Today I want to offer you a way to plan a family budget. The “jars method” or “method of 6 jars”. The financial state of a person or a family is affected equally by two factors: income level and expenditure level. To reduce costs, you can use different methods to optimize costs: both generally known and their own development, the main thing is that they give you the desired effect.
The method of six jars can be schematically represented as follows:
As you can see, the essence of the jars method is to distribute all receipts to the personal or family budget for 6 unequal parts (6 jars), each of which has its own strict purpose. Further, “pour” money from a jar into a jar is strictly prohibited. As a jar can be a jar, an envelope, a casket, but it is better if it is a bank account or a debit plastic card with the possibility of regular replenishment and withdrawal and interest accrual on the balance: in this case, home finances will not be so much “eaten up” by inflation.
Now consider separately all the components of the method of 6 jars: what each vessel includes, and how to dispose of them.
Jar # 1. Required expenditure (55% of revenues to the budget).
This is the money that you will spend on, relatively speaking, living: the cost of utilities, food, inexpensive clothing, transportation, mobile communications, etc.
According to the method of jars, 55% of family or personal incomes are enough for this item of expenditure. I suppose that many now have a bewilderment: “How! For us and 100% are not enough for a normal life! And here only 55%! It is impossible and unreal!”.
In this case, I advise you to calm down… First, much of what you include in the necessary spending, will go to the next jars. Secondly, if you always spend 100% of your earnings – you can never improve your financial situation (this can only be done if you spend less than you earn, and nothing else).
Jar # 2. Expensive purchases (10% of revenues to the budget).
This includes what I call savings, but in the method of 6 jars under savings (conservation) is meant a little different – about this further. Well, in this jar (or more correctly – on a separate account in the bank) you need to save money, due to which you will make expensive purchases – those that you are unable to pay out of your current spending. That is, to achieve the financial goals.
For each family or person, the lower limit of the cost of purchases related to expensive, can be different. I propose to define it as a percentage of the amount of income. For example, 30% or 50% of the monthly income is already an expensive purchase. And the means for its payment will be accumulated in the second jar, which will receive 10% of income.
Jar # 3. Accumulations (10% of revenues to the budget).
The third part, according to the method of the jars, must be postponed and always remain, not to be spent under any circumstances. In the third jar should be formed a certain financial asset of the family, which will constantly increase.
This jar will become for you a source of passive income: it is advisable to place funds from it on a term deposit in the bank, or invest in some other conservative tools for storing and multiplying money.
In the future, a third jar will be a good source of ensuring of old age and an inheritance for your children.
Jar # 4. Training (10% of revenues to the budget).
The fourth jar, allocating for training and self-study a separate jar and as much as 10% of all income to the family budget.
These are the means by which you will receive and actualize your:
- knowledge;
- skills;
- abilities.
In other interpretations, the funds from this jar can also be used for recovery, because health and personal finances are very closely related.
An investment in knowledge pays the best interest. –Benjamin Franklin
Jar # 5. Waste (10% of revenues to the budget).
Do you like to pamper yourself by buying some absolutely unnecessary nonsense or spending money on entertainment? Please: the method of jars gives you this opportunity. But within 10% of the amount of monthly cash receipts, not more.
Thanks to this jar, a person can periodically “burn money” and get a moral pleasure from it. No should say that you can’t pamper yourself with pleasant trifles – you can, but within.
Jar # 6. Gifts and charity (5% of revenues to the budget).
And finally, in the last vessel, according to the method of six jars, it is necessary to postpone only 5% of the incomes that will be used for gifts to relatives and friends (in fact it is so important – to periodically make enjoyable for people, and not just for holidays). And if the “extra” money is accumulated in this jar, you can donate them to charity: this is also the right and right thing.
An important point: it is not at all necessary to “drink to the bottom” monthly each jar. No, in can and should remain, and accumulate money. You do not need to use them simply to spend, you only have to do it when you really need it. Just every month a new portion of financial flows should flow into the jars.
This is how the method of jars looks like it was conceived by the creators. Of course, we can also find its shortcomings. For example, there is no resources for the creation of a reserve fund, capital for investment or repayment of debts, if any. Perhaps, it is implied that for the first 2 purposes it is possible to use funds from the third jar, and with the competent use of the method of 6 jars, there can’t be debts in principle, and this is correct.
Nevertheless, planning a family budget using the method of jars will help you increase your financial discipline. Learn how to competently save and distribute household finances. You can modify the method of the jars, make it convenient in the conditions of your budget, without violating the main principle: spend less than you earn, create savings and save money for achieving financial goals (making expensive purchases).
That’s all. Learn to rationally and effectively use the family budget and personal finances.
Until next time!
