In 2017 I learned about a money management approach called the 6 Jars System. It was created by a man called T Harv Eker who, after years of struggling, finally cracked the secret of how to manage money and business to become a multi-multi-millionaire. He also researched how millionaires think about and manage money and wrote his findings in a book called Secrets of The Millionaire Mind.
The fundamental principle of the 6 Jars System is to develop the habit of dividing your income each month into 6 separate amounts. Doing this each and every month enables you to allocate 55% of your income for necessities, save 10% of your income for long-term spending, set aside another 10% for further education, training or coaching, allocate 10% for investing to create your long-term Financial Freedom, allocate another 10% each month to ‘play’ with, and give the remaining 5% to charity.
The system can be flexible especially if you’re in debt. If you owe money on credit cards, loans or to other people, you should adjust the system and use your 5% Give, 10% Financial Freedom and 10% Education fund to pay off your debts first. Once you’re debt-free you can then start to establish that habit of saving 10% of your income for Education, setting aside 10% for your Financial Freedom fund and Giving 5% to charity or another worthy cause you support.
If you’re on a low income and money is tight, allocate the 5% Give money to your own needs and give your time to charity or donate blood. One essential habit of successful millionaires is that they pay themselves first. By looking after their own needs, they can become better equipped to look after other people’s. Hence, giving to charity when you’re on a very low income or in debt serves no immediately positive purpose for you. By getting out of debt first then developing better habits with regards to how you manage money, you’ll be in a much stronger and more secure position financially and possibly able to give more to charity.
The habit of managing your money will also enable you to look carefully at how you spend money. By looking first at how you spend you’ll then be able to think about why you spend, especially if you’re a chronic over-spender. Answering these questions, and knowing that you can blow 10% of your salary each month on treating yourself, can help you to get that over-spending under control.
Harv Eker learned that one of the basic money management principles of every millionaire is that they spend less than they earn. Using the 6 Jars System will enable you to critically examine all of your spending and make cutbacks where necessary and enable you to see where you can allocate more to invest for your future, educate yourself or even treat yourself.
Depending on your level of income and the amount you earn each month you can either have 6 separate bank accounts or, for your education, play and give accounts, use an actual jar or money box. The beauty of the 6 Jars System is that it’s based on percentages so you can split one, ten, one hundred, one thousand or one million of whichever currency you earn 6 ways to kick start the habit of managing your money better.
To make it as simple as possible for you to implement the 6 Jars System I’ve created an interactive spreadsheet. Download and save the spreadsheet, put your monthly income into the green box at the top and the spreadsheet will automatically calculate how much you should allocate to your other ‘jars’, either by setting up regular bank transfers to your other accounts or simple withdrawing the money and putting it in your money jars or boxes.
Remember, positive effective habits are the foundation of success. Get into the habit of better money management today and start creating a more financially secure future for yourself and your loved ones.