Jam Jar Banking

I’m not sure any of my grandparents had a bank account – except perhaps a savings account with a local savings bank or post office. Their working class economy ran on cash. The men brought their weekly pay packets home to their wives, who then extracted all the money that they needed to run the household before returning a little “beer money” to their husbands. It made sense to divide up the money between jam jars or pots for each purpose: rent, fuel for heating, housekeeping, clothing etc. This helped to make sure that the money needed for one purpose didn’t get spent on something else.

Screenshot 2017-05-17 16.20.39

Now we think of “money” as the stuff in our bank account – virtual money that we can’t see or touch but which flows digitally in and out again via direct debits, standing orders, plastic cards and PayPal. The modern bank account is a technically impressive payment mechanism but entirely useless as a money management device. The best we can do is check the balance occasionally, which is about as useful as checking the level of the water on the harbour wall when you don’t know if it’s high or low tide.

So if you feel daunted when you look at your bank statement, the problem is not with you – it’s because of the way that the information is being presented to you. It’s almost as if someone is deliberately trying to confuse and discourage you by giving you too much information all in one go, in a long list that’s not sorted or categorised in any way. We’ve all met people who try to browbeat us like that!

But we can make our task a lot simpler and easier to cope with by sub-dividing this mass of raw data into separate piles. We can do this by setting up multiple bank accounts like the old-style jam jars, with separate “Jam Jar” accounts for different purposes. In fact the money we spend each month falls into two main categories:

  • The stuff that’s pretty much fixed and goes out automatically: mortgage payments, rent, Council Tax, electric, gas, mobile phone, Sky, Spotify etc
  • The money that we spend personally which isn’t for a fixed amount each month, which mostly goes on eating and drinking, including supermarket shopping, costa coffee, takeaways and all cash spending

We can dramatically simplify the management of our spending by using separate bank accounts, one or each type of spending:

  • a BILLS account, for all the direct debits and standing orders (and your pay goes in here too). On average, this will account for between half and two-thirds of our monthly spending, and an even higher proportion of the number of entries on our bank statements.
  • a SPENDING account, for all the rest. Once all the BILLS traffic has gone, there will be relatively few payments going out of your CASH account, so it will be much easier to see what’s going on.
  • A SAVINGS account. I’ll talk more about saving in a later post.

It’s important to make this process as easy as possible. So it’s worth putting a little hard work into setting up your BILLS account and, if you don’t do this already, switching all your regular bills over to monthly direct debits. Once all the bill payments are going out on a monthly basis, it’s a simple matter to add up all the monthly payments, subtract that total from your monthly income, and figure out how much you have left each month that you can safely transfer into your SPENDING Account (and your SAVINGS Account). Now you can pretty much leave the BILLS Account to fly itself on autopilot, and concentrate on managing the money in your SPENDING account without being confused and distracted by all those extra bill payments.

Remember, we’re not trying to save every last penny, we’re aiming to make money management easier for “lazy” people like you and me. And just one accidental overdraft caused by a badly-timed direct debit that I forgot about could easily cost me £20 or more. So I smooth out the lumps in my spending as much as I can. I’m happy to leave it to British Gas to set my monthly budget payment, and to move this up and down occasionally. And I pay my car insurance over 12 months – yes I pay a little extra, but that’s one less lump sum that I have to think about how I’m going to pay it. Every time I switch a bill over to monthly payments, that’s one more bill that I’ll never have to worry about again – result!

Some banks are now offering Jam Jar Bank Accounts, and I’ll put more information on this in a separate post. But it’s easy to create your own, by turning your existing main bank account into a dedicated BILLS Account, and using a separate bank account (or a prepaid debit card, or good old–fashioned ‘cash in a jam jar’) for your SPENDING.

You may well be operating a version of Jam Jar Banking already. You may also operate additional accounts for other purposes, such as running your car. If so I’d love to hear from you – how does it work for you? What tips would you like to pass on? Please leave a comment by clicking on the word “comment” directly underneath the title of this post.


