Personal financial management is something each of us should take seriously throughout our financial journey. However, this is often overlooked because many people do not fully recognize the importance of managing money in their daily lives.

When you have a scientific approach to personal financial management, you can reduce the stress from money-related issues, leading to a more balanced and comfortable life.

If you are struggling to create a reasonable financial management strategy or have faced challenges in budgeting for yourself, today let’s explore the JARS system in financial management. This is an effective method to help you organize and optimize your spending plan and personal financial management.

What is the JARS system?

The JARS system, also known as the JARS system, was developed by Harv Eker, a well-known author and entrepreneur in the field of personal finance.

This method has been successfully applied by many people to manage their finances. With this system, you divide your income into six different jars, each with a specific purpose, serving different goals to support you on the path to financial independence.

This is a simple yet effective money management technique that helps you limit unnecessary spending and increase savings. Once you start budgeting and understand how much you can spend each month, it becomes easier to track and control your income and expenses.

How to Apply the JARS System in Finance

Imagine the JARS system as physical jars into which you put money based on each jar’s purpose. Each jar represents a certain percentage of your income, allocated for different needs in life.

Below is the percentage breakdown you can use to divide your income into the six financial jars:

• 55% for Essential Needs (food, rent, utilities, insurance, debt repayment, etc.)
• 10% for Financial Freedom Account (for long-term investments you don’t withdraw from)
• 10% for Long-Term Savings for Spending (for big purchases like a car or travel)
• 10% for Education (learning expenses, attending seminars, online courses, etc.)
• 10% for Entertainment (budget for leisure activities or any hobbies)
• 5% for Charity (gifts, donations, helping friends, charity, etc.)

With the JARS system, which helps you manage your finances scientifically, you will reduce the stress related to money, achieving a more balanced and comfortable life.

Jar 01: Essential Needs 55% – Necessity Account (NEC)

This jar is for daily essential expenses such as rent, utility bills, food, taxes, and transportation fees. These are the expenses you need to maintain your basic living.

You can break down the money in this jar into different spending categories such as living costs, rent, taxes, and fixed expenses. However, for beginners, it’s enough to focus on controlling one jar for all essential needs.

Allocating 55% of your budget into this jar helps you easily track how much money should be spent on essentials each month. Try to control your spending to ensure your expenses don’t exceed the set 55%.

Jar 02: Financial Freedom Fund 10% – Financial Freedom Account (FFA)

The Financial Freedom Fund (FFA) is the key to achieving wealth and financial independence in the future. This is the money that helps you escape dependence on monthly income, giving you the opportunity to retire early and do what you love without financial worries.

Ideally, you should allocate 10% of your income each month to this fund, but depending on your financial situation, you can adjust accordingly. The important thing is never to touch the principal in the fund, only investing in opportunities that have the potential to increase your assets’ value.

“Money can’t buy happiness, but it can buy you FREEDOM: the freedom to choose, to do what you love without being forced to work just for money.” — T. Harv Eker

Jar 03: Long-Term Savings 10% – Long-Term Savings for Spending (LTSS)

Saving is a crucial part of every personal financial management plan. Prioritizing saving before spending is something you should do to ensure financial stability. Try to save at least 10% of your monthly income in the long-term savings jar. This savings amount will grow as your income increases over time.

The Long-Term Savings jar is not only a means to protect you from unexpected events such as unemployment, illness, or other risks but also a foundation for building long-term financial freedom. Once this fund is large enough, you can use the money to invest in opportunities that generate passive income, ensuring your money continues to grow.

While saving may not bring immediate benefits, over time you will be surprised at how quickly your money grows. More importantly, the sense of security from knowing you have a backup fund for tough times will give you greater confidence in financial decisions.

💡 Tip: Only use the profits from the long-term savings fund, not the principal you have saved.

Jar 04: Education Investment 10% – Education Account (EDU)

This jar is used to invest in personal development, including learning and skill development costs. Set aside 10% of your monthly income for learning and self-improvement, from skill courses and investment mindset programs to finance seminars that help you avoid financial management mistakes. Investing in yourself can also include buying quality books and materials to enhance your abilities and increase your value.

Investing in education and personal development is crucial because knowledge will help improve your future income and increase your value. Therefore, don’t forget to allocate a budget to continuously update your knowledge and skills, thus advancing your career and financial life.

Jar 05: Entertainment Needs 10% – Play Account (PLAY)

Many financial management methods often overlook spending on entertainment and personal enjoyment, advising people to cut unnecessary expenses like buying tea, going to cafes, or shopping. However, saving to the point where you can’t enjoy the fruits of your labor can make you feel restricted and lose the joy of life.

The entertainment jar plays a crucial role in maintaining the balance between saving and enjoying life. This money allows you to spend on hobbies and relaxation activities while still ensuring you don’t exceed your budget. The important thing is to spend wisely, not overspend, and not touch the money in other financial jars.

Charity Fund 5% – Give Account (GIVE)

We cannot enjoy life to the fullest when there are unfortunate people around us. Therefore, setting aside 5% of your income for the GIVE jar is essential. You can use this money to help those around you, donate to children’s charities, contribute to community projects with humanistic values, and support society.

This money doesn’t necessarily have to go to charity. You can give it to family, friends, or anyone you want to help. When we are not bound by money, we won’t feel a loss if we give a small amount of our income because we know that in the future, we will be able to earn even more.

Frequently Asked Questions About the JARS System

What if my necessary expenses exceed 55% of my income?

This is very common when you first apply the JARS system. The important thing is to understand that the percentages for the jars are general suggestions, and you can adjust these rates to fit your personal circumstances. It’s a goal to strive for, and adjusting flexibly according to your current financial situation will help you achieve better balance.

What should I do if I have a lot of debt to repay?

If you have debt, you should still manage your money using the JARS system. You can use part of the long-term savings jar to pay off debt. The important thing is to pay off your debts as soon as possible because, once you are debt-free, you will have more resources to save and invest for the future.

Where should I keep my passive income for optimal results?

To achieve financial freedom faster, you should put your passive income into the Financial Freedom Fund (FFA). This is the best way to speed up the process of achieving financial freedom, allowing you to live sustainably on passive income.

Conclusion

The JARS system helps you understand how you are spending and why you often find yourself spending more than your income. Once you understand the reasons, you can find more effective solutions for managing your finances.

The JARS system is simple and easy to apply. The important thing is to commit to allocating money into each jar in a way that best aligns with your goals and not neglect any jar in your personal financial management process.