In your article “7 Habits of Highly Effective Money Managers”, you suggested creating & managing your money “Jars”. In terms of ease of use and maintainability, which way do you think its better? Creating jars using the same bank account that I already have or creating 5 additional accounts?
As some of you might already know “Secrets of the Millionaire Mind” is one of my all time favorite books and I love the concept of keeping your money in separate money “Jars”. For those of you who are not familiar with this system, here is the six money “Jars” concept:
Each money “Jar” is basically one bank account which is specifically created for one purpose in your life. Every time you receive a pay check or income of any type, you divide it up into these six money accounts:
- 10% for Financial Freedom (Investment opportunities, means to create passive income)
- 10% for Long Term Savings (Your dream house, dream car, etc)
- 10% for Education (Grow yourself mentally, spiritually or emotionally)
- 10% for Play (Expensive dinner or clothes, vacations, spa, etc.)
- 5% for Giving (Charity of your choice)
- 55% for Necessity (Mortgage, Rent, Food, Bills, etc)
The goal of each money jar (online bank account) is to make sure you spend within your means.
Here is what I did…
I opened 6 online bank accounts. I only have one ATM card which has access to all five of these accounts except Financial Freedom Fund. You can ask your banker to link the five accounts for you. This is not done automatically but it is free and you just need to request it. You should not need to access your Financial Freedom Fund often; therefore no need to link your ATM card to this account.
When I pay for something I would use this ATM card. Or if I use a credit card, I would review my statement every month and sum up which spending belongs to which account. I then pay my credit card company using online bill pay through the 5 accounts.
I really like this system because it’s simple and I have full control over how I spend my money. I would usually pay for all my necessities (grocery or gas) using my Necessity account debit card. I pay for my vacations from my Play account. I use the Give account to donate to charities which I never did before. The best part is that you HAVE to spend your ‘Play’ account every month. This rule makes managing money really fun! I enjoy thinking about all the different possibilities of how to spend the ‘Play’ money and because it’s part of the budget, there’s no guilt associated with it. It is absolutely fantastic!