Handling adult money can be daunting for littles and I've promised you to teach you so here's what I would like to share.
Do you remember the first lesson in tidying up your toys into that seemingly small space?
The trick is to put the big things into it first.
It is the same with budgeting. You will need to put the big things in life into your budget first. It will be things that you cannot live without. For example, food, rent for a place to live, utilities (electricity, water, heating, gas and to an extent, internet), medicine, insurance and etc.
After that I will suggest you to create accounts for other things.
I would like to suggest using the 6 jars system.
This will ensure that you would've allocated the money before you spend it so you won't have trouble.
Remember the time when you forgot to setup a holiday schedule and you had to rush to finish your holiday homework? The logic here is the same. If you've allocated enough budget to do what is needed, you won't need to worry about other things just like when you have a schedule and follow it.
I will roughly explain what is the 6 jars system. It is a system that you will separate your income into 6 jars for different purposes. This can be physical jars where you keep your cash or it can be bank accounts. I personally prefer bank accounts because they are safer and I can create standing instructions to transfer the money into the correct accounts once my income is in. Our will power is more limited than we thought.
Now, let's talk about the jars
1. Necessity - These are things that you cannot live without. What I mean is not the feeling of it but really cannot live without. You might think that you cannot live without that blanket with that cute print but in reality you can because you already have another blanket named blanky. The situation is different if you don't have a blanket and it is winter. If you don't get the blanket you might die from hypothermia then it is a necessity. Spend this on things that will keep you alive and well.
2. Play - What's life if you cannot splurge? This is an account where you just spend the whole amount of money just to celebrate your month. You can just spend this on what your heart desires. There is one rule, everything must go during that month and in one go. Let your little out and have all the fun you can with the money in this account.
3. Financial Freedom Account (FFA) - This is for you to invest so that you will be able to have financial freedom. Imagine if you give me a piece of candy and I will give it back to you with more candy after a certain period of time, isn't that sweet? I would suggest you to have this account and start to learn about investment, especially passive index fund with low management fees. If you start early, you will thank yourself.
4. Education Account - This is for you to invest in yourself. Have you ever saw a course that you would like to attend but you don't have the money? This account will solve that problem. You slowly save the money and when the day comes that you want to take a course, the money is there. You can learn to design beautiful fashion clothing and make dada proud.
5. Long-term savings and spending (LTSS) - This is an account with purpose. It is for you to save up to buy that big ticket item. Do you want that very big teddy bear? It is not a necessity right but you really want it right? Well, set a purpose on this account and save up for it. You can only buy that teddy bear once you have enough money in this account.
6. Give - If you believe in what goes around comes around, this will help that. Set aside money to contribute back to a cause that you care about.
The generally suggest the ratio to be below.
Necessity - 55%
Play - 10%
FFA - 10%
Education - 10%
LTSS - 10%
Give - 5%
Of course everyone's context is different so adjust the ration to what suits you. You might even add or remove accounts (play and/or give) base on your personal situation. I started with my necessity at 80% and slowly adjusted everything to suite my own need. Now I am happy to say that this system has enabled me to invest, take courses that I want and pay my mortgage off faster while maintaining a good life style. I hope you will be able to learn this and lead a better life too. Take care my little one.
