When all of your outgoings are coming out of one account, it can be hard to stay in control of how you spend your cash. The concept of the jam jar approach is that you divide your money into separate pots for different expenses. This is a great way of making sure all your bills are covered. Knowing your money is going exactly where you want helps you stay on track financially. These types of accounts are usually offered by credit unions for a fee. The jam jar account won’t be for everyone, but if you’re someone who struggles to sort out your money and pay the bills every month, then this could be a handy tool.
If you’re considering getting jam jar accounts, then you need first to be sure of how much money you have coming in and where it’s going each month. This can be done relatively easily by using effective budget planning techniques. If you’re unsure how much you have or where it’s going then you will end up with jam jar accounts with too much, or not enough, money coming in.
You also need to establish your spending priorities. By taking a careful look at everything spend money on you should be able to decide which outgoings are essential needs, and which are simply wants. Making lists of both of these will make your finances clearer in your mind. Your needs should include rent, mortgage and other essential bills like gas and electricity. After covering the basics, you will be able to look at your wants. Deciding which outgoings matter most to you may be difficult, but you can also try cutting overall costs. This means you will be able to fit in more outgoings, which only cost a small amount.
Once you have established a clear picture of your spending needs, then you can begin to set up your budgeting jam jars. Setting up real a bank account with standing orders coming out will assist you when trying to keep an eye on your finances. Sticking to a strict rule of ‘when it’s gone, it’s gone,’ will help you avoid dipping into other accounts. For example if your phone bill jar is empty, then you shouldn’t allow yourself to dip into the electricity jar instead. If you have any cash left in the jars after your payments have come out, you should always try to put it towards an emergency savings fund.
When making accounts for each area of spending, you should instruct your bank to set up standing orders. This means the money will automatically transfer from your main account into the additional accounts one or two days after you’ve been paid. Once your standing orders have been paid, you will then have the freedom to spend from your main account. You won’t be risking not having enough left for important monthly bills.
With a jam jar account, you only have to manage one bank account. It is not as complicated as having numerous separate accounts. The account provider should manage all your Direct Debits and standing order for you. Some account providers even offer helpful budgeting advice to keep you on track. You are charged an administration fee of up to £5 and £15 a month. Then again, some social housing landlords and councils have aimed to work with credit unions. This is so they can offer tenants current accounts with lower fees. See if your landlord is one of these as they may pay your admin fee for you.