Creating a budget can be challenging, but it’s also important. With a realistic budget, you can see how much money you’ve got coming in and where it’s going every month. This can also give you a better idea of your financial situation as a whole.
While there are many ways to budget, many people prefer visual budgets, like the Money Jars Method. This method can make it easier to grasp the concept of budgeting, because it separates spending into different, easily visible categories. It can also help curb impulse buys and limit overspending, since your money is already set in convenient little “jars.”
Money Jars Method Explained
The Money Jars Method involves separating your money into six categories or accounts:
- Necessities: 55% of your income should go toward your everyday expenses or needs. This includes both fixed expenses — like rent, utilities, taxes and insurance — and variable expenses — like groceries, clothes and other things that change.
- Play: 10% of your income should be set aside as “play” money. This is anything that you don’t need but that can lend to your quality of life. The goal of this account is to have no restrictions — or guilt — on how you spend your money. If you have a partner or a spouse, they can have their own “play” account.
- Financial freedom: Another 10% of your earnings should go toward your future financial freedom. This could be things like investments, retirement funds or building passive income streams. You shouldn’t spend this money until you’ve achieved financial freedom. You should also only spend any returns on your investments — like dividends — rather than the principal balance.
- Education: The next 10% of your income should go toward furthering your personal growth or education. It’s essentially an investment in yourself. This can include things like professional courses, books or certificates.
- Long-term saving: Dedicate 10% of your money to saving up for long-term or big-ticket items, like a home, your child’s college education, vacations or other major events. You can have one money jar for this, or you can have separate, smaller money jars totaling up to 10% of your income.
- Giving away: The final 5% of your money is dedicated to giving. This could be purchases for loved ones’ birthdays or major holidays. Or it could be charitable donations. If you don’t have the cash for this, you can instead give away your time by volunteering in the community.
You can use physical jars, or you can put your money into six different bank accounts.
Is the Money Jars Method Realistic?
When it comes to budgeting, it’s also vital to find a method that’s realistic with your financial situation, needs and goals. This might be the six jars method, or it might not.
“In general, I think the six jars method is a decent one,” said Jake Hill, CEO of DebtHammer Consolidation. “I think it’s pretty realistic, but people may need to adjust the specific jars or the percentages in order to make this method fit their lifestyle needs — for example, not everyone needs an ‘education’ jar, or some people may not be financially free enough to have a ‘give’ jar.”
Think about your current financial situation and ask yourself whether you can comfortably afford each category in the Money Jars Method. It’s okay if you need to make some adjustments. What matters is funding better ways to manage your money and build toward a financially stable future.
Choosing the Right Budgeting Method for You
When trying to settle on a new budgeting method, you might need to experiment a little until you find what works for you.
“My philosophy regarding different budgeting tactics is that if it works for you, that’s great,” said Hill. “There isn’t one single budgeting tactic that is going to work well for everyone — some people are more visual than others, for example, so the six jars approach may work well for some but not others. If you find a method that works for you and gets you to follow a budget, while the alternative would be simply not budgeting, then by all means, use that method.”
Remember, other helpful budgeting methods are out there. Here are a few to consider:
- Money envelope system: Take several envelopes and label them based on different expense categories in your life. For example, one envelope might be for groceries, another for debt and a third for rent or mortgage payments. You can put cash in these envelopes, or you can use a digital system that follows the same idea. Only spend the amount of money in each envelope.
- 50/30/20 budget: Split your money into three categories: 50% for needs, 30% for wants and 20% for savings. To make it more visual, create a budgeting pie chart that lets you see how much you’re spending vs. saving.
- Pay yourself first: Set aside a portion of your monthly paycheck for savings, retirement and debt payoff. Then, separate the rest of your earnings into other categories like needs and wants.
- Zero-based budget: Calculate your monthly income — after taxes — from your main job and any side hustles. Then, list and separate all of your monthly expenses, including savings, giving, needs and wants. Subtract your expenses from your income to get $0. If you still have money left over, add it to your savings or retirement goals.
Bottom Line
The Money Jars system is a simple way to visualize your money. It can also make achieving your short- and long-term goals easier. If it works for you, that’s great. But if you need to tweak it or try something different, go ahead and do so.
What’s most important is having a budget. Like your financial situation, your budget is unique to you and should be treated as such. So, take the time to experiment and find the one that works best for you.