Saving money can be hard. You have bills to pay, mouths to feed and savings to catch up on. With that said, have you heard of the kakeibo technique? This Japanese budgeting method has been around for ages and it’s a great way to take charge of your personal finance.
Here’s a step-by-step guide on how to budget using the kakeibo technique:
What is Kakeibo?
Kakeibo translates to “household ledger” or “money diary”. It was coined by Hani Makoto, the first female journalist in Japan. She specialised in helping housewives manage household tasks, including finances.
She devised schedules and systems for her readers such as the kakeibo technique. Developed in 1904, the kakeibo technique combines utility, simplicity and financial mindfulness.
It’s a simple way to get your spending habits under control while fostering a mindful approach to money management. Kakeibo focuses on four key questions:
- How much do you make a month?
- How much do you want to save?
- How much are you spending?
- How can you improve?
This is called a “first principles thinking” approach, a great way to know what you want and how you want to achieve that.
Step-by-Step Guide
Once you’ve established your first principles, it’s time to dive into the practical applications:
- Step 1: Choose Your Ledger
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Your ledger is your tool of choice. People only had pens and notebooks back in the day, but now, we have all sorts of digital tools to help us budget. You can use note applications on your phone, excel sheets or even budgeting apps.
Nonetheless, a pen to paper approach is still a relevant practice. In fact, it might be even better in helping you visualise your finances. Whatever you choose, just ensure your method is practical for use.
- Step 2: Do the Math
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It’s time to do the maths and you can start by identifying your monthly income. Subtract that income with all your expenses for the month. This includes daily meals (estimated average), fixed bills, fuel and other necessary expenditures.
Don’t forget all the guilty pleasures and personal vices that might slip through (online purchases, coffee runs, movie tickets, etc…). Divide those expenses into four main categories:
- Needs: Essential items such as food, rent, utilities, and transportation.
- Wants: Non-essential items like dining out, entertainment, and hobbies.
- Culture: Educational and cultural activities such as books, courses, and museum visits.
- Unexpected: Emergency expenses or unplanned costs, like medical bills or car repairs.
This should help you paint a clear picture of your financial situation on a monthly basis.
- Step 3: Review Your Spendings
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Review your spendings at the end of each month. Take a look at what you have written in your ledger and reflect on it. Ask yourself the following questions:
- Did you stay within your budget for each category?
- What unexpected expenses came up and how did you handle them?
- What purchases could you have avoided?
- How can you better plan for the next month?
Don’t be ashamed if you went over budget. This is how you know what needs to be cut down and what requires more attention. Work on what you have to from here and always return to your first principles when you stray off track.
Achieving Financial Stability
Achieving financial stability is something we all have in common. We can do anything once we have our finances in check and that’s what the kakeibo technique is all about. It keeps things simple, clear and straightforward, ensuring you understand where every dollar goes.
So don’t let your money rut get in the way – embrace kakeibo and move a step closer to financial literacy!
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