The personal financial management industry is being put on notice: Here are some easy to understand steps to money management which empowers people to take control of their own finances and allows them to still enjoy their money, possibly more than they are currently!
As Kelly, a loyal user of what I am calling the jar system, added, "Wow...more than 3/4 of my credit card debt paid off... all because I decided to manage my money!." She has been faithfully implementing the jar system and it has led to her being successful at paying down her debt and creating the financial freedom she desires. She is within 3 months of completely paying off her credit card debt and being able to move forward to growing her wealth and her total financial freedom.
What makes this simple budget building approach so effective it isn't about looking at every single expense and doing all of this complicated math, it is about deciding if an expenses falls into one of 6 categories and then only spending the amount of money that is available in each of those categories. Your income is divided up by percentages, and you will never have to be able to calculate beyond 10% so the math is easy.
In order to make this easy the different categories will be listed by name and percentage of income to be allocated to that category. Each will then be followed by an explanation and description of how to use the money in that category. It is a very clear and simple system where all you have to do is the math of 10% of your total income. The categories are in no particular order.
Category #1: Education - 10%
10% of your total income should go into this jar and the money in this jar can only be used for things to help you learn and grow. This can be formal higher education, but I recommend this be used for seminars, investment courses, personal development programs etc. This should not be learning in the traditional sense, this should be learning in the arena of helping yourself grow and expand your own abilities. This isn't education to help you at your job (unless you truly love and are passionate about your job, most people are not and do not). This is education to learn about the stuff you are passionate about so you can start doing those things more often.
Category #2: Long Term Savings for Spending - 10%
This account is for saving up for those big ticket items that can often get us in financial trouble. We see the new 3D big screen TV we want and instead of knowing we have the money to cover the cost we put it on a credit card and spend years paying the debt off over time. Preventing this mistake is the reason for this account. No big ticket purchases are allowed until this account has all of the money in it to cover the cost. This could be down payment on a house, a new car, the tv, etc. Any big ticket item should be paid in cash from this account.
Category #3: Financial Freedom - 10%
This is one of the two categories that will probably be new to you. The idea of saving for your financial freedom is not knew, the fact that you NEVER touch this money, ever, probably is. This is your Golden Goose. This is where your wealth grows and grows and you only use the interest and other money from this account to invest in passive income streams to grow your wealth and move towards financial freedom.
Category #4: Give - 5-10%
This is the category where you put money to give back to those in need. For many of you it is easiest to think of this category in the tradition of Christian Tithing. You should always be giving to those in need because it opens you up to receive more. This is a very important category and one you cannot dismiss or ignore. This money can go to any charity you want, just make sure to give this every month so you can open yourself up to receive even more.
Category #5: Play - 10%
This is the category that is going to be most unique to most people. The money in this category MUST be spent every month and it MUST be spent on something you would usually not spend money on. This is money that can only be spent on something you would usually say you cannot afford. Taking a limo to the airport, flying first class, ordering wine at a restaurant without looking at how much it costs, order the "market price" seafood item and not asking how much it is, etc. You basically have to blow this money in order to live the life of a millionaire.
Category #6: Necessities - 50-55%
Finally we get to the category most people only focus on, the necessities. This category is where you pay all of your required bills like rent/mortgage, car payments, food, etc. I know for many 50% is not nearly enough to be able to cover all of your bills. This is true for far too many people, so go in the goal of reducing your bills down so it is no more than 50% of your income, or find ways to make more income so you have more to cover more. The easiest way to get down to the 50% goal is to simplify. What expenses do you have that you really do not need, not that you don't want, that you don't need. Do you need cable? Do you need the phone plan with all the unlimited stuff, etc. Be honest with yourself, what expenses can you remove. How much do you spend a month on alcohol, soda, etc. You will be amazed how much you can save through simplification, as well as how making some changes can help you to become healthier in the process.
If you learn to really use these categories as they are explained and really work hard to get all your expenses from here out into these areas, you will be amazed how quickly you can take control of your budget and your finances. Try putting this into action today and see all the changes that occur.
Source by Sean M. Adams
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