Before you read the article below, stop and grab up all your bills. Create columns on a sheet of paper or a spreadsheet. Label the columns thus: NEC, Debts, Savings. Now list all your bills in the rows, putting your monthly average in the correct column. For instance, my mortgage goes in the NEC column, my credit card in the Debts, and savings? What savings? Sometimes I'll throw a windfall in there. Okay, now total up. Are you living within your means? Are you saving for a rainy day?
I'll bet your shock will be like mine. When did my budget get so far off kilter? I admit, I operate under a 70-20-10 split. 70% for necessities, 20% to get out of debt, and (supposedly) 10% to savings. I was shocked at how far off I'd allowed things to get.
Posted: 08 Jul 2009 05:00 AM PDT
This is a guest post from Steve Martile, a life coach and the author of the personal-growth blog Freedom Education. Here he describes a budgeting system that actually reminds me of Elizabeth Warren's balanced money formula, but with a little more detail.
Managing money doesn't restrict freedom — it creates freedom.
That's probably not the first time you've heard this. If you want to create financial abundance, you've got to start managing your money. I started doing so in 2006 after reading T. Harv Eker's Secrets of the Millionaire Mind [J.D.'s review].
Before then, my wife and I were pretty random with our spending habits. We ran a pretty high tab every month and had nothing to show for it. At the time I was driving a brand new Nissan 350Z, which cost me an $800 payment each month. That didn't include insurance or gas; that was just the payment on the car.
The JARS Money Management System
The jars themselves aren't actually that important. What's more important is the money management system behind them. We actually bought the JARS as a visual reminder of where to put our money when we manage it. But we manage it from a set of bank accounts.
Managing your money reaps rewards
Here are the results we produced after using the JARS for 12 months:
The real trick to managing your money is not what you do — it's how you do it.
How to use the JARS system
How the JARS work
I learned very early in the process that the jar percentages are not critical. To guarantee your financial success, just start using the system and build the habit. This is the key. It doesn't have to be perfect when you start.
You could even start by splitting $10 every month into the jars. There's an inspiring story in Secrets of the Millionaire Mind. One woman started splitting $1 into the jars every month. In her first month, she put 10 cents into her PLAY, 10 cents into her FFA, 10 cents into her LTSS, and so on. Later that month she used her play money to buy a piece of bumble gum. She received a mini comic with the bubble gum package that she bought with her play. She read the comic and got a laugh. Two years later she deposited a $10,000 dollar check into her FFA account. Now who's laughing?
I highly recommend the JARS system to anyone who wants to make the most out of their money. If you're looking for a simple way to budget, then start using the JARS system. Remember: Managing money doesn't restrict freedom — it creates freedom.
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