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Stay Debt Free Forever (& Money Management Systems to Help)


Let me tell you what I know about how to stay debt-free and the money management systems that helped me do it.

(Yes, we have lived debt-free since 2013 when we paid off £100,000 consumer debt.)

You see, to get out of debt and stay debt free you need to:

Understanding money management and how it helps you stay debt-free is essential.

Tonight I’d tell you about six money management systems I’ve tried; and you should try them too. It takes a lot of trying and adjustment to develop a system that fits you like a tight glove.

#1. Stay Debt Free: Arkad’s Money Management System

This is probably one of the oldest money management systems, and I love it because of its simplicity.

It comes from George Clason’s classic The Richest Man in Babylon. (And if you have not read this book, do it now. Don’t waste your time reading me when a little masterpiece is waiting for you.)

Arkad is the main character in the book, and one can learn a lot from him about building wealth. Still, one of the main things I learned from Arkad was his money management system.

According to this system:

  • Ten per cent of all you earn should be saved and invested.
  • Twenty per cent of all you earn should be used to pay debts – if the amount is insufficient, one should firmly negotiate with their creditors and convince them that this is all that they can afford but will pay diligently.
  • Seventy per cent of all you earn should be used to cover all living expenses.

This system is beautiful in its simplicity, but don’t let this deceive you. It appears simple and very practical because it works by proportions rather than absolutes.

What does this mean?

Well, there are two clear messages in the system:

  1. It doesn’t matter how much you earn, you should always follow these proportions. If you must change your life and make sacrifices to fit within the 70% allotted to living expenses, so be it.
  2. To expand your life – and the amounts you pay off your debt and save/invest – you have to increase your income.

Verdict: This money management system is probably my favourite for staying debt-free because it focuses on increasing income, not further reducing living expenses.

#2. The Balanced Money Formula

Elizabeth Warren and Amelia Tyagi developed the Balanced Money Formula approach to money management in their book All Your Worth: The Ultimate Lifetime Money Plan .

The Balanced Money Formula uses three elements: needs, wants, and savings.

  • ‘Need’ is everything you absolutely have to pay, and this group of spending would include shelter, facilities, cars and insurance, food and basic clothing.
  • ‘Want’ is everything above the basic needs that we have in our lives, like eating out, going out, holidays etc. This category can include the things that you can cut out, but this will cause temporary discomfort.
  • ‘Savings’ also includes debt repayment until this is all gone. (You may be wondering about the rationale for this, but remember that paying off your debt increases your net worth, just like saving and investing more does.)

According to the Balanced Money Formula principles, you should:

  • Spend no more than 50% of your net income on needs; ideally, spending in this category should be under 35%.
  • Spend on ‘wants’ up to 30% of your net income.
  • Put in savings no less than 20% of your income.

Verdict: This money management system is also practical and easy to follow. A potential point of confusion is the distinction between ‘needs’ and ‘wants’. This one also doesn’t clearly convey that the way forward is to increase your income; if anything, when testing it, I tended to cut down the ‘wants’ and increase the ‘savings’ category.

#3. The JARS Money Management System

For the non-initiated ones: if you think that JARS stands for something, you’d be wrong. This system involves jars; as in the glass pots that you keep jam in.

T. Harv Eker developed the JARS money management system in his book Secrets of the Millionaire Mind.

According to this system, you ought to think of your money in terms of going into six jars:

  • Necessities jar (55%): this is to cover all your monthly expenses.
  • Financial Freedom Account (10%): this is the one you should use for investing and building passive income.
  • Education Account (10%): to succeed in anything, one needs to learn, right?
  • Long-term savings for spending account (10%): this one is for ‘extraordinary’ spending like holidays etc.
  • Play account (10%): this is the money you spend on things you wouldn’t otherwise buy. It is supposed to nurture yourself (like ordering steak instead of chicken when you next go out to eat).
  • Give account (5%): this is for giving away to good causes of your choice (we give to The Trussell Trust because I believe that people shouldn’t go hungry in the 21st century).

You are free to add jars and change the proportions. What is important is always to put something in these basic jars (well, you can use bank accounts to do this).

Verdict: I tried this one and found it hard going. It lacks the simplicity of Arkad’s money management and the balanced money formula. Still, I found that the ‘play’ and ‘education’ accounts are great reminders to keep things in proportion when paying off debt. And so is the ‘give’ account.

#4. The Envelope Money Management System

This was quite popular with some of my buddies when we were paying off debt together, and I even used it for a while. It also will help you stay debt-free.

Its main principles are very simple:

  • Your first step should be to work out how much money you have left after paying off the bills and, ideally, putting some money in savings.
  • Next, you should work out your spending categories (e.g. food, drink, transport etc.).
  • Get envelopes and write the spending category at the front (e.g. food).
  • Put all the cash (yes, this is a cash-based system) for food in the appropriate envelope. Do the same with the other envelopes.
  • Spend only the money in the envelope and get creative.

Verdict: I used this one for a while and must say it works. I found it hard because of the cash (you have to plan) and the categories. Interestingly, these are exactly the properties of the envelope system that are most useful because they develop good habits.

#5. Stay Debt-Free The Money Principle Way

When we were in the heat of paying off our debt, we experimented with all these money management systems.

Ultimately, we used a system that combined elements of the different money management systems.

There are three elements that I found particularly helpful. These are:

  • We started a ‘millionaire account’. In this account, we put a minimum of 10% of our monthly net income, and we didn’t touch this money except for investments (including attending courses and education). This account will not necessarily make you a millionaire but will certainly open opportunities and contribute to a more secure future.
  • We create a ‘financial buffer’. This is also known as the ‘emergency fund’, but I always saw our debt as THE emergency. We kept £1,000 in it for unforeseen or accidental expenditure.
  • We maintained the ‘I’m so worth it’s funds. This fund is probably what distinguishes The Money Principle approach and the rest. Even when you are paying off debt aggressively, you should remember that life is for living. We maintained these funds the whole time we were paying off debt (and still have them). We currently put in these funds (John and I have separate ones) a tiny proportion of our income, but since our income has grown quite a bit, it is enough to get us the ‘finer thing’ we enjoy. I’d probably say that the ‘I’m so worth it’ funds made the biggest difference to our lives when paying off debt and kept us going.

Verdict: I’d rather not. Just try it and let me know whether it was worth it.

#6. The ERR Money Management Strategy

The ERR money management strategy is another innovation by The Money Principle, and it is somewhat different from the systems discussed above.

The ERR money management strategy is about three things:

  • Eliminate (waste);
  • Replace (activities and the way you do these); and
  • Reduce (consumption).

This assumes that you already know what your monthly cash flow is. If you haven’t done this, please do it (using The Money Principle Monthly Budget Planner will help you do that with as little pain as possible).

You can learn more about the ERR money management system and how to apply it here.

Verdict: I’d rather not do this one either. I’d say that I use this every three months or so, and it does help me keep our spending down (without restricting what we do).


You need commitment, knowledge and action to get out of debt and stay debt-free. Here, you can learn about six money management systems and how to apply them to your advantage.

If you find this post helpful, please tell others about it. We want as many people as possible to learn how to get out of debt, right?

photo credit: Chinese Acrobats via photopin (license)

3 thoughts on “Stay Debt Free Forever (& Money Management Systems to Help)”

  1. Staying out of the debt system, you need to discipline those earnings in spending it. If you really want to be debt free forever you need to have some modernness to excel in your finance. This should be an uphold statements to determine and pursue you debt free life. Those systems can be a lot of help. But in order to follow this you need to have some eagerness in reaching it.


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