What comes to mind when you think of that term, “money management”? In a recent coaching session Johnny Ball, the group coach, suggested that I needed to explore better methods of money management. I responded by explaining that I’d tried many budgets and cutting of expenses and such without it affecting my anxiety around money at all.
“I’m not talking about budgets,” Johnny said. “I’m talking about money management.” He gave T. Harv Ecker‘s “7-Jar” method as an example, but only as one of many. The kick in the head came to me as I realized that the difference between what I was doing and what he was talking about was the difference between tactics and strategy: one is used to put out fires, and the other is used to grow forests that don’t burn down in the first place.
Personally, I’ve become really good at putting out fires, but it’s really tiring. It’s well past time to start learning about forest as well.
1. Necessities (55%). Food, clothing, shelter. The basics. It includes (in my case) phone and my utilities. The problem is that 55% of my income doesn’t leave room for eating out, etc. One of my objectives is to get that 55% lower while still covering the basics.
2. Financial Freedom Account (10%). Designed with entrepreneurs in mind, this is for stuff that develops passive income. Again, I’m trying to work out how to use this best; does buying equipment that helps present more count? Or advertising?
3. Education (10%). Ah, this one I could get behind! Among other things, this includes my fee for the coaching session. Wait a minute…I see what they did there…
4. Long Term Savings for Spending (10%). Sounds like an oxymoron, doesn’t it? Yet this was the thing that actually felt the most right in this whole idea. It’s saving up for “big-ticket” items – the car, the vacation, the computer. The thing is, it helped my brain still the “gotta buy it now!” impulse. Still not sure why, but it really did.
5. Contingency fund (5%). As described in the article, “Accidents, car trouble, armageddon.” To be honest, I was feeling this should be more than 5%. But then again, I’m the one who is admittedly the novice here, so I’ll go with the 5%.
6. Give (5%). I also really enjoy this one – it lets me donate to IndieGoGos and Patreons with a clear and happy head.
7. Play (5%). And here my brain recoils. It’s kind of like the cultural problem we have about sex: Sure everybody does it, but we don’t talk about it! What qualifies as “play”? Eating out? Wait, I have to deliberately spend money this way? How am I going to feel guilty about it afterwards?!?
I realize that some of you reading this are much more experienced at money management than I am, and probably have some opinions about the “jar” system or perhaps better systems. One of the benefits of the seven jars, though, is that it lets me start practicing money management no matter how little money I have. I could take $1 and apply the system to it.
What has happened instead, though, is that I have divided my income so far this month according to the system and find myself feeling strange because things aren’t scarce. In fact, it’s the opposite; I have to find time to do something fun with the play money, and the money for the necessities is socked away and safe.
It’s interesting, also, to see how much criticism this system has on the web – many people saying that it is too simplistic, or unrealistic, or a rip off of some other system (six- and eight-jar systems seem to be pretty common as well). It reminds me of the many people complaining about the Affordable Care Act, and how it would change their healthcare. They seemed to forget that for those without any system at all, any system is better than none. It’s not about how much money you put in each jar; it’s not even really about what the jars are labeled. It’s about getting in the habit of managing the money.
What do you think? What are your money management systems, and how did you learn them?
