Are you good at managing your money? If you need some improvement, check out these simple money management tips and put your money under control.
According to T Harv Eker, author of the book Secrets of the Millionaire Mind, one thing that all millionaires have in common is they’re good at managing their money.
Many people say they will begin to manage money when they’ll have plenty of money, but you first have to begin to manage your money in order to have plenty of money. The habit of managing money is more important than the amount.
Simple Money Management Tips – Money Jars System
In December 2017 I attended T Harv Eker’s “Millionaire Mind Intensive” 3-day workshop. One of the most valuable things I learned at the event was how to manage money using simple money management system – Money Jars System.
In order to follow this system, you need to separate your income into six different jars or bank accounts for specific purposes as described below.
1. NECESSITIES (NEC) – 55% of your income put into your NECESSITIES jar and use it for everyday expenses such as rent/mortgage, food, clothing, fuel and bills (electricity, gas). If you can’t live on 55%, simplify.
2. LONG-TERM SAVINGS FOR SPENDING (LTSFS) – 10% of your income put into your LTSFS jar and save for big purchases such as house, car, holiday or wedding. This is also your “rainy-day” fund, for those just-in-case scenarios. If you have debt that has to be paid off, instead of putting 10% into LTSFS jar, put 5% into LTSFS and 5% separate for debt).
3. FINANCIAL FREEDOM ACCOUNT (FFA) – 10% of your income put into your FFA and use it for investments. You never spend money from your FFA account. The idea is to create a golden goose so when you stop working, you get to spend the eggs but never the goose.
This fund will work for you towards passive income streams. The best ratio is to invest 60% of capital in low-risk investment (long term bonds, real property), 30% in medium risk and 10% in high risk.
According to the Law of attraction, like attracts like (money attracts money), so the FFA acts like a money magnet.
Broke people use the “leftover” strategy: they pay everyone else first, then save or invest what’s left over. You should pay yourself first because the leftover strategy doesn’t work.
4. EDUCATION (EDU) – 10% of your income put into your EDUCATION jar and use it for books, courses, mentoring, coaching, etc. It enables you to continuously learn and grow. If you’re not growing, you’re dying!
5. PLAY – 10% of your income put into your PLAY jar and use it for leisurely expenses – sports, movies, entertainment, treating yourself and your family. This is money to enjoy and feel rich. It is important to spend all your play money each month because your inner child will sabotage you if you don’t reward it.
6. GIVE – at least 5% of your monthly income put into your GIVE jar. If you choose to give 10%, then take the extra 5% from your NEC jar and change NEC to 50%. Use the money from this jar to contribute to other people who need it more than you and give it every month. You can donate your money to funds that educate or improve others. This is a spiritual, ethical, and moral practice.
If you’re a business owner, prior to splitting the money into jars, automatically divide 20% of your income for tax.
Money Management for Couples
Put all your income together and prior to splitting the money into joint accounts or jars, assign an equal amount to each of you as individual money.
For example, your monthly income is $3500, and your partner’s income is $2500. That’s $6000 altogether. From that amount assign $500 to each of you. From each $500 split 25% into each personal account (25% into each FFA, 25% into each LTSS, 25% into each EDUC and 25% into each PLAY).
The rest of $5000 divide into joint accounts or jars – 55% NEC, 5% GIVE, 10% FFA, 10% LTSS, 10% EDUC and 10% PLAY.
So, you and your partner will have 6 joint accounts (NEC, GIVE, FFA, LTSS, EDUC, and PLAY) and 8 personal accounts – 4 each (2xFFA, 2xLTSS, 2xEDUC, and 2xPLAY). You don’t need personal necessities and personal give accounts, but it’s ok to have it if you choose to donate to different funds.
It is important to designate an equal amount of money to each partner, regardless of the difference in your income.
Why you need both joint and personal accounts?
Let’s say you love designers’ shoes, but your partner cannot understand why you spend so much money on shoes. To avoid arguments, you will buy shoes with money from your personal PLAY account.
Maybe your partner loves football and would love to buy a VIP ticket which is pricy, so he would buy a ticket with money from his play account and you wouldn’t have the right to say anything.
You will also have a joint play account for the things that you love doing together.
Let’s say you already have a family car, but also want to buy a new fancy sports car. Maybe your partner has different preferences, so you will buy it with money from your personal account.
Money Management for Children
Children learn best by modeling, so it’s best to get them into the habit of managing their money as soon as possible.
For young children, split their allowance and gifts into FFA, LTSS, EDU, PLAY and GIVE, and for teens, also include NECESSITIES jar.
Thanks for reading!
If you have any questions or comments regarding simple money management tips, feel free to leave them below and I’ll get back to you as soon as possible.