You must think differently, but most importantly, create the habit of managing your money and let it work hard for you, instead of the other way around where money manages you, as you slave hard day and night, not getting anywhere but deeper in the hole.
I learned the 6 Jar System from T. Harv Eker, author of the New York Times bestseller “The Millionaire Mind” and started applying it immediately after I returned from the Millionaire Mind Intensive weekend workshop.
Here’s how the system works:
There are 6 jars that you will need, matched each with an electronic bank account version. The six jars are codenamed NEC, PLY, FFA, EDU, LTS and GIV. For each dollar, euro, pound or other currency unit you earn, you would split it between the jars according to the percentage of the jar. I’ll explain each one in detail below.
NEC – Necessities Account (55%)
Your necessities are things like rent, food, utilities, and transportation. Anything that you need to survive. In the beginning, your NEC percentage might be much higher than 55% (mine started out with over 70%), but that’s OK.
The key is to look at your current lifestyle and learn to live LEAN. What I mean is to ask yourself “do I really NEED this?“. For example, do you really need that $60 per month cable subscription? No, of course not! You think you do, but you don’t. Most things, you can live without.
Look, I’m not saying deprive yourself of enjoyment. But live within your means. I’ve made this mistake myself when I was younger and it ended up with me in 30k in debt. Not so cool now.
What you need to do is find inexpensive or free alternatives to still get the same benefit but pay much less than you have to. For example, get a Netflix subscription or limit yourself to 4 movie rentals a month.
The more you cut the crap, the more money you’ll have left over at the end of each month which can be put into the other jars. You’ll find out why these are so important in a bit.
PLY – Play Account (10%)
The play account is about pampering yourself. It’s about abundance, luxury and loving yourself. The rule is you must spend all the money in this account at the end of each month. On what?
That’s your choice, but it has to be something for fun and it can’t be cheap or anything with a compromise.
For example, If you have £200 in your PLY account at the end of the month, and you want to go treat yourself for a dinner, go all out – Go to a fancy, high-end restaurant where you pay £75 for a main, £20 per drink, and yes – add some caviar while you’re at it! It’s about living the rich life.
Sure, you could easily spread that £200 across 4 different dinners out, but that’s not the point. The purpose is to play hard. Feel that you are wealthy, abundant and rich. Live that experience now, and it will attract more money to you.
By rewarding yourself, you’ll be motivated to work even more to earn more and more money. If you don’t treat yourself, you’ll subconsciously sabotage your success. Your brain will wonder why you’re working so hard without any fun. Remember – All work makes Jack a dull boy.
Have fun spending with this account!
FFA – Financial Freedom Account (10%)
This is known as your “golden goose”. The one that will eventually lay golden eggs of passive income for you once it’s grown to the right size. The rule is you NEVER EVER touch the principle amount. In other words, it will keep growing, and growing, and growing…
You can also think of this account as your money magnet. Money attracts money. Every time you see the balance, you’ll be reminded that you have an abundance of money in the bank. You have the choice of getting anything you want, but you choose to keep it out of free will. This is a very powerful state to be in.
To accelerate the growth of your FFA account, you would invest a small percentage of the principle and re-invest the interest. This way you’re minimizing the risk while maximizing the return. The power of compounding interest is undeniable, often considered as the 8th wonder of the world.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
― Albert Einstein
EDU – Education Account (10%)
Every successful leader invests in their own education and personal development. Your level of income only grows to the proportion that you do, so keep on learning, growing, and developing.
Things you can spend you EDU money on are non-fiction books, courses, seminars, workshops, certifications, and whatever helps you to grow and expand.
I’ve invested thousands of dollars in myself outside of my university degree and I continue to learn something new every day. Remember, this investment includes time, effort and a lifelong commitment to learning.
LTS – Long Term Savings for Spending Account (10%)
This account is meant for large purchases or big spending. For example you might be saving for a big holiday, a yacht, or even a brand new Lamborghini (my dream car).
This account can also be used for paying down your debt or loans, until they’re all paid off or building up a rainy day fund for emergencies.
If you have several things you want to save for you can split this account into several sub-accounts. For example, you could save 4% for your holiday, 3% for your new car, and 3% for that new computer you wanted.
If you’re smart, you’d use this account to save for income producing assets or invest into starting or operating your own business. That way, you’ll get a return and your money will work hard for you.
GIV – Give Account (5%)
Finally, you have the give account where you donate 5% to one or more charities of your choice. When you share, you get back much more and your reality of abundance is reinforced over and over again.
You’ll be able to impact so many lives around the world in positive ways with this account. Remember, the other very valuable thing you can share (more valuable than even money), is your time. Once you free yourself from the rat race and find financial freedom, you’ll have the choice to give your time more freely for charity.
I love to give my money to Kiva.org where I can lend micro-loans to business owners in third world countries. The beauty of this is my money is never lost. It keeps accumulating and growing as it’s paid back. Then I can re-lend that money to more and more people and my impact keeps growing more and more. Awesome, right?!
There you have it – the 6 Jar System. It’s simple, but what’s more important that the percentages or the amount is the habit. The habit of taking each dollar, euro or pound and managing it wisely.
Most banks have free e-savings accounts you can open up and then rename into the 6 different accounts. I have my checking account as my NEC account, 1 high interest savings account for the FFA, and 4 e-savings accounts for the other ones.
Always PAY YOURSELF FIRST! That means, as soon as money enters your checking account, split it up into the 6 different accounts. Otherwise, it will magically disappear and you’ll wonder why you’re always broke.
Even if you need to start with 1% for the other 5 accounts, then do it. The habit is what’s important. Gradually, you can increase the amount when your income increases.
With time, you’ll create enough passive income streams to cover your necessities. This is when you’re truly financially free. What’s your number? Mine is £1000 per month.
Once you’re financially free, then it’s time to focus on building wealth and growing your assets and investments.
Your future is in your mind. Change the way you think about money and your financial life will transform your whole life in wondrous ways!