Everyone has struggled with money management at one point or another. If you do not have a firm grasp of money management as an entrepreneur, it can affect both your professional as well as your personal life. Developing the ability to manage money well is a learned skill. However, it is much easier to learn if you make it automatic. Making it automatic turns the learning process into a habit forming process. Although there are many different methods, I am going to discuss one that I have personally found success with. I will use personal money management as the example and you can adapt it to your professional life.
The system I prefer is called the Jar system. It is not an acronym. It was named that because the creator of the system actually used Jars. I learned this process from T. Harv Eker, author of Secrets of the Millionaire Mind. I modified his initial system and made it electronic for that is easier for me to utilize than a physical Jar system. In his original plan, you start out with 6 physical, glass jars and keep them in your house. I created 6 checking accounts with the same bank and manage them through online banking. I call them my Jar Accounts. Pick which ever way works best for you. If you routinely carry cash, the physical Jar System may work better. If you only carry a debit card around, the virtual Jar System will most likely be a better fit. It is the habit and the process that is important not the fact of the Jars being physical or virtual. For this post I will utilize the virtual system as my example.
The Jar System is comprised of 6 jars. Those 6 jars are necessities, financial freedom account (ffa), long term savings and spending (ltss), play, education, and give.
The necessities account is where you pay for all of your necessities which typically include mortgage or rent, food, utilities, fuel, etc. The necessities account covers your day to day needs, need being the operative word.
The ffa account is the account from which you will invest. You will utilize the money in this account to invest in businesses, to include your own, stocks, bonds, real estate or whichever mode of investing you prefer.
The ltss account is for big ticket items. Items in this category typically are things like a big screen tv, vacation, new car, etc. The item will vary dependent upon your income. But the habit is the same. These are items you normally have to save for.
The play account must be spent in full, or close to it each month. This account is designed to help you enjoy the money you work for and enjoy it guilt free. You utilize this money to go out and have fun whether that be to the movies or a shopping spree. It is your fun reward for working hard. You must spend it each month or you will begin to resent money.
The education account is to spend on your personal education. Although education is considered an investment in oneself, it does not qualify for the ffa account as it is not typically measurable in return on investment. Utilize this account to attend seminars, purchase paper and audio books, attend classes or personal tutoring.
The give account is for donations. It is important for every entrepreneur to give back. Regardless of how big or small it is the habit of giving we are trying to form. As bad as things may get in your household, there is always someone worse off that your donation can help. Pick your charity or cause and give to them regularly.
You divide your money amongst these account each and every time you generate revenue whether it be $1 or $10,000. Once again, we are trying to form a habit. Once I received a $7 check. And I proceeded to divide it up amongst my Jar Accounts. Harv Eker recommends the division to be as follows: Necessities 55%, FFF 10%, LTSS 10%, Play 10%, Education 10%, and Give 5%. When I started with the system my necessities exceeded 55% of my income so I modified the percentages. Again, another reminder that it is the process or habit we are working on developing not the intricacies of the percentages. I started out with 75% going to my necessities account and 5% into the remaining 5 accounts. As I paid down various balances I am able to adjust my percentages. Even if you have to put 95% in your necessities and 1% into each of the remaining accounts, do it. Just get started.
I have 6 debit cards and I labeled them with the appropriate accounts to make it easier for me to make purchases. If you purchase multiple things with a credit card or you are paying a credit card off with your accounts, divide the bill up so that you pay for the proper things from the appropriate accounts. Trust me, the credit card company only cares that you pay and will not gripe about receiving payments from multiple accounts. Each time I derive revenue I deposit it into my necessities account and then immediately login to my online banking and transfer the appropriate percentages to my other 5 accounts. As a side note, if you sell something that you acquired via your ffa account, it is considered revenue and you must divided it amongst your accounts. A portion will go back to your ffa account for further reinvestment.
It is the habit that we are concentrating on. Once you get in the habit, the rest is actually quite easy. When your spouse wants to go out to dinner, you look in your play account and if there is money in it then you can go. If there is none, then the plan is to eat at home. If you want to buy a surround sound system for the house and there is enough in the ltss account, then rock on. Otherwise, use your mp3 player until the money is in there. Once you develop the habit and become comfortable with the process, your life will become easier and managing your money becomes an automatic process.
Lastly, before you let the thought cross your mind and consume your rational brain, the answer is “yes you can do this!” The side of you that injects doubt may give you many reasons why you can’t do this. The fact of the matter is you can. The only thing holding you back is you and you need to get out of your own way and let yourself succeed. I did it and you can too. Regardless of your income or whether you utilize this particular system or not, one thing holds true, you must learn to manage your money. And it is much easier to manage when you form a habit and make things automatic.
Tags: harv eker, jar accounts, jars, money management
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Fantastic advice. I think that this is the BEST thing that we have done financially. I remember doing this in the early years of our marriage with envelopes and that was about 12 years ago. Just goes to show how you've always been forward thinking.
I am glad that it was useful. Keep up the fantastic work.