A great financial system allows you to know exactly what to do when certain financial events happen in your life so you don't have to think about what to do with your money all the time. One of the most beneficial aspects of having solid, well-functioning financial systems in place is that they help keep your emotions from taking over.
We all know that people often spend money and make purchases out of emotion more than anything else, so if you can find a way to bypass most of your emotional purchases, you have a better than average chance of short-circuiting you hard-wired brain that craves instant gratification.
Developing and following systems will put you securely on the path to that place called Financial Freedom, and will pretty much guarantee your success.
The first important financial system you need to establish is a basic money management system that automates what you do with your incoming and outgoing financial resources.
The Money Jar System is a basic money management system that automates what you do with all the money that comes into your life, regardless of the source.
The Jar system consists of the following six categories, or jobs, for your money. You can add you own categories once you've establish the basic system and it's working for you.
The Money Jars can be actual jars, or envelopes, or other such things, but most people set them up as separate accounts. The key is to take a certain percentage of any money you receive in income and put it in each each category. These percentages are a guideline to get you started and can be adapted later on.
THE LIVING JAR
The first category in The Money Jar system is The LIVING JAR. This is the money you live on each month. This money pays your rent or mortgage, utilities, food, clothes, credit card payments, etc. It also pays for a few wants that you wish to make part of your daily life IF your income is sufficient and the expenses work into your budget. This is generally a chequing account and you put 55% of your income in it.
If your living expenses are more than 55% of your income, look into ways you could cut your monthly expenses. Remember, this system is a guideline and you may need to make changes to adapt it to your situation.
THE FREEDOM JAR
Your FREEDOM JAR will quickly become your favourite jar because once you create it, it can't help but grow. Put 10% of your income in this jar. It represents the Number One financial habit of all financially free people...Pay Yourself First!
This isn't necessarily an account, though it can be. If you're just starting, using a savings account is a great way to accumulate money. Once you have money to invest, your Freedom Jar money may look like:
Real Estate: Rental property, land that you lease out, private mortgages, etc.
Business: A business you start, investing in someone else's businesses, etc.
Stock Market: Stocks, mutual funds, options, bonds, etc.
A professional Financial Advisor will help you make the most of this!
THE SAVINGS JAR
The SAVINGS JAR has two parts:
A) Is for saving up for things you want, like a car or a new phone.
B) Is your Just In Case fund, for when appliances decide to stop working, or you wash your phone, or you get a flat tire, or a pandemic hits.
Set aside 10% of your income for the savings jar and look into high interest savings accounts like TFSAs. Once you have 6 months of livings expenses (just in case funds), you can take the balance and start putting it in your Freedom Jar.
THE EDUCATION JAR
How many times have you thought, "I'd really like to take that course but I don't have the money for it"?
You'll love the EDUCATION JAR.
Put 10% of your income in a simple savings account so when you have the opportunity to attend a seminar or workshop that will provide you with skills to move forward in life, you can easily pay for it. Won't it be awesome to jump at those opportunities?
THE PLAY JAR
The PLAY JAR is almost as fun as the Freedom Jar and forces you to enjoy the fruits of your labour on a regular basis. This jar helps the subconscious develop an abundance belief in regard to money because there's always money there to enjoy when you have your Play Jar.
Set aside 10% of your income in its own savings account.
Use your play money every month unless you want to save up for a couple months for something special.
THE DONATION JAR
Your DONATION JAR will contain the money you use to help others and to make the world a better place. When you regularly donate your time, energy and money to help others, it means that you have a belief that there is plenty of whatever it is you need and want to live your life exactly the way you wish. Your donation Jar can be a savings account or it can simply go into your living expenses chequing account and you can make a donation each month.
Set aside 5% of your income for this jar.
The money jar system is a great way to establish a financial system that will serve you well for years to come and put you on the path to financial freedom.