How to Make A Budget Using the 6 Jars Budgeting Method | Secrets of the Millionaire Mind Summary

There’s no doubting the fact that we all view
and handle money differently and that’s illustrated by the fact that there are so many different
types of budgets out there to help us accomplish roughly the same goal, to teach us what is
worth spending money on and to simultaneously make sure we’re living on less than we make
and that our futures are provided for. Regardless of whether you’re working with
a detailed budget, a reverse budget, a percentage budget, an automatic budget, a value or time-based
budget, some sort of custom budget they’re all working towards that same goal. Today we’re going to be taking a look at one
more percentage based budget known as the 6 jars budgeting method. We’re going to be talking about what the 6
jars budgeting method is, as well as what I like about it, what I think should be kept
in mind while using it, who this budget would be particularly good for and how it could
possibly fail. Hey everyone Daniel here and welcome to Next
Level Life a channel where you can learn about investing, debt, retirement, and many other
financial topics besides, because, let’s face it, the school’s aren’t going to teach
it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
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or you can smash that like button if you haven’t already, share this video with a friend, and
leave a comment below letting me know what topics you’d like me to cover in future
videos. The 6 jars budgeting method is a budget popularized
by T Harv Eker and is very similar to some of the other percentage based budgeting methods
that I’ve covered on this channel like the 60% solution and the 50-30-20 budget. Here’s how it works: According to Eker’s blog which is the most
recently updated version of this system that I could find you take your income and split
it into six different jars based on the following percentages: 55% of your money goes towards
necessities which includes things like food, rent, electricity, and recurring bills. 10% of your money goes towards long-term savings
which includes things like your rainy day fund, big-ticket purchases like a new car,
vacations, paying off debts, and unexpected medical expenses. 10% of your money goes towards the play jar
as Eker puts it or fun and entertainment items such a spoiling yourself or your family and
other leisure and recreational activities. 10% of your money goes towards education which
can include things like school but also coaching, mentoring, books, and things like online courses. 10% of your money goes into what Eker calls
the financial freedom account and that obviously includes things like stocks and mutual funds,
bonds, passive income vehicles such as businesses and side hustles, real estate investing, and
basically any other form of investment you can think of so long as it helps you achieve
your own financial freedom. The final 5% of your money goes towards giving
whether that is a church, charity or friend or family member in need. So what I really like about this particular
use of the percentage based budget that I don’t remember being specifically used in
other similar budgeting methods is the specific focus on education and not just education
in the go to school and get a degree sense, although that is one of the options that is
listed under this category, but it’s also the focus on self-guided education through
the form of books, courses, and mentors. I’ve talked about the importance of education
in previous videos but it’s worth restating here because using education to give yourself
specific skills that you can then apply to the marketplace is, in the end, how we all
earn a living. It’s also a crucial step in how successful
side hustles are made. For instance, say that John wanted to sell
a book on how to lose weight. What skills would he need to acquire in order
to accomplish that goal? Well, he would certainly need to be capable
of writing a good book and that very well might be a skill that he actually did learn
in school. However some other skills that most of us
probably didn’t learn much about in school, unless we took some specialty classes, that
John would also benefit from having include things like copywriting, marketing whether
on social media or in the more traditional sense, how to build a strong personal brand
that sells itself, how to build an audience would certainly be very beneficial, and accounting
is also always a nice skill to have. And we could list a few others, but the point
is most of us probably didn’t learn many of these skills in school. But that’s okay because any of us can read
books or take courses on those subjects or even find someone who has become successful
at doing whatever skill it is we want to learn and see if we can learn directly from them. And as John gets more practice and learns
more of these skills he’ll be able to create even better books that help people lose more
weight and keep it off and as a result, he’ll probably sell more books and improve his bottom
line. He may even decide to expand into other branches
of business such as coaching clients one-on-one through their weight loss plan which would
just further improve his bottom line. It would also require new skills such as the
ability to motivate people and just good communication in general. So education is very important for helping
us to make more money but also for helping us to save more money. Reading books on budgeting and frugal living
can help you get ideas for ways to save more money than you ever would have thought up
on your own after all. The other thing I really like about this use
of the percentage based budgeting method is that giving is also specifically focused on. Now it may only be at 5% and we can debate
over whether it should be more or less than that and I’ll come back to that percentage
thing in a minute, but I do like the fact that it is specifically listed as one of the
things that should be in a budget. I understand that some of us have more room
in the budget to give than others but I do believe that giving, in one form or another,
should be a part of anyone’s financial plan. Now the things that I think we should keep
in mind while using this budget is that the percentages are to quote Eker, “Recommendations
