I always want to provide something meaningful and important to my readers. As I was looking back, I was trying to wonder about the important things I learned and implemented. One of the important lessons I learned in past few years as I came to US to study was to manage my finances. So in this blog I just want to talk about the reasons I feel managing personal finances are important and, of course, a solution for it. Namaste and welcome to a piece of my learning.

    Let us begin with the concept called debt. In most of the countries, the debt is something glamorized. A loan for education, to buy a house/ a car or a credit card to purchase day-to-day items all push us towards the debt. When we are young, we do not care where the money is coming from or how we are spending it. The day we finish education, we feel that sudden pressure that our lives needs to be sorted. It is at that moment a lot of us start weighing personal finances heavily. 

 

In general if we see, there are majorly the following reasons you should be at least aware about managing personal finances.

1. Debt Management and Avoidance: Proper financial management helps you avoid falling into excessive debt and provides strategies for paying off existing debt. High levels of debt can lead to financial stress and limit your ability to achieve your financial goals. Managing your finances helps you control and reduce debt responsibly.
2. Financial Security: Effective financial management ensures that you have the means to cover your essential expenses and handle unexpected emergencies. By budgeting, saving, and building an emergency fund, you create a financial safety net that provides peace of mind and stability in times of need.
3. Goal Achievement: Managing your finances allows you to set and work toward your financial goals. Whether it's saving for a down payment on a house, funding your child's education, or retiring comfortably, a well-managed financial plan helps you make progress toward these objectives.
4. Financial Freedom and Independence: Effective financial management empowers you to make informed decisions about your money. It allows you to take control of your financial future, make choices that align with your values and priorities, and achieve a level of financial independence where you're less reliant on others for financial support.

 

    Now if you are already a seasoned person who tried and had decent experience with the beginner level and want to try something more, here is the one technique that I use - The 6 jar money management technique. The '6-Jar Money Management Method', popularized by author T. Harv Eker in his book "Secrets of the Millionaire Mind," is a budgeting and financial management system that allocates your income into six different categories or "jars." Each jar represents a specific purpose for your money. Here are some tips for effectively managing your personal finances using this method:

1. Determine Your Income: Before you can allocate your money into the six jars, you need to know your total monthly income. This includes your salary, freelance earnings, side hustle income, and any other sources of revenue.

2. Create a Budget: Develop a detailed budget that outlines your monthly expenses, including fixed costs (rent/mortgage, utilities, insurance), variable expenses (groceries, transportation, entertainment), and savings goals (emergency fund, retirement, investments). This step should be done once every year or so.
 

3. Allocate Your Income:Use Separate Bank Accounts or Envelopes: To physically separate your money into these jars, consider setting up separate bank accounts for each category or use envelopes to allocate cash if you prefer a cash-based system.

 

 

a. Necessities (55%): Allocate 55% of your income to the Necessities jar. This jar covers essential expenses like housing, utilities, groceries, transportation, and insurance.
 

b. Long term savings (10%): Set aside 10% of your income for long-term financial goals, such as building an emergency fund, big purchases, vacations, or paying off high-interest debt.
 

c. Play (10%): The Play jar is for discretionary spending on entertainment, dining out, hobbies, and personal indulgences. Use this money to enjoy life without guilt. This is my favorite part. Imagine allocating a certain part of your income which you must spend till the end of the month.
 

d. Education (10%): Allocate 10% to the Education jar to invest in self-improvement, personal development, and learning opportunities. This can include courses, books, workshops, or anything that enhances your skills and knowledge.
 

e. Give (5%): Dedicate 5% of your income to the Give jar, which is for charitable donations, gifts, and contributions to causes you believe in. Giving back is an important aspect of financial well-being.
 

f. Financial Freedom (10%): Allocate another 10% to the financial freedom jar. This portion is used for active investment and wealth-building strategies, such as starting a side business, real estate investments, or other income-generating ventures. This jar is just as important as the others are.

 

4. Stick to the Plan: The key to success with the 6-Jar Method is discipline. Stick to the percentages allocated to each jar and avoid dipping into one jar for expenses that should be covered by another. Regularly track your spending to ensure you stay on course.
 

5. Adjust as Needed: Over time, your financial situation may change. It's okay to adjust the percentages allocated to each jar to accommodate evolving priorities or income fluctuations. Just be sure to maintain the core principles of budgeting, saving, and giving.
 

6. Automate Savings: Set up automatic transfers to your savings and investment accounts to ensure that you consistently allocate money to your Financial Freedom jars.
 

7. Review and Reflect: Periodically review your financial goals and progress. Adjust your allocations and financial priorities as your circumstances change.

 

    Remember that the 6-Jar Method is a flexible system that you can tailor to your unique financial situation and goals. The key is to consistently allocate money to each jar, avoid overspending in any category, and stay disciplined in managing your finances.

    This is something I personally implement and having a good enough success with it. If you are interested, you can comment down below and I can provide you a template for a 6 jar money management technique. 

 

    The main thing to remember, however, is that 'personal finances' is something everyone should be aware about. There are always professionals (CA/CPA) who can handle your finances for you, but, if you are ready to put in some efforts and execute it with a discipline, you can surely be able to manage it much more responsibly. You can comment your thoughts below.

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