It's called the Money Jar System or The 6 Jars. Basically, your net income (after all deductions e.g. income tax, social security etc) should be divided into 6 Jars at different recommended percentages or proportions.
Each of the 6 Jars would serve different functions. Ideally, you should create separate bank accounts to put the recommended proportion into each of these jars and also withdraw money from each bank account (or Jar) so that you can track the actual amount spent.
...and No! It's not this "Jar"!
The 6 Jars are: -
Jar No. 1 - The Necessity Jar ("NEC")
This account is for managing your everyday expenses and bills. This would include things like your rent, mortgage, utilities, bills, taxes, food, clothes, etc. Basically it includes anything that you need to live, the necessities.
The recommended percentage for this Jar is 55% of your net income.
Was that Bare Necessities or Bear Necessities?
Jar No. 2 - The Education Jar ("EDU")
Money in this jar is meant to further your education and personal growth. An investment in yourself is a great way to use your money. You are your most valuable asset. Never forget this. Education money can be used to purchase books, CD’s, courses or anything else that has educational value.
The recommended percentage for this Jar is 10% of your net income.
Jar No. 3 - The Play Jar ("PLAY")
Money in this jar is spent every month on purchases you wouldn’t normally make. The purpose of this jar is to nurture yourself. You could purchase an expensive bottle of wine at dinner, get a massage or go on a weekend getaway. Play can be anything your heart desires. You and a spouse can each receive your own play money, and not even ask what the other person spends it on! Definitely my personal favourite Jar!
The recommended percentage for this Jar is 10% of your net income.
Hmmm...I wonder what this "Grand Theft Auto" is all about?
Jar No. 4 - The Long-Term Saving for Spending Jar ("LTSS")
Money in this jar is for bigger, nice-to-have purchases. Use the money for vacations, extravagances, a plasma TV, contingency fund, your children's education etc. A small monthly contribution can go a long way. You may have more than one LTSS jar. If you have more than one LTSS, divide the recommended percentage between the jars according to your priorities.
The recommended percentage for this Jar is 10% of your net income.
Jar No. 5 - The Give Jar ("GIVE")
Money in this jar is for giving away. Use the money for donations or give it to your favorite supported charity. The joy of giving brings meaning to your life and adds value to the lives of the people that you are helping.
The recommended percentage for this Jar is 5% of your net income.
Jar No. 6 - The Financial Freedom Account Jar ("FFA")
This is your golden goose. This jar is your ticket to financial freedom. The money that you put into this jar is used for investments and building your passive income streams. You never spend this money. The only time you would spend this money is once you become financially free. Even then you would only spend the returns on your investment. Never spend the principal.
The recommended percentage for this Jar is 10% of your net income.
Ooo...that's some nice eggs you've got there!
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