Jagatheesh is working in the Financial sector and is interested in various traditional ideas dealing with money.
Savings plays a major role in financial well-being. It is an art that requires discipline and practice to be an expert. I was very bad at savings and personal finance. Without a meaningful idea about saving, the money I earn is always insufficient for me. But Kakeibo came to my rescue. Kakeibo is a traditional Japanese idea to save money and improve financial discipline. It worked wonders for me and helped me to find the outlets for my earnings. This article is all about how this Japanese idea can be used to fix the issues in personal finance.
What is Kakeibo?
Kakeibo is the financial household ledger introduced by Japan's first female journalist Hani Motoko. She gave this idea in 1904 to improve the financial well-being of women in the household. It is all about tracking the income and expenses in our life. A notebook should be used to track our income and expenses. Using technology is strictly prohibited in Kakeibo. All you need is a notebook and a pen to track our expenses.
Daily habits play a major role in our expenses. A permanently carved routine is very difficult to change. So we need a simple and effective idea like Kakeibo. Writing our expenses by hand gives more connection to our finance. It is very effective, that is why this simple idea is relevant even after 100 years.
When I started to write my expenses, it was boring. But within a month, I noted a great improvement in my mindset. It makes me feel more connected with the money. It helped me to find the outlets of my income. Now I'm confident that Kakeibo is the best idea to improve our financial well-being.
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?
When I started to use Kakeibo, it looked very simple. But I noticed changes in my expenses within a month. The best way to save money is by effective financial planning. Kakeibo is all about prudent financial planning. Some studies state that when used effectively, Kakeibo can improve our savings by 35%.
The main idea is to write our daily expenses and review them every week, month, and yearly. The review will help us to understand and reduce our unnecessary spending. Various studies proved the effectiveness of writing in our hands. After analyzing the expenses, we can split our spending into four categories.
- Needs: It includes essential things for our survival like food, house rent, etc.
- Wants: These are the things you can live without. It includes extra clothing, luxury dinner, and so on.
- Cultural: It includes the books we buy, museum visits, etc.
- Unexpected: This category includes expenses like car breakdown, hospital expenses, and so on. They are out of our control.
I'm living with my parents, like every other Indian, so I don't have to worry about my house rent and food. I contribute to buy groceries for our food and a part of the mortgage. But I used to eat lunch in restaurants with my colleagues. After analyzing my expenses, I found that they contributed a huge part to my unnecessary spending. Now I'm taking lunch from my home. It gives me financial as well as physical health.
I always like to wear clothes from a particular brand. Though they are expensive, I felt comfortable, and it has a good life. Kakeibo forced me to stitch my clothes in a small tailor shop near my house. The clothes are amazing in their fit and comfort. The wonder is, it reduced my expenses on clothing by 50%.
Reading is my hobby, and I love to read a lot of books. I spend more money on books. Kakeibo forced me to use public libraries and buy books selectively.
We can't control the unexpected expenses. With proper workouts, I feel healthy both physically as well as mentally. Health insurance and periodic checkup of my vehicle helped me to reduce my expenses. Now I'm using public transport a lot. It helped me to save money and gives me plenty of time to read books.
How to analyze our expenses using Kakeibo?
After categorizing our expenses, we can make a review to improve our spending. To help us analyze our spending, we need to answer few questions advocated by Kakeibo.
- How much I want to save?
- How much money am I spending on unnecessary goods?
- How much money available?
- How can I improve?
By answering the above questions, you can get a clear picture of your spending habit. With this, we can make a sound plan for our financial well-being. That effective plan will help you to achieve your financial goals without much difficulty.
Another important rule in Kakeibo is to spend our money in cash. We have to avoid digital payments. When we use physical money, it will give more connection for you with the money. So, every time you give money to someone you'll feel bad. In this way, you can reduce your spending.
In my case, after I answered the above questions, I've found my money outlets. Unhealthy snacks during breaktime and fuel expenses play a major role in my spending. Every evening I used to have fast foods as an outlet for my office stress. But now, I've upgraded myself with evening walks and playing with kids in the neighborhood as a stress buster.
I've reduced my fuel expenses by using public transport as much as I can. These small changes gave me an easy way to save 20% of my income. It gave me more confidence and an optimistic mindset. Trust me having a good amount of money in your bank account is a great feeling.
He who buys what he does not need steals from himself.
— Swedish Proverb
Ideas to stay away for Non essential buying
Kakeibo is a system of mindful spending. Here are some ideas from Kakeibo that helped me to avoid nonessential spending.
- If you like something, don't buy it for the next 24 hours. Even after a day, if you still want to buy, you can spend. Otherwise, you can send the money to your savings. Trust me it improved my quality of spending a lot.
- Stay away from discounts and offer sales. They will lure you to buy nonessential things. Since my tailor doesn't give any offers, I'm buying clothes only when it is needed. It saves some good pennies for me.
- Check your bank balance frequently to stay aware of the money available to you. It gives a great feeling to have some money in our account.
- Pay in cash, when you buy things and avoid card or digital payment. Every time I pay in cash, it hurts me, I really miss my money. So nowadays I'm trying to reduce my spending as much as possible.
- Stick reminders in your wallet (like Do I really need this? and so on). My mobile wallpaper also holds this caption to remind me to watch my spendings.
With the advent of e-commerce and its catchy offers, people are lured to buy things that they don't need. Remember if something costs $1000, and it's on sale for $750. When you decide to buy it, you did not save $250, you spent $750.
Why Kakeibo is so effective?
Kakeibo is all about mindful spending. It helps us to find the outlets for our hard-earned money. Once when we figure out the outlets, we can make a great financial plan. Kakeibo is the best idea to keep you away from your bad debt. It is an easy and effective method that can help anybody who is suffering from financial distress. After using Kakeibo I was able to repay half of my student loan. It also helps me start a minimalistic lifestyle, where I spend money only on the essential things for a living.
As Campbell R. McConnell famously quoted that, Savings, remember, is the prerequisite for investment. It is essential to save more money for a comfortable life. In this modern society, your freedom begins with your financial well-being. So start saving to gain more financial freedom in your life.
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.
© 2020 Jagatheesh Aruchami