How do you manage your money? How do you keep track of how much to save, invest, spend? And how do you know if you are not overspending?
This is how most people manage their money.
All earned money goes into a Bank Account and they just pull the money out whenever needed.
Most people always overspend this way. Also, they have no track of their savings, how much to invest, etc.
Now I am going to discuss a solution. A really simple and effective money management system called Jar or Bucket Money Management.
In this system, you simply divide your income into separate buckets. Whenever you get a paycheque, you split the money into separate buckets. Each bucket has its own purpose.
Let's say you create the following buckets.
Keep a portion of your income for Necessities. Like paying rent, food, bills, etc. Fix a share for this bucket according to your income and needs. And try to manage your necessities within the bucket budget.
If you want to upgrade your lifestyle, it's recommended to upgrade your skills and increase your income rather than bucket share.
Keep a portion of your income as savings. This is for future events or upgraded purchases, like marriage, new car, medical emergency, etc. Don't spend this money on any other stuff.
You will also get a sense of security when you save.
Keep a portion of your income for Investment. Like, stocks, gold, land, etc. Even a small portion you invest will turn out to be a big return, due to the compound effect.
This bucket will help you grow faster.
Keep a portion of your income for fun. Like movies, vacations, shopping, etc. But don't overspend other than what you have in this bucket.
This will bring joy to your life and increase your productivity at the work.
This is the very basic bucket management system I talked about. You can create many more buckets like self-education, charity, etc. And you are free to set the share of each bucket. But make sure you are sticking to whatever share you are fixing for the bucket.
How to follow this system?
This is not a new money management system. In fact, people have been following this since very old times. People used to separate out portions from their income. Each portion for some purpose. It was easy to follow this system in old times since we had physical money.
But this system is difficult to follow nowadays. Since all the money goes to a single bank account. There is no way you can separate your money into portions unless you have multiple bank accounts.
Is there any tool to do that?
Recently there was an App introduced called Mugs. Which is precisely design for this purpose.
Your money will still be in the Bank account. But you can create virtual buckets and start following the bucket management system.
Once you build the habit to manage money like this, you will start to notice the benefits.
You can download the app from here. It’s completely free and without any ads.
Following is a great video by Dan Lok, talking about Bucket Money Management and its advantage.