How to manage your money as an adult?
We’ve mostly been thought by our parents to save money as a young child, or probably not even thought at all, let alone in our education system. So, who do we look to for guidance? Friends? People we hang out with? Colleagues? How about a millionaire who has effectively managed his money without being confused when the paycheck comes in or has anxiety when the bill comes in? Isn’t it a better likely hood of succeeding by learning from someone who has already found a way to do so and succeeded?
Meet T. Harv Eker, the author of Secrets of the Millionaire Mind. He’s someone who struggeled to meet ends meet with his business and the dream of becoming a multimillionaire businessman. To sum it all up, he too, learned how to become a millionaire by learning the mindsets of other millionaires and sharing why they do what they do.
I know, some of us might be thinking, “You can’t manage your money to a million” or “I don’t dream to become a millionaire”. That’s okay. But the fact is you’ll need to start somewhere and to get it right from the get-go puts you in a much better financial position than most of your peers. (A plus huh?)
So what is this effective money management method introduced by T. Harv Eker? It’s called the JARS money management system. Basically, using this system, you’ll need to split your money (salary/income/commission you’ve received for the month) up to six different accounts with different percentages of your money to each account. So what are the these accounts and what percentage of your incomes goes in to each account?
1. Necessities (55%)
This account is meant for all of your necessary expenses such as car payment, food, insurance, clothing, rent/mortgage and anything else that is considered a necessity. Some that are currently residing a in high cost living countries or area might think. “How do I live with just 55% of my income?”. I know, but bare with me. A good suggestion would be to start looking into your big expenses and see if there is any adjustment you can make to lower it down. The harsh truth? It’s either downgrading your lifestyle or increasing your income. A side hustle income shouldn’t be used to supplement your necessities but for your “future you” instead — your financial freedom (my take).
2. Long-term savings for spending (10%)
This is an account whereby 10% of your income goes into this account for your future “big purchases” like purchasing a car, downpayment for a house, a holiday or anything that is of a big purchase you are thinking off to spend in the next few years.
3. Play (10%)
Yay!! Finally a portion of money earned that can be spent for fun! Although its important to save, this account gives you some room to breathe and relax. It’s used for weekend getaways, facial, massages, date nights…you get the idea. This account makes sure that you have some money to spend on for hobbies or interest that you enjoy but don’t go overboard and blow the bank.
Another advantage for the play account is that it can be a reminder to reward ourself for working hard and saving. I too, can sometimes be a super saver but forgets to reward myself once in a while. So if you’re someone who loves to save but does not reward yourself for the job well done, this might be a big tip for you! And remember, if you start to see this account growing bigger, its time to reward yourself with something nice!
4. Education (5%)
If you’ve taken any education loan, this account would be useful to pay down some of that loan. If you’re from Malaysia where I’m from, whereby the education loan here is really cheap at 1% p.a. (at least that’s how much my loan rate is currently) for PTPTN, I would just make a monthly installment to slowly pay it off instead of a lum sump. Otherwise, the money IMO, would be of much better use educating yourself in non-traditional ways to improve your personal life, relationships, health, business, marriage or of course, personal finances!
5. Financial Freedom (10%)
This is in other words, your retirement account. It’s to pay for your “future self”. It’s your “backup” plan when you do not have a main source of income near the retirement age or after you have officially retired. This is where the big bulk of your “savings” goes to and it builds up your entire life. The only time you will use this money is when you’ve a return on your investment that is sufficient to support you through your old age.
6. Tithing or Give (10%)
I do believe in giving and tithing. It may be your local community church or a charity which you want to support to those in need. This might be difficult for some people to do but building this habit also helps one to create a spirit of giving and generosity as well (IMO).
Overall, I share this system mostly to beginners who have just started out learning how to manage their money, especially first jobbers. So far, I do have different accounts set aside for different purposes but with a different percentage. As you know, my aim to hit $100k is not an easy feat but with some adjustment to my neccesities and financial freedom account, hitting the $100k is possible and most importantly, not as stressful as you think it is! I’m still in the process of learning as always, if you’ve your own opinions, do comment down below as well so we can learn together. 😄
