Learning to budget with a money jar system

Learning to budget with a money jar system

money jar system

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 money jar system for budgeting 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.

While that's probably not the first time you've heard this, you've got to start managing your money if you want to create financial abundance. 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.

JARS: The Money Jar System

Then we started using the JARS money management system discussed in Secrets of the Millionaire Mind. And what are the JARS? The JARS are just that: plastic jars. Here's a photo of my jars from my home office:

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

Once we started to manage our money, I sold the 350Z. After our first year, without any significant change in our income and all expenses being treated equal, our net worth increased by a surprising 45%. When we learned how to apply this system we realized it was very simple and it didn't require a lot of our time.

Here are the results we produced after using the JARS for 12 months:

  • Our net worth increased by 45%.
  • We bought our first home for $337,000.
  • We created $800/month in passive income by renting out our one-bedroom basement apartment.
  • We earned $200 in interest from our savings accounts. We use ING Direct savings accounts, which were clocking at about 3.5% interest at the time. (Ed. note: ING Direct became Capital One 360 in 2013.)
  • We created more peace in our relationship because my wife and I have our own “play” money.

The real trick to managing your money is not what you do — it's how you do it.

How to Use the JARS System

Here are the jars and a short description of each one.

Necessity Account (NEC – 55%):

This account is for managing your everyday expenses and bills. This would include things like your rent, mortgage, utilities, bills, taxes, food, clothes, etc. Basically it includes anything that you need to live, the necessities.

Financial Freedom Account (FFA – 10%):

This is your golden goose. Therefore this jar is your ticket to financial freedom. The money that you put into this jar is used for investments and building your passive income streams. You never spend this money. The only time you would spend this money is once you become financially free. Even then you would only spend the returns on your investment. Never spend the principal.

Education Account (EDU – 10%):

Money in this jar is meant to further your education and personal growth. Since you are your most valuable asset, an investment in yourself is a great way to use your money. I have used education money to purchase books, CDs, courses or anything else that has educational value.

Long-term Saving for Spending Account (LTSS – 10%):

The money in this jar is for the bigger nice to have purchases. As a result, my wife and I have used the money from this account to go skiing in The Rockies in Whistler, BC. We also used this money last September for our trip to Italy and Switzerland. The only reason we've been able to make this happen is because we've accumulated a nice sum each month in our LTSS. A small monthly contribution can go a long way.

Play Account (PLAY – 10%):

This is my favorite account. PLAY money is spent every month on purchases you wouldn't normally make. The purpose of this jar is to nurture yourself. You could purchase an expensive bottle of wine at dinner, get a massage or go on a weekend getaway. Play can be anything your heart desires. My wife and I each receive our own play money, and here's the best part. We're not allowed to ask what the other person spends their money on.

Give Account (GIVE – 5%):

Finally, the money in this account is for giving away. Trisha and I give money every month to the Sick Kids Hospital Foundation. In addition, we use the money in this jar to give to family and friends on birthdays, special occasions and holidays. You can also give away your time as opposed to giving away money. You could house sit for a neighbor, take a friends dog for a walk or volunteer in your community.

Related >> See the best choices for a high yield savings account.

How the JARS Money Jar System Works

Here is a sketch of how we use the jars. Actually, we don't use jars at all. All of our accounts are electronic savings accounts with our necessity (NEC) account being the only exception; it's a checking account. Trisha and I deposit all of our personal income into our necessity account. The money in our necessity account pays for all of our expenses. And the remaining money is distributed into five other accounts.

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.

Furthermore, 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.

You can read more from Martile at his personal-growth blog Freedom Education. He has also written a free e-book entitled The Genius Within YOU.

More about...Budgeting

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
78 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Jason
Jason
11 years ago

This article reads like a get rich quick scheme. It sounds like the author (and the author’s wife) already had a decent income and would have likely done well with any budgeting/goals system. There’s also no mention of “retirement” as one of the jars, not things like an emergency fund. There’s also no savings for emergencies and/or house upkeep, either. It seems that the author’s roof has yet to leak, the house hasn’t needed painting, the furnace hasn’t gone out, the water heater hasn’t failed, etc. We do use a similar approach at home with cash envelopes, but we also… Read more »

Devon
Devon
7 years ago
Reply to  Jason

I think that the LTSS account is where that “oh crap, that needs fixing” account is found. Yes, it would be nice to think that there was an account specifically for vacations savings, but, of course unexpected expenses do come up. The FFA account is the “retirement” account. One cannot retire until they are financially free because they can’t afford it. By never tapping into that account before actually being free, you are ensure that you do become so.
Personnally, I use this system and have found it hugely helpful, especially since having my daughter.

