How to Manage Your Finances and Eventually Feel Financial Freedom
People often believe that in order to achieve financial freedom it is all about making more and more money. Once you have made some mysterious number instantly all will be better and you will; have all you ever wanted and everything will be right with the world. Unfortunately just making more money isn't enough to truly become financial freedom. Financial freedom is about more than income, it is about changing how you think about money and more importantly, how you manage your money. What I am going to share with you I learned from T Harv Eker, Author of the New York Times Bestselling book "Secrets of the Millionaire Mind." I say this because it is important that I give credit to where the wisdom comes from. Although I have tweaked this slightly to work for me, the basic concepts are thanks to him. I am a firm believe that it is important that we look and at understand more than just how to make money. We have to know how to manage that money in order to be successful. The effective money management system that works for me and has worked for thousands of others is called the jar system, and it is a simple tool to implement. What you need are six jars (or even easier, one checking account and 5 savings accounts at the same bank). Once these 6 accounts have been set up you will divide your income into these six categories every time new money comes in, and you will only use these monies in the manner the account allows. Account #1: Necessities (50% of income) You will take 50% of all of your income and place it into this account. This account covers exactly what it says, your necessities. This would covers such expenses as rent/mortgage, car payments, insurance, food, etc. These are the monthly expenses you have to pay. I recognize that currently you may have necessary expenses that exceed 50% of your income on a monthly basis. This is ok, the idea is to eventually get down to the 50% amount and keep it at that way. In order to get down to the 50% you have two choices, to make more income or to simplify. Often simplifying is the most overlooked and easiest answer. Look at your monthly expenses and look for things that you consider needed but really is not. Some of the best examples are cable (do you NEED cable or do you just LIKE tv), eating out (do you eat out often and can you save money by cooking at home more? This can both save money and improve home life), etc. Be honest with yourself and look for those expenses that you like but you do not HAVE to have. Account #2: Financial Freedom (10% of income) This is the single most important account, and often can be the toughest account to create and maintain. This is 10% of your income and you can never touch or spend this money. This is the money you are putting aside for your long term financial freedom. This is the money that can only be used to create more income, but the key here is that it can only be used to create PASSIVE income. Eventually you want to replace all of your income with passive income, income that comes in whether you work or not. If you do not understand what passive income is, then just leave this money in this account and do NOT touch it until you understand passive income. This money is investment in your long term financial freedom, so guard it very carefully. Account #3: Education (10% of income) This is the second most important account next to your financial freedom account. If you are not learning you are dying, so keep growing and becoming better by investing in your education. Once we start working hard on education we get addicted to the learning and growth and want to do more and more and more of it. This is why this account exists, it honors and funds your learning, but also helps to give you guidance on how much you are allowed to use for your growth. So make sure you are getting consistent education, just make cure you have it under control when you are doing it. This can be doing personal development courses, or learning new ways to invest money, to make your financial freedom account grow, etc. These courses should be anything that helps you become a better person and helps to move your towards financial freedom. Account #4: Long Term Savings for Spending (10% of your income) Sometimes we have a larger priced item that we want to get, like a new flat screen tv, a new car, etc. Instead of just running out, buying it with a credit card, and spending a lot of time paying off these larger ticket items, this account exists. You put money into this account and let it grow over time until you can pay for that larger ticket item. If you want to take the family to Disney for a week, you need to figure out how much that will cost and then put the money aside for this into the account. Once you have enough money in this account to cover the full cost of the trip, then you can go on the trip. Often these large ticket items are what kill our budget and this account helps us learn to be more responsible. Account #5: Give (10% of your income) For Christians this will make sense as the tithing account. It is the idea that in order to learn to receive great wealth and financial freedom we must remember that we are not alone here and that we must always be giving back to others. All giving and all receiving requires two people and we must become skilled at both sides of that duality. The Universe/God/Spirit (whatever your term for it) wants to give us everything we desire but only after we have proven we can be both a good receiver and an excellent giver. So take 10% of your income and always give it to those who have less than you, those in need. A good habit to get into at the very least. Account #6: Play (10% of your income) I kept this account for last because I believe it is be the most important one to get good at and also know it is the most counter intuitive account. This account is 10% of your income and you MUST blow this money every month on something you would not spend money on usually. This is the money to spoil yourself and do the thing you think you cannot do because you "cannot afford it". This is the account to be used on the limo to and from the airport, or on the fancy dinner at the best restaurant in town, or ordering a bottle of wine without looking at the prices etc. This is the account to train you to think and act like a millionaire. I know it seems counter intuitive to blow 10% of your money on things that may seem frivolous, but trust me, if you get this part of the jar system down, it will change your life. I have known people who have signed recording contracts because they spent their play jar on a first class ticket which led to them sitting next to a producer, etc. This is common place for people who use their play jar to dine out at a fine restaurant and get seated next to a major player in their city who was looking to fund the exact project they were looking for funding on. Honor the power of this jar and it will pay you back many fold. Now I understand that not everyone is in the place to do this program exactly as outlined here. You finances may require you to spend 85% of your income on necessities right now. That is fine, make sure you are getting your bills paid, but also look for ways to simplify to get that percentage down. While you are doing that, divide the extra 15% evenly between the other 5 jars and start managing your money this way. As the necessities percentage continues to get closer to 50% increase the amounts into the other jars until you can match the percentages here. Implementing this simple money management system you will start to feel financially free. Sean is an internet entrepreneur who specializes in helping people to identify their passion and find a way to turn that passion into a monetized website that makes sustainable passive income.
