Jars of Wealth

Do you remember your childhood days, where you eagerly stash away your leftover coins at the end of each week into a little piggy bank in your room? Slowly but surely, you accumulate your savings in order to achieve your goals. You could be saving to buy an item such as a toy, book or clothing. And it could also be for an experience, for example, a ticket to the zoo or theme park with your friends and family. More importantly, do you still remember that sense of excitement and satisfaction when you finally achieved your goals using your savings?  Each of those moments were unforgettable for me: getting myself a much awaited computer game, a pair of new roller blades, exciting holiday trips, my wife's proposal ring...

Looking back, I was able to achieve so much just by using a single 'jar' to manage my finances. How much more would I be able to achieve if I had more 'jars'?

Lessons From My Piggybank

The habit of saving from a young age has taught me some meaningful lessons. There were incidences when I had to save over a longer period of time to reach my aim just because I took some of my savings to buy something else on an impulse, which I usually regretted afterwards. It taught me to be more intentional when it comes to spending. Sure, there are many purchases that can bring you happiness and satisfaction. But when limited in purchasing power, you have to prioritise and review your decisions carefully to make the most out of your savings.

There were also times when I had so much on my to-buy-list, resulting in a lost of motivation to save simply because the amount of money and time required was just too much! That was when I realised the importance of keeping your goals clear and simple. When I reviewed my list to eliminate some of the options and reprioritised the remaining, my desires appeared to be more achievable and meaningful. And that spurred me to continue my saving habits towards my plans.

The most important point I realised, was the need to know how much (money) was required for me to achieve my goals. How much is enough? Without that bit of information, I was never going to know if what I have saved is sufficient. Neither would I know what I should do in order to afford the items. This brings me back to the story about the fisherman and the business man in my previous article. The clarity required for what you want to accomplish in life, will determine your approach and probability of success. This all boils down to the old adage of beginning with an end in mind.

Introducing The Jar Management System

So how did I expand on my saving habit when I entered adulthood and started earning a regular salary? As our current education does not equip us with sufficient financial literacy, I had to make an effort to research. The approach that stood out and resonated with me the most was the jars money management system, discussed in detail by T. Harv Eker, author of the book "Secrets of the Millionaire Mind". Simply, it is a method that splits your salary into 6 different jars that serves different but very important purposes in life. The 6 jars and their default split percentages are: Necessity (55%), Play (10%), Financial Freedom (10%), Education (10%), Savings (10%) and Giving (5%).

The Appeal of The Jars Management System

Firstly, this management system is highly customisable to every individual. Depending on your values, life circumstances and financial status, you can determine the number of jars, their purposes as well as the allocation percentages that best suit your situation. For an individual planning for marriage, a jar can be created for that purpose until the wedding is over. If you are keen to go on a 1 year long hiatus from work, you can create a jar to save for the estimated expenditure required. After getting a promotion, you can readjust the allocation to save or invest more using the pay increment.

I clearly remember two events which highlighted the importance of customisability when managing my finances. When I received my first year end bonus, I followed the predetermined allocation for my jars religiously. What I ended with was a much larger amount in my Necessity jar, more than what was required for my typical month's expenses. This gave me an impression that I was able to spend more and I ended up splurging on more meals at cafes and restaurants as I attempted to use up my funds. At the end of the month, I realised that I didn't exactly feel much happier or satisfied with the extra indulgence, and regretted that I didn't allocate the money for better uses.

The second event was when I received my first pay raise. Again, that meant that my Necessity jar had more funds than required. After reflecting on how I could better manage my bonus previously, I had earlier determined a different allocation for funds that are in excess of my regular pay. I decided to allocate the excess purely into my Savings and Financial Freedom jar to expedite the accumulation of wealth by leveraging on compound interests. Similarly, my pay increment now goes by that alternate allocation, leaving me with the original amount of funds in my Necessity jar. If I did not realise that it was unnecessary for me to spend more from my Necessity jar, I would have embarked on a journey towards lifestyle inflation - spending more as my income increases.

Fast forward, having used the system for almost 4 years at the point of writing this article, I am proud to declare that I am still spending base on my starting salary! And I intend to keep it that way for as long as I can. The customisability of the jar system has empowered me to automate different allocations for all my past bonuses and pay increment, accelerating the progress towards my goals while avoiding lifestyle inflation!

The second appeal for the jar system is that its simplicity takes away the mental burden each time you choose to spend your money. Have you caught yourself worrying whether you should splurge on something for others or even for yourself? Or were you concerned whether there will be sufficient money left at the end of each month to pay the bills? These inner conflicts that arise each time you spend, can be very draining on your mental well-being. What I like about the jar system is that my salary is immediately categorised into the different purposes when it gets credited into my bank account. And so long as I spend within my means from the Necessity account, I can rest assure that the other aspects of my life are taken care of (savings, investment, personal development etc). And to spend on myself 100% guilt free from my Play jar is the cherry on top!

Lastly, using the jar system develops the habit of planning and self discipline for managing my finances. As I mentioned before, there are different phases in everyone's life which demand financial resources to overcome or to pursue. It takes awareness to identify your own needs, and self discipline to execute the essential steps to prepare yourself financially (using the jars system!). Throughout these 4 years of using the jars system, it has enabled me to build a healthy relationship with money. One in which I am in control instead of being controlled.

Concluding

Establishing the habit of planning and managing your finances is critical for one's life pursuits. Although there are many ways to manage your finances, I like the simplicity and customisability of the jars management system. Nonetheless, whichever method you choose to adopt, I feel that the principles remain the same - begin with the end in mind (your goals), keep the entire process simple and maintain the self discipline to stick to the adopted management method. And of course, remember to review your method often so that it stays relevant to your circumstances in life!