Kakeibo: How to Manage Your Money the Japanese Way

Have you ever heard of Kakeibo?  Well, it is the Japanese way of managing your finances.  And it has been gaining popularity in the recent years because of its simple, minimalistic approach to budgeting.

I've been living in Japan for over 11 years now and Japanese people are some of the best savers around.  The latest stats show that the average household in Japan have savings of 17.9 million yen (~$170,000).  Compare that to the average household savings in America, $5,300.  And you can see that Japan is clearly doing something right.

Kakeibo is not just a simple ledger where housewives keep track of their family income and expenses.  It teaches you to be mindful of how you are spending your money.  And it gives you the confidence to save.  

To help you along the process there are questions that you have to ask yourself each month.  I mean, who knew there were questions?!

It is perfect for those of us who like to keep it simple and can't be bothered with all those money managing apps out there.

Kakeibo shows us that budgeting and managing your money doesn't have to be hard.  With this simple approach to managing your money, even those, who may have had a hard time with budgeting before, enjoy it.

What is Kakeibo?

Kakeibo, 家計簿 (kah-kay-boh), which literally translates to "household budget book" has been used by Japanese women for over a century.  It was popularized by Hani Motoko (Japan's first female journalist) in 1904 when she wrote about the process in a women's magazine.

Although it was created by and for Japanese housewives, Kakeibo's simple, mindful approach to budgeting has made it popular among people from all walks of life.

How Kakeibo Works

To get started with Kakeibo, all you need is a pen and paper.  There is no need to download any fancy apps or link your bank accounts.  Nothing.  It's so simple and easy anyone can do it.

Kakeibo calls for you to record your income, expenses, and savings goal in a book at the beginning of every month.  To start, you can have savings goal that is easily achievable then work your way up.  

Then, every day, you write down what you bought and how much you spent.  Your spending is separated into 4 categories:

Needs:  What you actually need to survive such as rent, food (groceries), transportation, etc.  And if you have debt payments, include that here.

Wants:  These are the things you don't necessarily need such as money spent eating out (or ordering in), the cute pair of shoes on sale at Macy's, etc. 

Culture: This includes any culturally related activities such as going to museums, attending an art exhibition, going to a broadway show, etc.

Unexpected:  This is for things such as medical emergencies, car problems, and pretty much any other unforeseen expense that pops up.

Then at the end of the month you go over your what you spent your money on, check whether you met your savings goal, and decide what you can do to improve next month.

And just like that, you are being more mindful of your money and more intentional in how you are spending it.  Not to mention, with each review, you give yourself the opportunity to celebrate each and every win no matter how small.  

The 4 Questions

With Kakeibo, there are 4 questions that you need to ask yourself each month when you review your finances.

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

How Do You Do Kakeibo? 

Here is your step-by-step approach to doing Kakeibo right.  

1. Get a Notebook

The first thing you'll need is a notebook which you can use to write down your income, expenses, and your savings goals as well as your answers to the questions you must ask yourself.

Tip: You may want to get a small notebook so that it will be easy for you to carry around with you.

2. Write Down Your Income, Expenses, and Savings Goals

Next, write down how much money you have coming in and your fixed expenses such as your rent, utilities, insurance, debt payments, etc.  Then subtract these fixed costs from your income. 

Of the amount left over, choose how much of it you want to save.  This will be your savings goal for the month.  And the amount left after that will be how much you have to spend for the month.  You could then use this amount to set weekly spending limits if you want.

Tip: Move the money you want to save immediately into your savings account upon receiving your check. 

3. Track Your Spending Daily

Every day, you are going to write down what you buy and how much it cost.

For this step, make sure you have your notebook with you at all times.  That way, as soon as you make a purchase, you can record it in your notebook and you won't have to try to remember later what you actually bought and for how much.

Tip: Since you already know the 4 spending categories, if I were you, I would record your spending under the right category as you go.  By doing this, you won't have to take extra time later to sort your spending into the right categories.

4. Review Your Finances (Weekly or Monthly)

Here's the fun part.  You are going to review what you've been spending your money on and how well you've actually managed to save.  Did you meet your savings goal?  Are you noticing any trends in your spending habits?

This is where you are going to pull out those 4 all important questions and answer them.  Give most of your attention to the last question:  How can you improve?

This bears some thought.  If you want to save $100 more next month, maybe you can limit yourself to only eating out once a week.  Or, maybe, you put one thing back, each time you go grocery shopping.

You can review your finances monthly or weekly as you prefer.  The point is just to take the time to check-in with yourself and your money to see if you are taking the strides necessary to reach your financial goals.

Tip: Be sure to celebrate every penny you do save.  Because every cent is a step in the right direction.  Also, remember reviewing your finances is not the time to beat yourself up over any mistakes you've made.  Be gentle with yourself.  Acknowledge it.  Then be constructive and figure out what you can do better the next time around.

5. Think About How You Can Improve

Yes, I know I already said this but I gave it its own separate step because it is a very important one.  You are not simply thinking about how you can increase your savings or spend less.

This step also includes thinking about why you bought the things you did.  It will help you gain clarity on the things that bring you joy and the things you really can do without.  Did taking that dance class give you life?  Maybe you can put some money aside to do more of that next month.

It also help you become aware of and prepare for money traps.  For instance, were you feeling down one day and decided to go on a shopping spree to cheer yourself up?  Well, now you know to steer clear of shopping malls when you're down.  Better yet, think about what you can do instead that could take care of your blues.

6. Rinse and Repeat

Now all that is left to do is to do it all over again next month.  And the month after that.  And the month after that.

Pretty soon tracking your expenses and reviewing your finances will become second nature to you.  And once you've gotten the hang of it, Kakeibo and what you've learned from doing it, will become a great foundation on which you can build your financial future.

Who Should Use Kakeibo?

The beauty of Kakeibo is that it can be used by anyone! Even a young child whose sole income is from allowance.

Because it is so simple and easy to use, it is perfect for people who are just starting out with budgeting or people who feel that managing their finances is too hard.  

It is also great for those of us who are big overspenders.  Those of us guilty of giving away cash like Oprah gave away cars.  

Yes... I'm talking to you.

One of the great things about Kakeibo is that it will help you to stop spending your money frivolously.  Instead, you'll start thinking about what you spend your money on and whether or not it's worth it.

The Benefits of Kakeibo

• Doesn't cost a lot of money to get started:  You only need a pen and a paper. 
• Improves your memory:  All that writing definitely comes in handy here.
• Accessible:  It is so easy anyone can do it.  It could even be used to teach your children about managing money.
• Makes you more mindful about your money:  Writing down every dollar you spend, makes you more aware of your money and your spending habits.  
• You'll be come more intentional with your spending:  When you become more mindful of your money, you begin to pay attention to how you're spending it.  So the next time you go to buy something, you'll think twice.
• Helps you celebrates wins no matter how small: Each month you get to review your finances and pat yourself on the back for achieving your savings goals.
• Encourages you to take control:  With awareness, comes mindfulness.  And with mindfulness, comes intention.  Before you know it, you are seated in the driver's seat of your finances.  

All in All

Kakeibo is a great way to help make budgeting simple and easy for you while at the same time teaching you to be more mindful of your money and how you're spending it.  

But remember, what you get out a system is dependent on what you put into it.  So be sure to take the time to go through the process correctly.  Because doing this right, could be the perfect start to a long and prosperous future.

Happy Budgeting!

p.s. Grab a copy of your FREE Kakeibo Template today!