Introduction:

Spending and saving money can seem like a hassle these days. In an era of financial uncertainty, it has become absolute necessity to master the art of budgeting. You do not need to resort to any meticulous calculations or spend a lump sum on financial advisors. You can do it yourself, you just have to figure out where your money is going. Nowadays, you have a lot of mobile apps that help keep track of your monthly expenditures. But if that doesn’t help, you might want to look into Kakeibo, the Japanese method of saving money.

What is Kakeibo?

The Japanese term Kakeibo means ‘household financial ledger’. Kakeibo is a Japanese budgeting method that allows individuals to be watchful of their spending habits and helps them achieve their financial goals. The technique was first devised by Japan’s first female journalist, Hani Motoko, in 1904 to help Japanese homemakers keep track of their monthly household expenses. Kakeibo allows an individual to figure out their spending habits better and reflect on the necessity of every purchase. It allows you to be frugal with your lifestyle, which aids you in saving for your financial future and accounting for any unexpected expenses.

What is the Kakeibo Method?

The Kakeibo method helps an individual take account of their spending habits. To do this, an individual first has to divide his expenses into four broad categories:

1. Needs:

These are items you cannot do without and are the bare minimum needed for survival, such as food, daily necessities, medical expenses, transportation expenses, etc.

• Wants:

These are expenses that allow you to enjoy your life but are not necessary for your survival, such as eating at restaurants, shopping, etc.

• Culture:

These are purchases that allow you to have cultural experiences in your life. These include expenses such as recreation activities like visiting museums, watching a play, going to a cinema, etc.

• Unexpected Expenses:

These include expenses that were necessary but could not be foreseen in advance. These are expenses that require your immediate attention, such as health emergencies, delayed bills, house repairs, etc.

To keep track of your expenses, you might want to maintain two notebooks. A big notebook for four broad categories of expenses, such as needs wants, etc, and a small notebook you can use to note down your weekly expenses. The expenses in the small book can later be noted down in the big notebook under each of the four categories. By writing down expenses, individuals learn to take accountability and keep track of their money.

How does Kakeibo Work?

When starting with Kakeibo, try to write things down by hand, the whole purpose is to take more time and make more effort to think about your spending. You don’t need any gadgets by your side, all you need is a pen and paper to get started. However, If you are new to Kakeibo, you might want to purchase a journal to keep track of your expenses. You can take any number of approaches to Kakeibo, but the process stays the same.

You can organize your finances, record your spending, reflect on how things go every month, and find ways to improve.

                  Keep in mind this simple equation when practicing Kakeibo

                                     Total Income – Fixed Expenses – Savings= Optional Spending Budget

To know more about this equation, ask yourself the following questions:

1. How much money should I spend?

Total your income, this includes your salary, investment returns, benefit payments, pension income, and so on. Make sure the income you mention is after-tax deductions and any other deductibles, such as pension contributions.

Now, you can note down your essential costs and deduct them from your total income. This includes things such as rent, bills, loans, insurance, and so on.

Once this is done, you must have clarity as to how much money you have left for saving and how much you have to spend.

• How much would I like to save?

The second point sets Kakeibo apart from other budgeting methods. Rather than looking into your spending and putting the rest aside for your savings, it is important to prioritize how much you would like to save.

When you think about putting aside some money for savings, it would be wise to set yourself a goal or purpose for a month. You do not need to do something unconventional, it just has to be realistic and achievable.

By setting a goal and prioritizing overspending, you become more focused on building a positive view of saving. It also gives you something to reflect on by the end of the month.

• How much am I spending?

To anticipate your spending, you will need to set a budget and then track your spending for the next month.

Creating a budget

At the beginning of the month, you need to think about how you plan to spend your money and create a budget to reflect on. The budget will include all your variable costs, such as outside food, clothes shopping, weekend getaways, emergencies, and so on. This does not need to be accurate; it is just a rough guide to help you go about spending your money.

As per Japanese tradition, Kakeibo categorizes spending into four broad groups: needs, wants, culture, and unexpected expenses. The point of Kakeibo is to make the process as simple as possible so that the journal is easy to maintain.

Tracking your spending

Once you create a budget and go about spending, you will need to maintain a journal for your purchases, including what you bought, when you bought it, and how much you have spent, and see which categories it falls under. So every time you make a purchase or pay for a service, make a note of it and assign the cost to one of your categories.

The process may seem staggering, but there are plenty of options to simplify Kakeibo:

Weekly Spending: If writing down your spending every day doesn’t work, set aside half an hour a week and note down everything.

Ask for a receipt: Many Kakeibo journals come with a plastic wallet for you to keep all your receipts in. Asking for a receipt and maintaining a record of it will make it easier for you to track your spending.

Track through online banking: You can also utilize online banking by checking your transaction history to see how much money you have spent.

Cash Payment: One method people use for Kakeibo is cash budgeting, sometimes known as ‘cash stuffing’ or ‘envelope budgeting’. This involves putting money in different envelopes or pots in accordance with your budget categories. You might give less attention to smaller spending but will give a broad overview of your spending.

• How can I improve next month?

If you categorize and keep track of your spending, you will have a clear overview of how you spend your money at the end of next month.

You can now look for minor ways to improve your money habits. One important thing to remember is, that you aren’t looking for critical points, you’re simply making observations and finding small tweaks. You can add these improvements either toward your money goal or adjust your budget to see how it goes next month.

Example: You might observe that your spending in one category is higher than you anticipated. You should ponder why you spend more on this area. Is it an indication that the category you prioritize is where you want to allocate more funds? Or maybe you think about unnecessary spending and aim to spend more carefully next month.

Probably, you would be able to save a small amount of money, but if you fail to do so, it is worth considering why you failed to manage it. You should reflect on the way you spend money this month and question yourself as to whether you prioritized savings or something else.

What are the benefits of Kakeibo?

Enhanced Financial Awareness: Kakeibo nurtures a deep understanding of your financial situation. When you record every transaction, you analyze your spending patterns and become more conscious of where your money goes.

Reduced Financial Stress: When you have a well-organized monthly budget and clear goals, Kakeibo can help ease financial stress. Having control over your finances can bring about peace of mind.

Improved Saving Habits: Kakeibo brings about a disciplined approach when it comes to saving money. Every month, you can set aside a portion of your income, build your savings gradually, and work towards your financial goals.

Long-Term Financial Stability: Kakeibo doesn’t focus on short-term gains; it is a method one can use to attain long-term financial stability. If you follow the principles daily, you will secure your financial future over a period of time.

What are the drawbacks of Kakeibo?

Manual Work: The budgeting method relies on you to write down your expenses, yes, even the minor details. So if you don’t enjoy writing or are not willing to carry your journal, this method may not be for you.

You are accountable for yourself: Writing down your expenses on a daily basis can be hard sometimes. If you find it difficult to keep a record of everything, this might not work for you.

In Conclusion:

Kakeibo is more than just a budgeting method, it is a philosophy that encourages mindfulness, discipline, and financial well-being. By adopting the principles of Kakeibo into your life, you get a better insight into finances, reduce stress, and work towards achieving your financial aspirations. In today’s world, the task of money management can be tedious, but when you look into Kakeibo, you can take a practical approach to securing your financial future.