and ultimately goals for you to get to… not definitive rules. We believe the habit of managing your money
is far more important than the amount, so if you can’t follow the percentages to the
tee, then take an amount you can manage and start there.” And I think that’s an idea worth pointing
out because in some of the other percentage-based budget videos I’ve done in the past I’ve recently
been getting comments saying that some of you are skeptical on any budgeting method
that puts percentages for certain categories that everyone should follow. And I completely understand where you’re coming
from with that because everyone’s financial situation is different, as Eker pointed out
in the quote I just read, but I would also like to add my own personal take on what Eker
said because not only are our situations different and not only is it possible that, say, necessities
might cost us more than 55% starting out and we’ll have to work our way down towards that
kind of a number over time, but our goals and our dreamlines are also different. What we value spending money on and getting
from the money we spend is different. So with this budget or really any percentage-based
budgets when you get right down to it what we really need to be thinking of, I believe,
is what are we trying to get out of our money? I’ve done a whole video on this question and
I’ll leave a link to it in the description below, its on what budgeting is trying to
teach us but once we understand what we’re trying to get out of our money and what, to
us, is worth spending money on we can come up with our own percentages and then maybe
even automate our budget based on those percentages as best we can so that we can reach our goals
and live the life we want to live. Let me give you an example of what I mean
here and this is not to be a shot at Eker or his budget I’m just using this as an example. Eker has set a goal for us to put 10% of our
money towards our financial freedom. The financial freedom jar included things
like stocks, mutual funds, bonds, real estate, passive income vehicles, and other Investments
that are intended to help us achieve financial freedom. However what if one of the things that we
value the most was our financial freedom? What if we didn’t have quite as many material
wants as maybe some other people do but we really wanted to have the freedom to take
a two-month sabbatical whenever we wanted to travel overseas? That dream might be harder to accomplish,
at least regularly, if we have a traditional 9 to 5 job unless of course we’re able to
telecommute or we have work for a really understanding and flexible company. Say for example that Jane earns $36,000 a
year and followed the percentages suggested by the 6 jars budgeting system. That would mean that she’s spending $19,800
a year or $1,650 a month on her necessities alone and saving $3,600 a year or $300 a month
towards her Financial freedom. If we follow the 4% rule which states that
you need roughly 25 times your annual expenses saved in order to have a reasonable chance
of not running out of money in retirement and we assume an average 8% rate of return
on her investment over the long haul it will take Jane roughly 32 years to become financially
independent based on just her necessities. If we include the rest of her spending into
this calculation it would take even longer. She’s saving 10% of her income which means
in one way or another she’s spending (or will be spending in the case of the long-term savings
jar) about 90% of her income. In Jane’s case that would be about $32,400
a year or $2,700 a month. Assuming the same rate of return Jane would
need roughly 38 years to have enough money to be financially independent on her current
lifestyle. And that’s before factoring inflation into
things. What I’m getting at here is that in Jane’s
case, since she values that Financial freedom so highly she may want to adjust the percentages
in that Financial freedom jar so that she can live her dreamline earlier on in life. If she doesn’t this budget could very well
fail her. Unless of course, she takes a page out of
Ekers playbook, a page that I wholeheartedly agree with by the by, and starts to generate
a passive income stream or multiple passive income streams through not just investing,
but also side hustles. The idea being that this will not only raise
her income so that her 10% savings rate will be more effective in terms of raw dollar value,
but also, in the ideal scenario, her passive income grows enough to fund her lifestyle
without actually needing to wait the 38 plus years. And Jane may decide that she really wants
to accelerate this process as much as possible in which case she could go the passive income
route with side hustles while working and simultaneously increase that 10% savings rate
to a larger percentage of her new income. Say if Jane started a side hustle that allowed
her to take home an extra $1,000 a month on top of her day job and she raised her savings
rate to a whopping 50% of her income thanks to some creative savings techniques. That would mean in this new scenario she’s
earning $48,000 a year and saving $24,000 a year. Now her Financial freedom number is just 25
times the $24,000 that she’s spending per year as opposed to 25 times the $32,400 that
she was spending before. And since she’s saving $2,000 a month she
hits her $600,000 new financial freedom number in a little under 14 years assuming that same
8% rate of return. So who would this budget work best for? Well, the nice thing about these percentage-based
budgets is they’re capable of working well for pretty much anybody but I do think that
it probably would work best if you’re someone who already has a fairly good idea of what
it is they value and a fairly good idea of where their money is going. Because again the downsides to these percentage-based
budgets is they don’t have as much detail as a zero-based budget would so it is possible
to lose track of where exactly your money is going, but this is less of a crucial issue
if you are coming into the budget with your finances relatively under control and your
values surrounding money understood. But that’ll do it for me today once again
if you enjoyed this video be sure to smash that like button if you haven’t already,
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23 thoughts on “How to Make A Budget Using the 6 Jars Budgeting Method | Secrets of the Millionaire Mind Summary

