Use The 6 Jars System to Jar Your Way To Financial Success

Money management is an area where a lot of individuals and households struggle. Even if you spend time creating a budget, ensuring you don’t overspend in a particular area isn’t always easy. This is especially true if your money is all lumped together in one account, as it may be hard to tell at a glance how much you have left for each category. Fortunately, there’s a quick solution that can keep you on target. Say hello to the 6 jars system.

What Is the Jars Method?

Similar to the envelope system, the jars method is a financial management strategy you can use in conjunction with a budget. After outlining your expenses, you allocate a specific amount of your income to each spending category. However, instead of leaving it all in one account, you place each amount into separate “jars.” Then, when you have an expense related to a jar, you pull money from it to cover that cost.

The jars can be physical jars if you prefer a visual reminder of what’s left for each category. However, the jars can also be separate bank accounts, giving you the same level of separation with the added convenience of not relying solely on cash.

In fact, you could do a bit of both, if you prefer. For example, money for various bills could be in bank account jars, while everyday expense funds are in a physical jar.

The Original 6 Jars

The jars money management system was actually designed by Harv Eker. It featured six different jars, each with a specific purpose and a particular allocation.

First, you have the “necessities” jar. This covered critical living expenses, including housing, utilities, food, and debt repayment, and was supposed to hold 55 percent of your income.

Then, there were four jars that each represented 10 percent of your income. “Long-term” was focused on savings, including both an emergency fund and cash for large purchases. After that was “play,” which involved money you could spend on entertainment or desired – but not necessary – purchases. The “education” jar covered costs relating to coaching, mentoring, books, and formal training, while “financial freedom” handles investing.

The final jar was “give,” with 5 percent of your income. It was designated for charitable donations, either in cash or money that you could spend on products needed by a particular nonprofit.

For many people, that approach is sufficient. It covers every imaginable spending category and has allocations that may make sense for many households.

However, the six jars and associated allocations won’t work for everyone. Some people may not like their grocery spending lumped in with their housing money, as they may worry that they’ll accidentally overspend on food, causing problems with their utility bills, rent, or mortgage. Otherwise, may find 10 percent set aside for education as unnecessary.

Regardless, the original six-jar system gives you an idea of how the strategy works. If it’s not a great fit, simply customize it to meet your needs.

How to Customize the Jars Method Based on Your Needs

Customizing the jars method isn’t overly complex. In most cases, your first step is to consider whether you need to add, remove, or adjust any existing jars.

As mentioned above, some households may want to split the necessities jar into subcategories. For example, it may be easier to ensure you pay your bills if all recurring household costs – like housing, utilities, and insurance – and ongoing debt repayment is in their own jar. Then, groceries could become its own jar, as well as fluctuating transportation expenses, like fuel.

Depending on your household makeup and career, the education jar may not be a priority. If that’s the case, you can remove it entirely or adjust the allocation to a point that makes more sense.

When it comes to the allocations, it’s also fine to change the amounts or percentages based on your existing budget, particularly as a starting point. However, it’s wise to aim for the 10 percent going to savings and 10 percent going to financial freedom. Those give you strong financial foundations, shielding you against financial hardship during emergencies and allowing you to plan for your short- and long-term financial future.

Similarly, it’s wise to try and bring the total of your necessities – whether separated into different jars or not – to 55 percent. That can help ensure your debt load remains manageable and that your housing costs don’t eat up too much of your budget. Whether that’s plausible may depend on your income level, but it’s a wise mark to work toward even if you can’t start there.

In the end, part of what’s important is using the system to improve your financial habits. Plus, it gives you greater insight into your spending and expenses, all while reducing your odds of making missteps.

Where to Set Up Your Jars

If you’re going with financial accounts instead of physical jars, you may want to have them in different places, depending on the type. For example, your financial freedom account could be a brokerage or retirement account with a specialty company or even money taken out of your paycheck and deposited into an employer-sponsored account.

For bill and more active spending accounts, you may want to keep them with one bank or credit union, preferably one with a local branch. That makes the money more accessible, which could be vital if something unexpectedly happens to your payment card.

For your long-term savings, a high-yield online savings account is a better fit. The same could go for your “give” or “education” accounts. For example, if you plan on lump-sum charitable donations annually or only investing in one or two larger educational expenses each year, a high-yield online account is a strong choice.

However, if your education goals involve going to college at a later date, you may want to explore 529 savings plans instead. Along with helping your money grow, there are tax advantages, which could give you more cash to direct toward this goal.

Consider Accessibility

Consider how accessible the money needs to be, and use that as a guide. If quick access is a priority, focus on traditional no-fee checking accounts at convenient institutions. For money that’ll sit for a little while – but less than one year – go with a high-yield savings account. The same goes for emergency funds, as those need to be reasonably accessible.

If the goal is longer-term, then you may want to consider a few options. High-yield savings accounts could work for upcoming large purchases within the next few years, but you want to go with investment accounts for big goals in the far future, such as retirement. That way, you have the ability to potentially grow your money faster, making financial success easier to attain.

Have you considered using the jars money management system to achieve financial success? Have you tried it before and want to tell others about your experience? Do you think another strategy is a better choice? Share your thoughts in the comments below.

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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.