I still remember the year I made my first budget.
It was summer 2013, and I was studying philosophy in Europe’s second most expensive country, Switzerland. I must have earned $ 1,000 for three months (my train ticket from Geneva was enough to make my heart beat faster). So like the terrible millennial that I am, I skipped budgeting apps and bought a little book. Throughout the summer, I kept track of all the expenses (charged to my rewards card, of course), deducting them from my savings as I went. And at the end of the term, I came back as I left: broke but not in debt.
At the time, I was just trying to survive. But my method was extremely close to the Japanese method of kakeibo. Practitioners of this 117-year-old budgeting technique claim that it has helped them cut their monthly expenses by 35%, which is a lot, given that kakeibo isn’t even an app. What is it exactly and can it help you? Let’s take a quick look.
What is kakeibo?
In English, kakeibo means “household account book”. Essentially, that’s what kakeibo is: a large physical book. In your kakeibo, you write by hand (yes, with pen and paper) your income, savings goals and expenses. After you buy something (or, ideally, before you buy it), you tag your purchase with one of the following four categories:
- Culture (e.g. books and streaming services)
The idea is that by writing down your expenses by hand, you become more aware of what you are spending your money on. It could help you save more money, of course, but it could also help you understand your relationship to money. What do you like to spend your money on? Do you ever stop thinking Why do you spend your money in some categories rather than others? These are the kinds of questions that a kakeibo approach encourages.
How to use kakeibo?
1. Buy a newspaper
Yes, we’re getting back to basics here. In order to use Kakeibo correctly, you must write your expenses by hand. Buy a moleskin, bullet journal, or spiral-bound notebook. Since you will be using this ledger a lot, consider purchasing one that can easily fit in your pocket.
2. Create your budget
Write down your combined monthly income and expenses. Don’t forget about variable and unexpected expenses (like birthdays and one-time payments) and debt repayments.
3. Set a savings goal
Take a look at what’s left of step two and decide how much to set aside to save. You can assign it to a single goal (like paying off debt or saving for a house), or you can spread it across multiple goals (retirement, home, education, for example).
4. Keep control of your spending
Record each purchase in your ledger. You can also categorize them to help you get an idea of what you’re spending your money on. Personally, I write my expenses in different colors: the needs are black, the desires are blue, the culture is green and the unforeseen are red.
5. At the end of the month, calculate the total amount spent
Then deduct it from your total income. The money you have left is how much you can save. Compare that with your savings goal. Did you reach your goal? Are you failing? Exceed it?
If you didn’t reach your savings goal, what happened? Have you spent too much money in a certain category? Was your goal too ambitious?
As you reflect on next month’s budget, you can also answer the following questions:
- How much money do you have?
- How much would you like to save?
- How much are you spending?
- How can you improve yourself?
Is kakeibo right for you?
I’m a big fan of kakeibo, but I know it’s not good for everyone. If you are the kind of budgetist who needs a very detailed budget, the kakeibo budgeting technique may seem too open-ended for you. Likewise, if technology helps you budget, if you love your Excel sheets or budgeting app, the switch to pen and paper may not be realistic.
But give it a try. You can also use your kakeibo budget with a reward card or cash back card, which will help you earn extra points in the process. Just write down your expenses in your general ledger, count your total costs at the end, and pay your bill when you receive your statement.
Ultimately, kakeibo might help you slow down and spend money more thoughtfully. It’s an overused word these days – mindfulness– but when it comes to money, a little attention, coupled with frugality, might be what we need to save more for retirement.
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