Bud
Bud
10 months ago
Reply to  Jason

I believe it’s all about the intention of taking control of your life/finances. Progress, not perfection. You can ridicule and make all the excuses you want as to why this won’t work or you can’t afford to do it. My guess is your current strategy hasn’t given you much success in creating financial freedom. This allows a person to work new suggestions and use them towards their advantage and create a new way of thinking. One in probabilities, possibilities and increase the certainty that they can succeed. Good luck, God Bless

Van
Van
11 years ago

“The jars themselves aren’t actually that important. What’s more important is the money management system behind -the them-”

I’m not sure if that was intentional or not. Should it be, “behind them”? I like the idea, but with my low income I just take out 100 or so every two weeks for “play” money, use some to pay bills, and save the rest. No jars needed for those of us with will power.

Bart
Bart
11 years ago

@Jason, I think their FFA jar is intended for retirement.

AD
AD
11 years ago

“Now who’s laughing?” Umm…the same woman? 😉

We do something very similar using ING accounts for EF fund, irregular bills, vacation, house, and car savings or repairs.

Kevin
Kevin
11 years ago

I’m confused. How is this NOT just a “budget?”

And the capitalization of JARS implies it’s an acronym for something, but the article never alludes to that, and instead just refers to them as actual, physical jars. Jars that are never used for anything.

Seriously, this just sounds like an article about one guy’s budget.

Tyler@FrugallyGreen
11 years ago

Jason, I don’t want to put word’s in Steve’s mouth, but I will give him the benefit of the doubt that if he and his wife have implemented such an intentional savings plan, that retirement likely fits in there somewhere as well, perhaps in a 401k plan that is yanked out of their checks before it ever gets to them. I just implemented nearly this same system over the weekend except with different savings goals after reading several articles from JD about how great ING the ING accounts are and several articles from Ramit persuading me to automate my finances.… Read more »

getagrip
getagrip
11 years ago

I agree with the first commentor.

I checked out the authors website, and find it along the lines of those promoting “the secret”. Not for me.

The only advantage I can see is that such a visual image may help if you’re grouping your expenses. But for all the items I track in my budget this would be more distracting and a create a lot of wasted space.

SystemError
SystemError
11 years ago

“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 think there’s something missing between 10 cents and 10 grand.… Read more »

Lakita
Lakita
11 years ago

Maybe I missed it, but where does Retirement savings fit into this plan?

Images are blocked so maybe I’m missing something…

This sounds like what a lot of people are already doing with ING sub accounts.

5% for the give account is too low (for me personally). But I guess the idea is to use the system and adjust to your own lifestyle.

Holly
Holly
11 years ago

Good thoughts…definitely agree w/Jason (#1)in that it’s just a little simplistic. Still have no way of knowing whether to use before or after tax figures. If gross is used, are pre-tax contributions to retirement accounts considered in the 10%? Three kids in private school takes up a huge chunk considered in the necessity account since the public schools are awful here. And, no, we won’t be moving to a better school district because we generally like our house and our location (Eastern U.S.) Love the 10% aside for furthering education. That savings would help to eliminate the excuse that I… Read more »

Kate
Kate
11 years ago

I like the concept, but this budget breakdown definitely seems to be geared to somebody carrying no debt. I’m still in stage 1 (eliminating debt) and so the idea of 5 separate savings accounts isn’t something I can imagine. I’ve got two – retirement and emergency.

But I appreciate the idea of having “play” and “long term savings” as goals that I could get to once I’ve paid off my debts.

J.D.
J.D.
11 years ago

Thanks for the feedback, folks. I appreciate it. I’ve actually been considering a change to my guest post policy. So far I’ve been publishing most of the items submitted to me. I think I’m going to exercise a stronger filter in the future. Also, I may move from a variety of guest posts to having a regular “staff writer”, somebody who contributes an article per week. I think if we could find a writer that you (the readers) and I liked, it would be win-win-win for all involved.

Again, thanks for the feedback.

