My family ran into financial troubles when I was a kid. I don’t remember the full details, but we had to move to a smaller home. One night, my mum sat me down, looked me in the eye and said, “We don’t have much money now, so we’re going to have to pull up our socks.” (This was back when “pull up our socks” was still a legit phrase to use)
I didn’t fully understand what was happening at the time, but that conversation left a profound impact on my spending and saving habits. In Primary School, I would skip out on buying country erasers during recess, and use my friends’ erasers instead. In college, my ex complained that we never went out to fancy places on dates. When I started my first job at an airline, I only travelled once a year despite having access to discounted tickets.
For two decades, I lived by that mantra of always putting more money aside. And I’ve seen many of my friends do the same, driven by our parents’ well-intentioned advice to “save for a rainy day.” But what if this ingrained habit, while well-intentioned, actually creates its own set of challenges? It turns out, there’s a problem with just saving for saving’s sake.
The Problem With Saving
Many of us see saving as a binary thing: We earn a salary, we spend it on stuff, and whatever’s left over is our “savings.” We glance at our bank balance, seeing one big number that’s a jumbled mix of everything—our savings, allowance for parents, dining out expenses, and who knows what else. Sure, seeing that single, growing figure might give us a warm fuzzy feeling, but this seemingly straightforward approach actually creates three big problems:
- Spending Guilt: Every dollar spent feels like a dollar taken directly from our savings. That new laptop or a nice meal? Suddenly, it comes with a whole baggage of guilt because it could have gone into that singular savings pot.
- Zero Strategy: Imagine that you’ve diligently saved $200K. Now what? Is it for a home down payment, an emergency fund, or that dream holiday? Without clear goals, it’s just a lump sum. How much should you allocate for a down payment if you still want to keep a safety net? This “one big pot” method offers no real roadmap.
- The Oversaving Trap: I have a friend who’s sitting on half a million dollars in his bank account. While it sounds impressive, that same half-million, if invested wisely at, say, a 7% return, could be earning him $35,000 a year – more than some people’s entire salaries. We end up hoarding money that could be working much harder for us.
Introducing: The Money Jar System
Here’s a better approach, which I call The Money Jar System. In fact, billionaire Li Ka-Shing once advocated a similar approach to buy a house and a car in 5 years.
Here’s how it works: When you get your salary every month, intentionally divide your money into different “jars,” each with a specific purpose. Think of it like assigning a job to every dollar. You might have a jar for a home, a jar for your future wedding, a jar for your travels, and so on. The key is to identify a concrete, specific purpose for each jar. Here are some jar ideas to get you started:
Upcoming Big Expenses: This jar is for major life milestones. This could be a downpayment for your future home, your future wedding, or a future car. For me, about 5 years into our marriage, my wife and I started thinking about having kids. We weren’t completely ready, but I knew that if I had a child, I’d want a car for easier travel with a stroller or a car seat. So I started a “car” money jar, putting money aside monthly. By the time we got pregnant, I had enough for a downpayment.
An emergency fund: I work in tech, where layoffs are pretty common. To protect myself, I built an Emergency Fund jar until I had six months’ worth of expenses saved. (Tip: Your emergency fund should cover expenses, not income. If you earn $10K but spend $5K, aim for $30K for a six-month buffer.)
Investing in Yourself: Early in my career, my salary was only $3,100 a month but I was hungry to learn and boost my income. I set aside a few hundred dollars every month for learning. Books and courses were investments I never felt guilty about. Once, I even put half my monthly income into a $1,500 USD course—a move that directly helped me negotiate a higher salary later on, and which I still use today.
Fun Items (aka “Treats”): Money jars aren’t just for serious stuff! Create a jar for things you genuinely enjoy. I have a “Treats” jar for travel, dance classes, massages, or even a new MacBook—anything that’s about indulging myself a little.
So when your salary arrives every month, first allocate funds towards:
- Your ongoing expenses (e.g. rent, mortgage, bills, etc),
- Your Money Jars
- Your investments (more on this in another post)
Once these crucial allocations are made, here’s the important part: You can spend on everything else guilt-free. Want that fancy dessert at a restaurant? Go for it. Want to treat your friends to a round of drinks? Absolutely. By responsibly managing your core finances first, you earn the freedom to truly enjoy your remaining money without any guilt.
Do It Automatically
The Money Jar System truly shines when you automate it. You shouldn’t have to manually move money around or painstakingly track your Jars in Excel. There’s an easier way.
Many banks now offer features that let you segment your savings into different “goals” or sub-accounts. For example, OCBC’s Savings Goals feature or Maybank’s iSavvy let you automatically funnel a fixed amount into each specific “jar.” Set it up once, and your savings run on autopilot.
Another alternative is to set up Cash Management goals within roboadvisor platforms like Endowus or Stashaway. These typically offer higher interest rates than traditional bank accounts. While they carry a slightly higher risk because they aren’t insured by SDIC, they’re still far less volatile than equity or fixed-income investments.
Personally, I use a combination: OCBC’s Savings Goals for anything I need within the next 1 year, and Stashaway/Endowus for goals 2-3 years out. This hybrid approach automatically saves what I need and keeps me updated on my progress towards each goal.
Some Pointers To Take Note
Having followed this system for nearly 15 years, I’ve picked up a few pointers that can make a big difference:
- Don’t Go Overboard With Categories: Resist the urge to create a jar for every single expense. Tracking more than 5-6 Money Jars becomes cumbersome and defeats the purpose. For instance, I lump all my “fun” spending—travel, massages, gym memberships—into one broad “Treats” jar. Keep it simple!
- Once a Jar is Full, Move On: It’s tempting to keep adding to a jar even after you’ve hit your target, but don’t. If your Emergency Fund needs $30K and you’ve saved it, stop adding to that jar! Reallocate future funds to another goal, or simply give yourself permission to spend that extra cash guilt-free.
- It Gets Easier Over Time: Starting out, especially with your first job, this system might feel a bit overwhelming, leaving you with less “fun money” than you’d like. If that’s you, don’t be afraid to scale back your savings initially. There’s no point in saving so aggressively that you become miserable. Take comfort in two things: 1) Many of your biggest expenses (first home, wedding) hit when you’re younger, and 2) Your income will likely increase over time, giving you more financial breathing room.
Saving and spending doesn’t have to be the guilt-ridden exercise that we were used to as kids. The Money Jar system isn’t just about restriction and saving; it’s about intentionality and peace of mind.