Jar System For Saving Money: A Technique To Put An End To All Your Financial Worries

When you struggle with money, it is always the best choice to connect with a financial expert. They can help you manage your finances, achieve set goals and keep aside some amount for an emergency.

A jar system is one such option that can help you meet all your financial goals with little to no hassle. You must remember a scene from old Hindi films where in the corner of a house were clay pots (gullaks), and each had a different milestone marked on it, for example, studies, marriage, medical emergency, etc.

It helps a person decide how much to invest where and remain disciplined when it comes to saving money. How can a person follow a jar system?

To help you with this query, we connected with Pankaj Babu Agrawal, Partner at Pankaj Krishn & Associates in New Delhi. Here is how you can meet your long-term and short-term goals.

Define Financial Milestones

To follow a jar system, you have to first define your financial milestones. Agrawal said that the first aim is to pay off your necessities. This includes food, house rent, clothes, internet, petrol, school fees for children and other things without which it is impossible for you to lead an everyday life. It should be about 55% of your salary. Even interest in the home loan would fall under this category.

Next is your financial freedom account (FFA) in which you will put 10% of your salary. This money can be used to invest in a provident fund or buy a house or a commercial property in future. It can help you create a secondary source of income.

The third jar is for long-term plans (LTP), which refers to saving a lump-sum amount to buy something. For example, if you want to buy a car, you will keep aside 10% of your salary and store it in the LTP jar.

Fourth is the jar for education. It is kept not for you kids but for you to take on courses in future and level up your skill set. This requires you to save 10% of your salary.

The fifth jar is for rewards. It is 10% of your salary (how to negotiate for salary), which you keep aside for yourself. It can be as small as buying your favourite phone, taking yourself out on a lavish holiday, purchasing a piece of jewellery or branded clothes or buying a high-end watch.

Sixth is the jar for charity. It not only includes giving away 5% to underprivileged people but also helping out a relative or friend in need.

Now, if you earn ₹1,00,000 a month, ₹55,000 is for necessities, ₹10,000 for FFA, ₹10,000 for LTP, ₹10,000 for education, ₹10,000 for rewards and ₹5,000 for charity. This is how you set your financial goals and divide your money into various jars.

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Condition Of Jars After Six Months

Your necessity jar will be empty because you need ₹55,000 a month to get by in your life. Your FFA, LTP and Education jars will have ₹60,000 in each of them. It is only if you have not made any investment (gold investment options for women) in the respective fields. The charity jar will have a sum of ₹30,000. Depending on if you have used your reward or saved it up, it will have either ₹0 or ₹60,000 saved up. Although, the jar system promotes you to reward yourself every month because you work hard every day.

Now suppose, if your monthly necessity does not exceed say ₹40,000. You should save the remaining amount in FFA, LTP or bifurcate equally in both. The jar system also promotes spending education funds every year. It helps to upgrade your skills each year and get ahead of your competitors in the workplace.

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If a person follows this system, they will be able to see positive results in a matter of a few months.

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