Kakeibo: The Japanese Art of Saving Money

SAVE MONEY IN 2020-21 WITH THIS SIMPLE AND FOOLPROOF JOURNAL

What is Kakeibo?

Kakeibo is an early 20th-century budgeting technique pronounced “kah-keh-boh”. It is a practice of financial mindfulness where you journal your incomings and outgoings in a book.

Kakeibo is a way of manually tracking your finances to help you stick to a budget and reach your savings goals.

This household account book was dreamed up by Japan’s first female journalist, Motoko Hani, who published one of the first magazines targeted at a housewife audience, “Fujin No Tomo,” in 1904.

 In the pages of her magazine, Makoto encouraged her readers to develop schedules and systems for household tasks. She also promoted the concept of homemakers as managers of the household finances and advised them to set aside savings for their families.

How does it work?

You declutter your finances by splitting your spending into "survival”, “culture”, “optional”, and “extra” and note the spending every day.

Kakeibo revolves around four key questions:

1. How much money do you have available?
2. How much do you want to save?
3. How much money are you spending?
4. How can you improve?

Not everything is going digital. Based on the Japanese secret to financial well-being, this budgeting journal helps you plan how much you would like to save and what you need to do in order to reach your goal, ensuring that saving is a part of your everyday life.

You might have heard of something called the “bullet journal”, the “analog system for the digital age” – a kind of crossover between a to-do list and a goal-setting diary, planner, or habit-tracker.

Why Track Your Money Manually?

Although it can be easier to rely on an automated budgeting app, you’re more likely to process the information you record when you do so by hand.

A study published in Psychological Science found that students who took notes in class using longhand were better able to answer in-depth conceptual questions on a subject compared with students who took notes on their laptops. The students who wrote out their notes by hand paraphrased and adjusted what they were hearing, taking the time to process the information as they recorded it.

Manually recording your goals, including your financial goals, can also make you more likely to achieve them. When you spend a few minutes each month thinking about and writing down what you want to save, you create an easily accessible record of that specific goal.

The process of writing something down can also cement the idea in your brain. As you write down that goal to save $100, you analyze it and begin to think of ways to achieve it. This can be what kickstarts the actions you take to reach that goal.

How to Use Kakeibo?

Using kakeibo is a multi-step process. Some of the steps you do at the start of a new year, some you do at the beginning of each month, and others you do throughout the month. At the end of each month, you take some time to review your spending and goals.

Step 1: Start with an Annual Review Plan

Start your ledger with a general idea of your income and expenses for the year ahead. In this section, you can record expenses that might happen just once a year, such as paying for a vacation or your car insurance. You can also record holiday spending plans here.

Look at your previous year’s spending to get an idea of what to include in your annual review. Also, think about what you plan to accomplish during the next 12 months and what infrequent bills might come due.

Step 2: What About A Monthly Spending Plan?

Ask yourself two questions:

• What Will Be Coming In? 

Write down your sources of income for the month, identifying each source – salary, freelance income, dividends, side hustle income – Mention income from all sources down to even the birthday money from the family and when you expect the money. Add up the total amount.

• What Will Be Going Out? 

Write down your monthly fixed expenses, such as rent, utility bills, health insurance, and debt payments.

Deduct your fixed expenses from your income to answer the first question of kakeibo, “How much money do you have available?”

Next, plan your savings goals for the month. How much would you like to save, and what are you saving for? Record both the amount of your savings goals and the purpose. Then, subtract this amount from the amount you have available. Ideally, your savings goal won’t be the full amount of your available money.

At this point, you have your fixed expenses covered, but you haven’t budgeted for miscellaneous expenses, such as groceries, personal care, and occasional fun things. That’s what the next step is for.

Step 3: Plan Your Weekly Spending

After you’ve figured out your annual and monthly spending plans, it’s time to determine your weekly spending habits. To determine how much you have to spend each month, take the amount of available money you have left after subtracting your savings goal. Then, divide that amount by the number of weeks in a month, remembering that some months have five weeks. The number you get is how much you can spend each week.

Record your weekly spending as it happens. You can divide your weekly expenses into categories to help you keep track of what’s going where and where you might have room to improve. It’s best to keep your categories simple. For example, some kakeibo planners recommend using the following categories:

Throughout the month, expenses must be recorded in four categories, described as 'pillars':

• Survival: necessary expenses such as accommodation, groceries, medical, etc.

• Culture: costs incurred by cultural activities, such as reading, films, theatre, music concerts, etc.

• Optional: things you don't need but choose to do, such as restaurants, shopping, having drinks with friends.

• Extra: unanticipated expenses like birthday cars, repairs, replacements.

To help you see at a glance where your spending is going, you can color-code your categories. For example, you could use a blue pen for survival expenses, a red pen for wants/optional, and a green pen for extras.

Step 4: Monthly Review & Analysis

At the end of each month, take a few minutes to review your spending and saving for the month. This review helps you answer the question “How can you improve?”

The end of the month is met with four questions:

• How much money do you have?

• How much money would you like to save?

• How much are you actually spending?

• How can you improve on that?

After asking yourself each question, write down your responses in your journal so you have something to reference next month as you plan your spending or if you find yourself about to make a purchase you don’t need.

Tips for trying Kakeibo

• Not spending vs spending well. When it comes to saving, don’t think about what you can’t spend, but instead focus on spending well. Make it a positive step rather than a sacrifice.
• Divide spending ‘needs’ and ‘wants’. A chunk of our monthly spending goes on essentials like council tax, gas, electricity, and rent or mortgage, but much of the rest is variable. Tracking the amount that goes on essentials can help identify where it’s possible to make savings.
• Set a manageable savings target. Better to set a small savings target at the start, rather than beating yourself up if you aim to save loads but don’t. As you continue tracking your income and spending, you may find it easier to save a larger amount.

What’s missing from Kakeibo

Kakeibo seems to assume your fixed expenses are just that: fixed. I recommend tackling each item in turn rather than paying your bills on autopilot. See if you can cut those supposedly fixed costs, by for example switching to a cheaper deal or supplier, or canceling that gym subscription you don’t use. 

I also suggest focusing on earning more, not just spending less. If you’re on a low income, and your expenses are already cut to the bone, it’s just not possible to save more without bringing in some extra cash.

Finally, I question the time involved to track spending every day, add up all the totals, and reflect on all the changes. Is it sustainable, or a January resolution that soon peters out? I suppose at least if you’re poring over a budgeting total, it’s more difficult to spend money at the same time.