5 Steps to Make Ensure You'll Pay Yourself First

Every financial gurus will say that you must pay yourself first, no matter what. The guideline is always 10% of your take home salary. This 10% need to be used for investments.

But, many find it’s difficult to save that 10%.

Some could save it, but then they’ll withdraw those money for some expenses and emergencies.

So, I have a solution to ensure those money are not touched unnecessarily. This will work flawlessly for fixed income earners.

Check out the Jars System which I believe is the best money management system, if you want to go beyond just paying yourself.

Step 1: Decide that you want to pay yourself.

Without a decision, nothing will happen. You must decide and commit that you will pay yourself 10% every single month, and that money, you are going to use it for investment, not for expenses.

You must be ready to run your life with 90% instead of 100%.

Step 2: Open a new banking account

You are going to keep a separate account from your salary account. This will help you to manage your money more efficiently. You can tell exactly how much you have in that 10% account.

To ensure you won’t withdraw money unnecessarily, the new banking account need to be from a bank where its branches are located furthest from your home or office. It should not be within your usual driving path as well.

If you already have an account which you can use for this, make sure its far far away..

Here are some suggested banks you can consider as there are not many branches around:

Nova Scotia Bank, Kuwait Financial House, Al-Rajhi Bank, UOB, OCBC, HSBC, Citibank, Standard Chartered Bank, Affin Bank, Alliance Bank, Bank Muamalat.

Step 3: No ATM card.

Yes, no ATM card for your new account. This will ensure you’ll be in control of not withdrawing the money anytime of the day or at any ATM. 

If you already have it, cancel it.

Step 4: Automate

Set an auto transfer from your salary account into your new account. Schedule it every month a day after your salary day. Remember to update the amount whenever you have increment or a higher salary from a new job. For bonuses, transfer 10% of the bonus as soon the money is.

Step 5: Educate yourself to grow.

What’s the point of saving them if you don’t know how to invest?

Explore and learn how you can expand your money. No point the money just sitting in your account. Grow them by applying what you have learned.

Remember that the 10% is the minimum. You can do with 20% as well, just ensure your basic needs are meet and your are not stressing yourself.

If you follow the Jars System, you can have 6 separate accounts as well. The NEC account can be the salary account. The rest into separate accounts.

The Jars System - An effective money management system

I first heard of this Jars System while attending a seminar, Millionaire Mind Intensive back in 2008. It was created by T. Harv Eker and I would say it one of the best money management system ever. I'm writing this article as a review for myself as well to help others to realize there are ways to manage your money. For more details, I would recommend you to attend the Millionaire Mind Intensive which will is coming very soon to KL. Check it out at this link, http://www.millionairemindmy.com/. I'm not affiliated with them, I'm just sharing what I believe is one of the best program out there and it's really cheap.

So, what is the Jars System? It's a system where you split your salary or income into 6 different portion for 6 different purpose. These portions are "Jars". It is meant to have a balance fulfilling life with the goal of financial freedom.

Each of the Jars need to have certain percentage of your money in it. What are the 6 Jars?

First Jar: The FFA Jar (Financial Freedom Account)
Portion of your salary - 10%
This is the pay yourself first account. The money from this account can only be used to generate passive income, which means for investments, properties, business and anything which can generate incomes passively for you. You should never spend this account for expenses.
The 10% is the minimum, you can put more than 10% if you have the money and have fulfilled the minimum requirement of other Jars.

Second Jar: The NEC Jar (Necessity Account) 
Portion of your salary - 55%
This is where your necessity expenses are paid from. Your rent, loan, food, cloths, bills, petrol and so on. It is something you can't live without. If you are a smoker and can't live without it, then it should go here.
The 55% should be the maximum.

Third Jar: The LTS Jar (Long Term Savings for Spending)
Portion of your salary - 10%
You have been eyeing those 100" Curved OLED TV, but it's very pricey, or you want to go for a 9-days cruise to Alaska which costs you more than RM10,000. So, this is the account you use to save your money up.
The 10% is the maximum. If you have more than 1 things you want to buy, then split this account further.

Fourth Jar: The EDU Jar (Education Account)
Portion of your salary - 10%
This Jar is for you to grow yourself. It is used for your own education. It can be used to attend a seminar, buy a book (non-fictional, of course), taking up a skill. If you don't grow yourself, you'll end up rotting yourself.
The 10% is minimum.

Fifth Jar: The PLY Jar (Play Account)
Portion of your salary - 10%
This is the account you must entirely and splurge yourself. Use it to pamper yourself, go for a spa, buy an expensive cloths, shoe, dine in at an exclusive restaurant, do whatever you desire with this money. Now, you may ask, why do I need this account? Everyone of us have an inner child, the one which need to be pampered. If we try to be very strict in saving and never enjoy our life, we could end up doing something silly and ending up losing all our savings.
The 10% is a must, no maximum or minimum. If what you desire is worth more than 10%, then you can keep the money up to maximum 3 month's Play Jar and blow them up.

Sixth Jar: The GIV Jar (Give Account)
Portion of your salary - 5%
This is where you give away for charity.
Giving money to your parents is not charity. That should come under NEC Jar.
The 5% is minimum.

Here is an examples:

If Malik take home salary is RM5,000. This is how he should divide his money into. Btw, take home salary means your salary after all the deductions such as EPF, SOCSO and Tax.

The biggest question would be, my expenses are beyond 55% of my salary. Then, what do I do?
In fact, this is the biggest stopper for many from starting to use the Jar System.

If your expenses is more than 55%,

Option 1: Reduce your expenses. At times, some of your expenses could actually fall under LTS, EDU, PLY, GIV jar or even the FFA account itself. So, identify which expense goes into which Jar. You can even eliminate certain unnecessary expenses.

Option 2: Earn more. Find a better job. Find a part time job or business.

Option 3: Have at least the FFA Jar even if it's less than 10% of your salary. Make it a habit to pay yourself first. Slowly grow from there.

The GIV Jar, if you don't have enough money for it, you could spend your time instead to do charity. Volunteer yourself.

How about married couples?
I'll touch that in the future. I have my own take on it.

Or, for more details, please attend the Millionaire Mind Intensive.