Kelly
Kelly
7 years ago
Reply to  J.D.

hello,
i think this is a wonderful idea for beginners or impulsers like myself that need to see their money in front of them. I usually will take that FFA and dump it into an ING once it’s full. It’s also a great tool to teach my son. He has his jars, unfortunately one is for ‘videogames” but he see’s now how long it takes for him to purchase and is now opting to buy used games now. Thanks JD, sometimes reminding us of the basics is what’s best.
Kelly

Shanyne
Shanyne
11 years ago

Wow… a little surprised @ the general negativity of the comments. Not sure why ppl would have such a critical/negative response to this information. Read it or don’t read it – Implement it or don’t. I don’t see the value in personally attacking the author or trying to find fault in the logic… If anybody has been reading this newsletter for any length of time you would know that any/all ideas are not purported to be “the secret”. Rather a variety of ideas are proposed to give the reader the opportunity to find what works for them. I personally have… Read more »

JoDi
JoDi
11 years ago

Boy, some of these comments are pretty harsh! Give the guy a break. This is an article about a budgeting system the author *read about.* (Note – He didn’t invent it. To get full details about it, you would have to read the book!) It helped him and may help others. It’s filed under “Basics” for a reason – it’s a starting point, a framework. JARS may work for some people; envelopes or sub-accounts may work for others. Anything that helps people wrap their brains around the idea of budgeting is a good thing. Thanks for the new twist on… Read more »

Sandy E.
Sandy E.
11 years ago

I’m all for budgets because otherwise your money will just slip between your fingers. And they are an individual thing too, where each should be designed so that they make sense to you. It’s really important that each dollar is accounted for on paper first, before you spend it, and given a name or category. I agree with some of the other readers, like where is your emergency fund? As part of my budget, I have a car fund, which is not for car repairs, but to save up for another used car down the road, because I plan to… Read more »

Jason
Jason
11 years ago

@Kate – debt payments could be considered in the “Neccessities” bucket, for example a lease payment or a car loan payment. I personally don’t like having debt, but some people really like having a new car every three or so years and might consider it a necessity. I really do find this budgeting system to be weak. It includes play money, travel money, giving and education buckets, which are very good ideas to have (my wife and I get a certain cash allowance every month, it works VERY well). The author also does state that the percentages are variable for… Read more »

RC
RC
11 years ago

I thought it was a great article. It is like the balanced money formula but more detailed. I have three questions though: 1. Where would paying off student loans and credit card debt factor into this system? What category would that be under? 2. How does it work having your “Play” money in a savings account? For example, I am out with friends and we decide to go the the movies. I would say that is a “play” activity but I have no way of getting my money out of that account right away. 3. I think having all your… Read more »

Jason
Jason
11 years ago

@JoDi — if you were walking around with something embarrasing (open fly, blouse open, toilet paper on your heel, spinach in your teeth, bird poop in your hair, etc) wouldn’t you want people to tell you? This article is poorly written, with typos and incomplete ideas. Note the use of “etc..” multiple times, for instance. It has several gaping holes in the basics of money management. In short, it’s not up to the quality level I’ve come to expect from GRS, and for someone (J.D.) who needs to attract readers with interesting articles and keep them coming back for more,… Read more »

Paul in cAshburn
Paul in cAshburn
11 years ago

JD, I wouldn’t throw the baby out with the bathwater on this one. Sometimes the articles are above the individual readers’ ability to grasp (at that time), and sometimes they’re below the readers’ current financial sophistication. Diversity in terms of article complexity simply helps appeal to more people, and help them to understand finances.
If you don’t like this article, smile, take a deep breath, and wait for the next one. The key is to take what you need and leave the rest – you don’t have to pee on what you don’t need.

Jen
Jen
11 years ago

I was relieved to see the first comment here (Jason) reacting pretty much as I did. If you can afford to blow $800/month on a car payment, then of course you’re going to realize huge net worth increases from any tightening of your belt. Duh.

I’d much rather hear from someone who, like most of the readers of this site, has already mastered the basic concept of not blowing huge wads of money frivolously.

Maria
Maria
11 years ago

I have to agree with Jason – there is no mention of home repairs, emergencies, car repairs, etc. In maintaining a simple, frugal lifestyle…which is necessary to ‘getting rich slowly’…. why would I want to clutter my home with a bunch of empty jars taking up space on my desk? Seems quite juvenile and quite unnecessary. The idea of breaking out your lump sum, monthly income into smaller accounts isn’t new. In fact, I do this with my ING account, and again with my monthly ‘allowance’ which is separated into envelopes at home (entertainment, clothes, sports expense (I’m a runner… Read more »