  • Great Video. Thank you so much for a different look at budgeting. Def going to look into the 6 jar method

  • I really appreciate that giving is on the budget. While we all strive to better ourselves and our position, we shouldn't ignore those who cant.

  • They seem like a good baseline to fallow. For people don't know where to start. I like it Daniel keep up the good work.

  • OK.. this works for some one from U.S.A. but how this could work from some one from a pour country from U.E. like Romania or Bulgaria where the 'Necessities' jar usually pass 70% of the FAMILY income…P.S. the idea is grate, thank you for the video.

  • This is a really cool framework; I'll do some more research on it. Thank you so much for educating us on the necessities.

  • i have been following your videos some months now, thx for your videos, i am enjoying them alot, and thx for the updates and encouragements to invest in stocks. One questions that i have, and i am searching for a answer for a long time, how to invest in dividends and at the same save with these dividends to pay for renovation for the house ? how would you handle this so that the portfolio grows but you can still use it to have a better house?

  • What happened to your Savings Rate video? I tried to share it with a co-worker, but it appears to no longer be on your page…

  • I don’t agree with the savings, play, financial freedom, education and giving UNTIL all your debts are fully paid. After you are debt free, then this type of budget can be implemented.

  • 50% of my income is savings, I work too hard, did I hear 10% for long term savings???🤔🤔🤔👀👀👀👀👀👀

  • I disagree with the 5% giving model.. youre better off giving your time than your money and that is proven. I would rather put that extra 5% to financial freedom.

  • I love this system and helped me for years! However, I have a question regarding using this system when growing a business. I currently put 90% of my salary into growing my business for my goal of reaching 6 figures in revenue. How should I proceed with budgeting money? I loved using the money system when I just had a 9-5 but growing a business requires so much capital, any suggestions? Thanks in advance.

  • I am "giving" more than enough to the government when they steal 33% of my monthly income. That is a few thousand dollars a year wasted on poor quality government services that I never asked for and almost never use, due to their poor quality. But hey, illegal immigrants and social parasites can have free healthcare, handouts and free education because I am forcefully paying taxes -.-

    Also, that budgeting method does not work for poor people. In my country, most of the people work for $350 a month after taxes. Utilities are about $100-$150, food for one person is $100, transportation is $30 if you go by buss. Imagine someone applying that budgeting method on $70 he has left…

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