19 thoughts on “Jam Jar Banking

  1. Fantastic advice here, and so true. I find when looking at one account that you are constantly trying to juggle in your head what comes out when, and where that will leave your balance, and what that will mean. This has inspired me to open another account within my account and separate things out. I look forward to more advice on savings.


  2. Great blog! I’ve set all our direct debits and standing orders to be paid by the 2nd of the month which has worked pretty well but I think I may try your suggestion! Thanks Robert


    1. Yes it took me decades to learn how to do this. Amazing really that we’re not taught how to manage our money. It’s a bit like native Americans not inventing the wheel before Europeans introduced it.


  3. This is a great help. We’ve been operating out of one account for years and I’ve been thinking of separating the bills one and the spending/ food shop one as I really don’t like trying to work everything out from one account, so great to hear this is what you recommend. I used to put all our money into envelopes and we didn’t have any problems then. We don’t save so I’m interested to see what you recommend for that too :))


  4. Brilliant Rob – so helpful. Not quite Jam jar banking but we have extensively used credit cards to track expenditure for 20 years or more – 1 for housekeeping, 1 for cars and one for other. You need the discipline to always pay the whole balance every month (looking forward to a future credit cards chapter😬), but we have found it helpful to track these major non direct areas of expenditure.


    1. Thanks Nigel that’s an interesting variation on jam jar banking. I admire your discipline in running three credit cards for years without getting into debt!


  5. This idea is so simple, and I really like how you’ve explained it Dad – especially how we are often lost and overwhelmed by a system that doesn’t best serve us.

    Two bits of experience from me. I took on this advice years ago (thanks to you Dad 🙂 and had a bills account. I had lodgers at the time so rent money came in, I paid in a bit each month and all the bills came out. All the while I kept a separate spending account as you suggest. It was such a relief to not have to worry about that account, I knew it would ‘float’ each month and it did. So much so in fact that I was actually saving money without realising it. One year I hardly checked in with it and soon realised I had about £1,500 accrued in there – so that happily paid for a trip to America for a conference. I had not before (or since) managed to save so easily!

    Since then finances have been not as well managed and I agree that keeping all the bills and spending in one account has been a challenge for my lazy self. So, last week Scott and I opened a new joint account for bills; everything is now moved over. And, learning from my last experience, I’ve allowed a little extra wiggle room – so in time there will be a small buffer for any of those nasty surprises; burst tires, troublesome boilers. Or if not it will make a very lovely holiday fund for 2018.


  6. We have a dedicated bills account which we (husband and wife) both pay into and the mortgage and bills go out of there. The problem (which you highlight) is we have some bills that we pay annually which we haven’t accounted for and that’s always tricky to manage – maybe we should return to monthly payments on those ones despite the interest.

    We also have a credit card that we pay off every month but we spend too readily on that – it’s what we use for food and petrol as well as what I would class as ‘treats’ and that can lead to overspending and big bills to then pay off. I find it much easier to keep track of my debit account. I think we should maybe go back to a spending account like you suggest and use that for those regular outgoings like food and petrol etc. and scrap the credit card.


    1. Hi Amy – yes unfortunately credit cards act on most of us like a money laxative. We naturally tend to be overly optimistic when making plans so a helpful question when choosing a money management technique is “would I recommend this to a child?”. This will help us to think about all the things that could go wrong.

      I’ll return to the problem of annual bills in an upcoming post.


  7. I have created a savings account. I have worked out that I have outgoings of approximately £200 and incomings of £724. I’m stunned. How am I always so skint? This is good news but I’ma bit stuck as to how to proceed. i’d like to arrange for £524 to leave my current account and go into my savings account every month but I don’t know on what date to do this as I don’t think there is ever a day when there is £524 in there to be had. Did anybody else encounter this problem and what is the solution?


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