Steve @ Freedom Education
Steve @ Freedom Education
11 years ago

@ Jason: Retirement funds go into the FFA. I did say investments but I guess the term is loosely applied. See Bart’s reply above. @ AD: Good on you! The JARS process is so simple, but old conditioning usually creates a mental barrier that prevents people from making it a habit. @ Kevin: Could be taken that way, no doubt. It is a budgeting system that has made a world of difference in my own life. @ Tyler Frugally Green: You said, “I’m now at a point where “just saving” isn’t enough.” I’m glad somebody said this, which is why… Read more »

Ryan
Ryan
11 years ago

This is basically a more granular version of the “All Your Worth” budget, but the “play” budget is way too small.

geekmom
geekmom
11 years ago

I thought the article was interesting and had some good ideas for an approach to budgeting.

However, Whistler is not in the Rockies – it’s in the Coastal Range. 😀

Dave
Dave
11 years ago

As the saying goes, there are many roads to Dublin. If this budget works for the writer, that’s great! After all, a budget is just a roadmap on how you want to spend your income, right? This budget looks good because it allocates money for immediate, short-term and long-term goals. Does this mimic my budget? Not exactly, but the concept is the same. Everyone needs to pay monthly bills and feed themselves, everyone needs to save a little bit every month for ongoing annual expenses like car insurance, everyone needs to have some “fun” money, and everyone needs to have… Read more »

Kelleigh2
Kelleigh2
11 years ago

I also went out to his website – and right on there it says that he went to a seminar by T. Harv Eker and due to that seminar he was able to do all these things – including come up with this system.

JoDi
JoDi
11 years ago

@Jason – I wasn’t referring to your original comment when I referred to some of the harsh comments here. Your points were presented without the ridicule some others included. Jason wrote: “This article is poorly written, with typos and incomplete ideas. Note the use of “etc..” multiple times, for instance. It has several gaping holes in the basics of money management.” I see that as an editorial problem. Perhaps JD cleaned it up before I read it this morning because I don’t see any typos. I see only one “etc.” used in the article (which is the same number you… Read more »

Jason
Jason
11 years ago

@JoDi — thanks for the reply. I definitely see some interesting ideas in here and was trying for constructive criticism. The most salient point that too many people forget (or try not to) budget is the play money, thinking that every cent must be tracked or that it must all go to “responsible” things. That’s just impossible to follow for most people — and if you don’t follow your budget, it’s useless. I like the ideas of broad categories and automation, as well. I have been around the block too many times to ever dream that anyone’s solution will apply… Read more »

Jane
Jane
11 years ago

Loved the idea of setting aside money for educating yourself. Continually expanding and growing is something we value too little once we reach a certain age.

Richie
Richie
11 years ago

What are the mechanics of removing your money from the PLAY and GIVE ING accounts and spending it? ATM?

Molly
Molly
11 years ago

I also found the math on this system a little suspicious. As an independent contractor, I have to pay self-employment taxes on everything I make. The idea that 55% of my income would cover taxes and all necessary expenses is nuts. I think anyone with student loan debt, a car payment, rent/mortgage and taxes, plus bills, would sail pass the 55% figure pretty quickly.

Jenni
Jenni
11 years ago

After reading all the comments above, I am compelled to remind people that everyone is different and so is their budget. Everyone’s circumstances are different; what works for JD may not work for me and vice versa. For example, I’m 28yo and I moved home after I graduated from college. I do not have children or student loans. In other words: my sole responsibility is myself. Based on my situation and my needs, my budget is very different from someone like JD’s because he’s married, and so on. However, I have used the JARS system for years. I use a… Read more »

rkt88edmo
rkt88edmo
11 years ago

This article really doesn’t seem up to the standards I would expect from GRS

***
Our net worth increased by 45%.
We bought our first home for $337,000.
We created $800/month in passive income by renting out our one-bedroom basement apartment.
***

I don’t see how the above is in any way connected to the jar system as presented in the article. It seems highly connected to no longer having an $800 car payment, but that decision wasn’t connected to the jars either.

J.D.
J.D.
11 years ago

Just to be clear, this post was NOT written by me. It’s a guest post. If it were written by me, it would feature Mini Coopers in the automobile roles. 🙂

Richie
Richie
11 years ago

I think anyone with student loan debt, a car payment, rent/mortgage and taxes, plus bills, would sail pass the 55% figure pretty quickly. Right now, my “necessary” expenses each month are about 69% of my take home pay. This includes: Rent, Utilities, Car Payment, Insurance, Student Loans and debt snowball. For my budgeting, I’m never sure what category “fuel” should be in. The basic fuel to get to work is a necessity. But the additional fuel to drive somewhere out of the ordinary over the weekend (or whatever) is more of a “play” item. Regardless, my typical fuel expense each… Read more »

Jenni
Jenni
11 years ago

oops, selective reading–my mistake. Please substitute all “JD” with Steve Martile in my previous comment.

