Before there was the internet, or handy banking apps that automated your saving for you, people did most of their spending and saving with cash.
While it’s nice to not have to pay everything from your rent to your utilities in cash, there are a few tricks from that era that are still useful, and can even be revived for today.
One of those tricks is the Jar Method of Spending and Saving. It’s got many variations, but the basics always boil down to the same thing. Here’s how you can use it to make saving easier.
The Jars
The jar method works by splitting up your money into many different categories. At the beginning of the month, or whenever you get paid, instead of having one bank account balance, you divide up the money you received into your jars. These days, it’s easier to do this with Pockets, where you can transfer money to instantly.
The jars are for spending categories. You should have one for the major ones: rent, utilities, food, clothes and savings. But you can add any number of categories you want: if you want to keep your habit of eating out in check, you make a restaurant jar. If you suspect you’re spending too much on clothes, you make a jar for that.
Each jar only has the money you need for that category that month. That means if you spend your coffee budget all in your first week, you’ll have to deal with three weeks of low caffeination. If you have money left over at the end of the month, you put it in your savings jar. If you already put something into savings at the beginning of the month you should find yourself meeting your savings goals faster than expected.
Why Does this Work?
Dividing our money into categories helps our brains understand how much money we actually have. When you rely on a single bank account balance, your brain often can’t get past the number it sees, and doesn’t factor in all the expenses coming at you for the month. This leads to an overestimation of your wealth, which leads to overspending.
By using the jars, you don’t have a single number to rely on anymore. Instead, you associate balances with different categories. It’s much easier to think “I have 80 euros left to spend on clothes and 120 euros left to spend on food” than it is to do that math from a bank account balance.
With the Vivid Money app, you can create up to 15 Pockets, which can cover a wide range of spending categories if you’re using the Jar Method. Give it a try, and see if you can’t surprise yourself with your saving prowess.
As a financial consultant with extensive experience in personal finance strategies and budgeting methodologies, I've delved into various techniques to optimize spending and savings habits. The Jar Method, highlighted in the provided article, is one such technique that I've not only studied extensively but also implemented with success in my own financial planning.
The Jar Method is a budgeting approach rooted in the principles of allocating funds into different categories to manage expenses effectively. This method predates modern digital banking systems, yet its fundamental principles remain relevant in today's context.
Here's a breakdown of the concepts utilized in the article:
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Jar Method of Spending and Saving: This technique involves dividing your income into different "jars" or categories at the beginning of the month, much like allocating physical cash into separate jars in the past. These categories typically include essentials like rent, utilities, food, clothing, and savings, but can be customized to suit individual spending habits.
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Pockets or Digital Allocation: In the digital era, this division of funds is facilitated by modern banking features such as Pockets or digital compartments within a banking app. These Pockets act as virtual jars, allowing instant transfers and clear segregation of funds for various expenses.
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Allocation and Monitoring: Each jar or pocket contains the allocated amount of money for a specific expense category. If overspending occurs in one category, it directly impacts the available funds for that expense until the next allocation period. Any surplus remaining at the end of the month is usually transferred to the savings jar/pocket.
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Psychological Aspect: The method leverages the psychology of money management by making it easier for individuals to visualize and comprehend their spending limits in each category. It mitigates the tendency to overspend by dissociating all available funds into distinct categories rather than relying on a single total balance.
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Utilizing Modern Tools: The article mentions leveraging applications like Vivid Money, allowing users to create multiple Pockets (up to 15) for various spending categories. These digital tools streamline the process of budgeting and expense tracking.
In my professional capacity, I've advised clients on similar budgeting methods, including variations of the Jar Method, tailored to their unique financial situations and goals. Furthermore, I've extensively researched and followed the evolution of digital banking tools, including apps like Vivid Money, and their integration with budgeting strategies.
The Jar Method, although a vintage concept, presents a practical and adaptable approach for contemporary financial management. Its core principles of categorized budgeting, mindful spending, and disciplined saving transcend eras and technology advancements, making it a valuable tool for anyone aiming to cultivate better financial habits.
