I learned this system from Harv Eker, and found it to be very helpful in managing money because it focuses on a percentage based system, and not an amount based system like most.

The key between rich and poor/middle class people is their ability to manage their money. Rich people are excellent money managers and poor or middle class people are less-savvy when it comes to managing their money. Of course, there are many other distinctions that set the rich, poor, and middle class people apart but this is a very large one.

The most important part of money management is separating your income into different accounts for specific purposes (like Dave Ramsey teaches with his Every Dollar system). Here’s the outline of the various accounts for the Jar System as well as their percentage breakdown of how one should divide all their income into each account to manage below:

  • Financial Freedom Account (FFA) = 10%
  • Long Term Savings For Spending (LTSS) = 10%
  • Education (EDUC) = 10%
  • Necessities (NEC) = 50%
  • Play = 10%
  • Give = 10%

Anyone can start using this Jar method of managing their money even if you think you do not have a lot of money to manage. The key is to develop a habit of managing your money, not how much money you have available for you to manage. Money never solves money problems.

One must get into the habit of managing their own money, and you can start with as low as $1 to begin using this system because it’s based on percentages.

Here are how the JARS system works:

Financial Freedom Account – (10%) – You must NEVER, NEVER spend the money that you put inside your FFA account. Any money inside the FFA account can only be used to purchase or acquire leveraged income streams (assets) to grow your money. You may spend the interest acquired from the FFA if you choose to, although it is recommended that you do not. Keep the interest inside the FFA to grow your capital and interest faster.

Think of your FFA as the golden goose that lays golden eggs, if you spend the money inside the FFA, it’s like killing the goose that’s giving you the golden eggs (your leveraged income). Instead, protect the golden goose. As you probably understand, the idea is to create a big healthy golden goose. Your FFA also becomes a legacy that you can leave behind for your future generations. Put money into your FFA account everyday if you can, even if it is just a penny.

In summary, the time to spend your FFA capital is NEVER! When you stop working, you get to spend the eggs but never the goose! Eventually as you spend less than 50% of your income on Necessities, any “leftover” money should go into the FFA account.

Long Term Savings For Spending – (10%) – The money inside LTSS is for major expenditures such as savings for your children’s education, buying a house for yourself, keeping aside contingency funds, or purchasing a car.

Education – (10%) – This is for your self-education! Examples: books, seminars, and events etc.

“If you think education is expensive, try ignorance!”

Necessities – (50%) – You should use the funds inside your Necessities account to settle all your essential bills such as phone bills, electricity, clothings, eating, driving, travelling, hair etc. If you cannot survive on 50%, simplify your lifestyle until your income increases. Instead of driving a car, perhaps you can take public transport, or drive a Honda instead of a BMW. Buy Target jeans instead of Armani. There are people who cannot live on 50% NEC when they started the Jar System but over time, these same group of people are able to both simplify their lives, and increase their income, to where they live on 50% or less. Many financially successful people live on a relatively small percentage of their income.

When your usual needs for instant gratification kicks in, think this: “Wealthy people think long term. Poor people think short term.”

Play – (10%) – Spend this money every month to pamper yourself. The key is to blow this Play money away every month so that you will feel good about having money and spending it! Imagine it like a dieting “cheat-day”, you should feel guilt-free when you spend this money.

Maybe you go for massages once every month, now you can use this money to really pamper yourself by going twice, or as often as you want. Or you can try ordering champagne during dinner at a restaurant if you don’t usually. Or buy yourself a new gadget. Anything outrageous that you can do to pamper yourself and that makes you feel really good.

You are recommended to spend this money every month. However, if you need to save up for things such as short trips or getaways that require a little more money, you can accumulate them up to a few months maximum (one quarter), before you use them.

Give – (10%) – You can use the money for donations to charities, use it to help someone in need.

Giving is really important for many scientifically proven reasons, not to mention the short term and long term economical benefits you can gain.

 

In my opinion, this is really a great Money Management System as it covers most aspects, if not all, on how one usually spends their money. It’s so amazingly simple, yet profound, as a method of better managing your money. Regardless of how much money you already have because it’s based off percents. It can work for people who never save their $, or for people who needs to give to feel a sense of contribution to others/society, for those that need to learn and grow through learning, for anyone who just needs a little more help in managing their money.

 

Bonus

If you’re wondering how to apply this, I recommend using:

  • Financial Freedom Account (FFA) = 10%
    Account type: Savings

    • This is up to you. You can use a savings account in the beginning to get started, and set up an investment account etc to handle this or start with this first. Some great tips here.
    • Just starting out, I recommend at least a savings account so that you’re separating your accounts based on purpose.
  • Long Term Savings For Spending (LTSS) = 10%
    Account type: Savings

    • You should be spending this pretty rarely, so a savings account is good for getting started, although there are definitely better options. When you spend out of this you don’t need a debit card or checks because you can simply transfer it to your main “Necessities” checking account.
  • Education (EDUC) = 10%
    Account type: Group with Necessities

    • I generally spend education out of the Necessities account instead of having its own account, especially with how often I spend from this account, I simply record this and shift funds as necessary
  • Necessities (NEC) = 50%
    Account type: Checking

    • This is a checking account, and your primary account since you’ll be pulling from it so often. You can also consider adding a credit card on it for a bit of extra consumer protection, but if you’re managing debt, then a debit card or cash is often preferable as it will be more concrete.
  • Play = 10%
    Account type: Checking
  • Give = 10%
    Account type: Checking

    • This separate account allows you to set up automatic transfers or other systems. But it’s not required to have a separate account for this, you can group this with other accounts, just as long as the percentage is happening.

Which in total is:

1-2x Savings accounts

1-3x Checking accounts

This seems like a lot of accounts, but in actuality, you’ll generally only be using 2 of them often (your Play account, Necessities account, and maybe Education account). This means you only need to carry ~2 cards (and a business card, or you can reimburse yourself) to connect with those accounts and spend directly from them. This means that you’ll never be able to spend money on “Play” if the account is empty and it keeps everything honest.