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.
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