Jagatheesh is working in the financial sector and is using Kakeibo for the past 16 months.
Financial freedom is a prerequisite for anyone to have a happy life. But this freedom begins with proper planning and budgeting. Most of us are very bad at our personal finance. But with Kakeibo, anyone can excel in the art of budgeting. This article is all about using this Japanese idea to fix the leakages in our finance.
What is Kakeibo?
Kakeibo is the household financial ledger introduced by Japan's first female journalist Hani Motoko. She introduced this idea in 1904 to improve the financial well-being of women in the household. Kakeibo is all about tracking our expenses using a notebook and a pen. We cannot use Technology in Kakeibo.
Our daily habits play a major role in expenses. A permanently carved routine is difficult to change. Kakeibo is a simple and effective idea to change our spending habits. Writing our expenses in a notebook gives a connection to the money we spend. The effectiveness of this idea makes it stay relevant even after 100 years.
When I started to write my expenses, it was boring. Within few days, I felt more connected to my expenses. It helped me to find the outlets of my income and fix the leakages. It gave me the confidence to meet financial freedom before my thirties.
A simple fact that is hard to learn is that the time to save money is when you have some
— Joe Moore
How Kakeibo Works?
Kakeibo is all about balancing our income and our expenses. The main idea is to write our expenses and reviewing them periodically. Weekly and monthly reviews are advocated in Kakeibo. It helps us to understand our financial circle. Kakeibo advocates categorize the spending into four.
- Needs: It includes the essential expenses for our living like food, house rent, etc.
- Wants: It includes the things that we don't need for survival. It includes extra clothing, luxury dinner, and so on.
- Cultural: It includes the books we buy, visits to the museum and other things.
- Unexpected: This category includes truly unexpected expenses. It includes car breakdown, emergency medical care, and so on.
Kakeibo advocates reducing our spending in the wants category and rationalize the other three. The rationalization starts with finding a perfect home that fits within our budget. We can reduce our expenses in the cultural category by joining the public libraries.
The unexpected expenses category is hard to avoid. But with medical insurance and proper maintenance of our vehicle, we can reduce our burden. We can avoid the expenses in the wants category. It is easy to avoid luxury clothing and an expensive dinner to save money.
Ideas to review our Spending
Reviewing is the next step after the categorization of expenses. Kakeibo includes few questions to help us to analyze our spending. The questions are,
- How Much I want to save?
- How much money I'm spending on unnecessary goods?
- How much money available after my expenses?
- How can I improve?
With an honest answer, we can get a clear picture of our spending habits. With this, we can make a prudent financial plan. With a sound financial plan, we can attain financial freedom.
An important rule in Kakeibo is to pay for expenses by cash. We need to avoid digital payments or card-based transactions. Paying in cash gives more connection to our money. Whenever we spend cash, we felt bad about losing money. It will push you to rationalize spending.
He who buys what he does not need steals from himself.
— Swedish Proverb
Ideas to avoid unnecessary expenses
Kakeibo is a system of mindful spending. It advocates few ideas to avoid unnecessary expenses. The ideas are,
- If you like to buy a good, don't spend on it for 24 hours. You can spend money only if your desire remains even after a day. Otherwise, you can redirect money to saving. It will improve the quality of spending.
- Avoid discounts and offer sales. They will lure us in spending money on unnecessary goods. Only spend on goods that are essential for living.
- Check your bank balance frequently. It is always a pleasure to have money in our account.
- Always use cash transactions to buy goods. It will give more connection to your money. So every time we spend cash, it hurts.
- Stick reminders like, do I really need this? in your wallets. It helps to remind the financial plan during our spending.
With the advent of e-commerce and its catchy offers, it is easy for anyone to get distracted. When a product that costs 1000 dollars is on sale for 750 dollars, it won't save 250 dollars. It makes you spend 750 dollars.
How I used Kakeibo to improve my Savings
Ever since I started to use Kakeibo, I found a remarkable change in my personal finance. I was struggling a lot to achieve my financial goals. Then I started to note every dime I spent in a day. I also started to avoid digital payments and started to use cash. These small changes give more connection to my money.
A strict analysis of my spending explained the leakages in my financial planning. I've found that clothes, food, and fuel consumed a major portion of my expenses. I was brand conscious and always used to buy clothes from a particular band. I love to travel a lot on my motorcycle. I eat my lunch and evening snack in restaurants, which consumed a considerable amount.
I started to buy clothes from a small tailor shop it saved me a lot. Nowadays I'm using public transport a lot. Every day, I'm taking lunch from my home. These small changes helped me to improve my saving. With this financial plan, I paid a considerable amount of my student debt in fourteen months. Now I'm having huge confidence in achieving my financial goal.
Why Kakeibo is so effective?
Kakeibo is a system of mindful spending. It helps us to find outlets in our personal finance. Once the outlets are identified, we can make a prudent financial plan. With a perfect plan, we can achieve financial freedom without much effort. I'm using kakeibo since 2019, and it helped me to improve my savings. It also helps me to lead a minimalistic life. Some studies state that Kakeibo can improve our savings by 35%.
A famous quote by Campbell R McConnell states that savings, remember, is the prerequisite for investment. In our modern society, our freedom begins with financial wellbeing. So start using Kakeibo to gain financial freedom in our life.
- A Simple Japanese Money trick to become 35% richer, Bright Side, Accessed June 5, 2021.
- Kakeibo Method in Tamil Indiamoney Tamil, Accessed June 5, 2021.
- Learn about Kakeibo, the Japanese art of saving money, Refinery29, accessed June 5, 2021.
- How Kakeibo can save your money February 18, 2019, Money Crashers, Accessed June 5, 2019.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2021 Jagatheesh Aruchami