Sierra Black
Sierra Black
11 years ago

I use a system of old milk jars to help my kids manage their allowance money (you can see a cute picture of it here: http://childwild.com/2009/06/21/kids-allowances-whats-the-right-approach/). I’ve contemplated getting more milk jars for adult money to cover cash expenses: groceries, gas, play money. For our savings I do what a lot of folks here seem to and use a set of ING sub-accounts. My particular categories are an emergency fund, a travel account to pay for family trips, and an education account to pay my kids’ education. I also have retirement accounts and an account with JustGive.org to automate donations.… Read more »

JoDi
JoDi
11 years ago

“But there are far more lucrative ways to spend your money to get a better return on the cash you invest. Returns as high as 30% ROI; just look at real estate. ”

OK Steve, I just had to jump off your bandwagon right there! Now that Bernie Madoff is going to jail there’s nowhere left to consistently get returns like that! 😉

Anything promising that high a return has to be highly speculative (or illegal), and odds are your losses would offset your gains to the point where your returns would end up being about average or worse.

Erica Douglass
Erica Douglass
11 years ago

I went to a couple Harv Eker seminars and used the JARS system to build the foundation of my 10-minute budget (guest post published here on GRS a few months ago.) However, I stand by my statement that anyone who pays Eker $60 for his actual jars is a fool. I also couldn’t believe the number of idiots who paid $12 for the “limited copies” of Eker’s wealth book at the Millionaire Mind Intensive when you can buy it on Amazon for less than $4 shipped. Wealthy or not, Harv has a way to wring money out of you. In… Read more »

Brian G
Brian G
11 years ago

I’ll stick with Envelopes and automatic withdrawals. Thanks though

David
David
11 years ago

Nitpick: “FFA account” is redundant.

thefamilynomics.com
thefamilynomics.com
11 years ago

I just loved the sentence : Managing money doesn’t restrict freedom – it creates freedom.

If only everyone thought it that way……..

Jimmy
Jimmy
11 years ago

Steve, not to be picky but if you skied Whistler you weren’t in the Rockies, you were in the Coastal Range.

Good post though, I like the concept.

Virginia
Virginia
11 years ago

I would like to echo the request for further information: How did the woman profiled go from 10 cents to 10 grand?

I would be much better at dividing my accounts if I had enough money to fill all of them.

Mark Foo | TheBigDreamer.com
Mark Foo | TheBigDreamer.com
11 years ago

Hey Steve,

There seems to be a high level of criticism here. But as always in life, there’s no way you can please everyone! So I hope you keep to your faith and keep doing what you believe in. I know you’re doing some commendable work and I wish you every success in your endeavours! 🙂

Cheers~

Mark

Aleks
Aleks
11 years ago

The thing that really jumped out at me in this piece was the total lack of detail. The author credits his “system” with increasing their net worth 45%, buying a house, renting part ouf that house out (and incidentally, being a landlord is not passive income–presumably he just hasn’t had a tenant move out without notice, ruin the carpets or break the fridge yet) and saving his marriage. About the only thing a budget can actually do is limit monthly spending and increase savings; everything else is a tertiary effect at best. The 45% number tells me right away that… Read more »

Inge Santoso
Inge Santoso
11 years ago

I’ve been using the Jars system for almost a year now. It works wonderfully for me. I started by using the FFA jar and LTSS jar to build my emergency fund. Now I have 10 times monthly expenses in my emergency fund. Now I am really using the FFA jar to put myself on the road of financial freedom. I found that my expenses on necessities was less than 50% of my income, so I put the rest of it into FFA jar. I also keep record of all my expenses to the last detail and it helps me to… Read more »

Jordan
Jordan
11 years ago

I actually thought this was a pretty good article (definitely within “GRS standards”). I think most of the bashing going on here is just sour apples about the author talking about his $800 car payment.

Ben
Ben
11 years ago

Sounds like one of those plans that people get excited about for about…two months. Automatic withdrawals are much easier and…automatic.

Sadie
Sadie
11 years ago

I believe Whistler is near the Canadian Rockies

shares