A good attitude on how to save money is very important. How do you save?
For most people it is this:
Savings = Income - Expenses
How many times have you heard this:
Man earns salary, then pays off debt (credit cards, other bills, etc). Saves money left (if there is). Man spends on a lot of things (the latest fashion, gadgets etc.), increasing his debt. He earns his salary again, only to pay off the debts and bills. Then he ends up saving nothing, or worse, having more debt (by borrowing money,etc.) and this cycle repeats over and over.
With the fast-paced change in technology, we are often suckered by media to buy the latest and coolest gadgets, spend on pricey coffee in shops, and lavish on things we mostly do not need. It is hard not to be the "in"-thing, or at least it is hard to resist not being able to stand out.
It may be hard for you to accept, but the way to go is this:
|If you think like this then you may need to reconsider things.|
Credits to Psychologytoday.com
PAY YOURSELF FIRST.
Yes, the way to go is to pay yourself first. Make a habit to start taking your savings first (paying YOURSELF first) then the rest go to expenses. Believe me, you WILL need to trim down on some of the things you spend on in order to get to this formula. It will be very difficult at first, but it will reap you rewards in the long run.
Still with me?
Now here's how you actually PAY yourself.
All you need is a permanent marker and SIX jars.
Yes you heard me. SIX. JARS.
Cookie jars, jars where you put your coffee, sugar, or baby's powdered milk. Whatever. Make sure that it fits your hand, and it's a bit big.
[Read also: The 10 Laws To Success]
Here's how it works. This is called the Money Jar System, from the book Secrets of the Millionaire Mind by T.Harv Eker (I suggest you read the book - very inspiring). What you have to do is to label the six jars corresponding to the things you want your money doing (remember - when you save, your money is PASSIVELY working for you!)
Adopting the Six Jars from the book, here is the breakdown:
(everything is in per cent; the representation of your total income)
Necessities - 55% (for expenses and bills)
Financial Freedom - 10% (for future investing)
Education - 10% (for personal growth thru education)
Long Term Savings for Spending - 10% (for bigger nice-to-haves)
Play - 10% (for ANYTHING you want to buy. This is for personal nurture, to spoil yourself. Remember, the rule is to fill this up until a certain period of time of your choice, then SPEND IT ALL. Yes, ALL.)
Give - 5% (for good will - charities, etc)
What is important is not the percentages, but the habit of doing it. It is very difficult at first, believe me. I tried the exact system you have just read and I cursed every single day I needed the money. It ate my soul until I broke the habit off. I was a student back then. The key is to create your own percentages and basically tailor the system to your ease, so that your habit will not be broken.
Let's take this system and apply it to a fresh graduate named Bill.
Bill just took the licensure examination and passed. Now he is 21 years old, currently employed and has a take-home salary of a total of Php 15,000, given on the 15th and 30th of the month. Every month, here is his breakdown:
NEC (55%) - Php 8,250 (assuming he is single and still lives at home)
FF (10%) - Php 1,500
Educ (10%) - Php 1,500
LTSS (10%) - Php 1,500
Play (10%) - Php 1,500
Give (5%) - Php 750
Let us remove the Play and NEC accounts (it is consumed monthly at least). Assuming he dilligently saves for the next 3 years (36 months), this should be his money:
FF - Php 54,000
Educ - Php 54,000
LTSS - Php 54,000
Give - Php 27,000
Not bad, huh. On his 24th birthday he can use his FF money to invest on something. Also, he can use his LTSS to buy something he really wants. Pretty cool, huh. For all of this, remember that we did not even considered a raise in his salary.
[Read also: How to Deal With Too Much Money]
You might be wondering, "why money jars" or something like that. Well, the secret to being successful in retaining the money jars is forging the habit within you. See, when you do the physical act of placing money inside the jars, you create a subconscious trigger for you to think of ways of how to use the money you save, whether it is investing it in the long run, whatever. Furthermore, it solidifies the "habit" part, and personally I find it enjoyable seeing my money go to my jars. It's pretty fun. You can always do this in the bank (eventually, if your money can't fit the jars anymore) but the act of putting money in jars is fun.
|Make your money work hard for you, |
not the other way around.
Credits to Scarlett-journey.net
1. Assign accurate percentages in your jars. Be very specific about it.
2. Track your income and expenses for a month. List them all.
3. Wipe off your debt! Or else you'll spoil your jars.
4. You can modify the labels in your jars. Try coming up with your own "system" tailor-made to suit your budgeting style.
Next time I will be sharing my own "Money Jars" to you, just to show you my own system. Until then, enjoy and plan on this and I hope you've learned something.
Comments are welcome!