Splitting your Income – Saving method nr.5

Some time ago, I was trying to find a proper way to budget our money. I was already having a system to log all our expenses in different categories ( I still use the same application after all these years: CashOrganizer), but it was hard to focus on splitting the income and start saving. I wanted to better budget our money and don’t overextend the spending, as we also wanted to save to buy a house and be prepared for what is going to come. 

One day, I stumbled on the “6 Jars technique“. The technique is very simple and basic. You just need 6 jars, each of them represents a percent of your money designated to a specific scope. It was a little weird at the beginning and I needed about 3-4 months of fine-tuning the categories before I was satisfied with it.  

The JARS

The 6 jars are the Jar of Necessities, the Jar of Long-Term Savings, the Jar of Play, the Jar of Education, the Jar of Financial Freedom, and the Jar of Giving. Each of them represents, as the name suggests, a different kind of spending.

  • Necessities – 55% of your income, that should be used for Rent, Food, Electricity, and Bills
  • Long-Term Savings – 10% of your income, that should be used for big purchases, Rainey day Fund, Vacations, Unexpected Medical Expenses
  • Play – 10% of your income, that should be used for Pleasures for your and your Familly and Leisurely Expenses
  • Education – 10% of your income, that should be used for Coaching, Mentoring, Books, and Courses
  • Financial Freedom – 10% of your income, that should be used for Investing
  • Give – 5% of your income, that should be used for Charitable Donations

So each month, when your salary comes in, you just split it and try not to stretch your budget above the money you have in the jars. The method works also with envelopes, boxes, or whatever things you have lying around and want to store some hard-cold cash inside. But we do leave in a digital age, so…maybe let me present to you how I apply this method.

The Digital Age

I get my check directly in the bank, as I am sure most of you are getting paid, so there is no surprise here. So how we can manage the split into the jars?

Well, I preferred to do multiple economy accounts in the bank, with no conditions on the deposits or withdrawals and with no maturity age. When my payment enters I just follow the process I calculated and split them into the designated deposits. For some time, I even made automatic rules so the money went to their “jars” all by themselves. I did end up canceling them as I like more control and I do enjoy splitting them.

You could use any other option that is available to you depending on your bank. Revolut is another nice alternative to storing the money inside “jars” with their Vault Options. I am sure that alternatives to Revolut exist all over the globe, and most sure they have some options to create different “pockets”.

But calculating each time the amount, if you have a variable income or have multiple income sources can be bothersome. I ended up doing a split calculator in excel. In the next part of the article I will present it to you, show you how I use it, and as a bonus, if you subscribe to our newsletter, you will get it by mail!

The Split Calculator

I have created it for myself, and now sharing with you, a calculator that takes into consideration multiple Income Sources (as some of you may have more than one, or if you do your finances in a couple, both of you can pile the jars). Once I define the money from each income, I split them in jars by the amount of money.

An example of how it looks can be seen in the following picture. I defined for the demo 4 income sources, with a 5th column that adds the general income from all the other columns and creates the percent, so you can track how much to add in each jar.

splitting money

To better split the Expense or Necessities Jar, I did multiple categories for it: Mortgage, Car Loan, Kindergarten and Expenses (food, clothes, etc.). You have the other categories defined as Play money, Savings, Investments, Bills, and Debts. As you see, I did make a deviation from the classic 6 Jars Technique, but as they are just names on the paper, you can replace them with whatever you want.

For each income I have, I made a different split on how I plan to use that money, so I enter in percent how much I want to allocate to each category ( you have to modify the green columns and the white will be calculated).

image 2
For a better explanation, if you modify the blue boxes content, the red boxes content is auto-calculated. Additional to this, the spreadsheet contains also formulas to give you a graphical overview of the allocation
image 3

For the last explanations, when I created the spreadsheet, I had the following overview in mind.

image 4

The spreadsheets work the same for only one source of income. Just complete only one of the columns. If you have any problems, just write me a mail at [email protected] and I will guide you step by step to fill it in. We could also work together to help you understand what are your Necessities category and separate them from the rest.

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Thank you all for joining and see you next time!

Disclaimer: I am not a financial consultant! All the information you find here are my decision, I have taken at that moment, on my own analysis. I am open to any type of discussion about money. If you want to replicate my portfolio take into consideration that it is your money and you can have losses.

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