDU, PLAY or GIVE. Let’s say a RM300 credit card bill consists of RM200 of NECC, RM50 EDU, RM30 PLAY and RM20 GIVE, he suggested to write 4 different cheques from your 4 different bank accounts respectively to pay the bill.
For me I use a simpler method by using an application (Financisto) on my phone.
I use one Maybank account to keep my EDU, GIVE, NECC and PLAY. I may need a little more time to sum up all figures in my apps to tally with the total I have in my bank when I do monthly review of my finance. I have another CIMB account for FFA and LTSS. My tenants bank in rental to Maybank so I reserve a FFA slot in this Maybank account which will be transfered to my CIMB at month end.
The 6-jar system helps a lot for people with irregular income like me. Sometimes I get rental, sometimes payment for consultation and my services come more in a month or two, or none at times. Sometimes I even spend for a project and often without income first. So each time any income comes, I divide them into 6 portions accordingly after business expenses and costs.
Often, applications can also help to categorise expenses, so my expenses are categorised also using the 6 categories so I know monthly where does my money go.
Even managing my credit card bills is easier. I merely have one more account in the apps as MBB Visa and everytime I spend, I categorise the expenses. The report from the apps can detailed out credit card expenses for each category and I merely pay from the respective jars I have.
I keep my expenses very low as you can see. Income can sometimes be positive or negative depending on the months I operate my business.
I hope the 6-jar system could help you get started in managing your expenses well.