The Jar System by T. Harv Ecker

T. Harv Ecker is a famous author, public speaker, and personal development leader. We attended his "Millionaire Mind" seminar, and learned a good deal of information. This one topic of the Jar System was repeated at a different seminar we put on, by Myron Golden, with different names and titles. Both speakers felt it one of the central principles for achieving financial freedom. We do as well, and have begun adopting it into our life.

The Jars

This is a system of jars - but it can be bank accounts, envelopes, or anything else that segregates one amount of money from another. We use different bank accounts, plus a single jar for our loose change, which goes into a bank account.

There are six jars altogether, five of 10% each, and one of 50% each. You can vary the percentages as you need to, but not the categories. All six should stay in place.

Jar 1: FFA - Financial Freedom Account

The most important jar.
10% of your after tax income.
Paid BEFORE anything else, including bills. This is the "pay yourself first" jar.
It is for passive income streams, such as laundromats, parking lots, positive cash flow managed real estate, stocks, and some types of internet businesses. Start out with mutual funds, then stocks, and when you have enough money, buy into passive businesses.
This money can NEVER be spent on anything else.
It must be transfered to the next generation when you die.

Jar 2: GIV - Charity

Amount varies from 5% to 10%, depending on your opinion of charitable giving.
If reduced to 5%, Necessities account increases to 55%.
This is intended for true charities, not Christmas and birthday gifts to friends and family.
Jar 3: EDU - Education

10% of your after tax income.
This is YOUR OWN personal development and career advancement education, not your children's college education. They should have their own account, and work to save for it. Use them to help you in your home based business, and pay them as a contractor for this purpose.

Jar 4: LTSS - Long Term Saving and Spending

10% of your after tax income.
Save for cars, college tuition, room additions, or expensive trips. Don't buy these luxuries on a credit card. Pay with cash that you've saved. You can put this in a money market account, CD's, or other interest-bearing vehicle while you're saving up.

Jar 5: FUN - Fun Account

10% of your after tax income.
This money MUST BE BLOWN COMPLETELY every month. If you have some great plan, you can save up and blow it in a second month, but the idea is to drain it regularly.
Come up with special events, spectacular things, that you'll enjoy and remember.

Jar 6: NEC - Necessity

50% to 55% (depending on your GIV account) of your after tax income.
This is the money you pay your bills with.
Pay your credit cards with checks from different check books, as you identify which items are fun, education, necessity, etc.
If you can't make ends meet with 55% of your after tax income, change your habits! Sell or get rid of whatever is draining you. Simplify. Cut back. Get so you can get by with your necessities paid out of no more than 55% of your after tax income.
Pay off your highest interest rate credit card completely before you pay more than the minimum payment on any other credit cards. Pay off credit cards before other liabilities.
As your income increases, your necessities can increase also, but only in proportion.
These money management principles can turn your life around, and whip them into shape.

I've added to them one more principle, which has to do with TIME.

The FFA (Financial Freedom Account) TIME Principle

"Pay yourself first" with 1/2 HOUR A DAY devoted to actually DOING the things that your IDEAL WORKING SELF would do. (In other words, I don't mean relax for 1/2 hour a day - I mean work at what you love.)
For example, if, in your "heart of hearts" you really want to be an inventor, but you earn a living doing something else, BE that inventor for 1/2 hour a day. DO what that inventor would do.
Also, this doesn't mean "prepare" for that eventuality, by going back to school or something significantly delayed. It means IMMERSING yourself IMMEDIATELY in the REALITY of BEING that eventual person. DO exactly what that person would do.