Jagatheesh is a Mechanical Engineer interested in gaining more knowledge in the domain of Personal Finance.
Savings plays a major role in lessons on financial well being. A piece of basic knowledge of personal finance is essential to save money. An old proverb says that a penny saved is equal to a penny earned. Planning our expenses is the best way to save money. Kakeibo is an idea from Japan that helps to save money in a meaningful way. Japanese people are known for their financial discipline and the recommendations of kakeibo will bring financial discipline to anybody who follows the simple ideas. If you want to have a perfect financial plan you should know the outlets where your money goes. Kakeibo is all about finding the outlets for your money.
What is Kakeibo?
Kakeibo can be translated as Household Financial ledger - an account book that tracks the monthly and yearly income and expenses. The idea was given by Japan's first female Journalist Hani Motoko in 1904. It is a very simple method to save money that involves no technology. The basic idea is to bring financial discipline to an individual.
Our spending habits are deeply connected with our daily routine, it is very difficult to change the habits that are permanently carved in our minds. So we need an effective method like Kakeibo to change our mindset about spending. The idea is very powerful that is why it is still relevant even after 116 years.
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 a traditional method that doesn't include technology, all you need is a notebook and a pen. You have to write all your income and the expenses for a particular time period say it as daily, monthly, and yearly as well. You also have to write all the expenses in the day on your Kakeibo journal. By analyzing the expenses you made, you can split your spending into four categories.
- Needs - It includes the essential items for our survival like Food, House rent, etc.
- Wants - These are the things that you can live without, that includes extra clothing, luxury dinner, and other things.
- Cultural - It includes the books, the museum visit, etc.
- Unexpected - It is a category of expenses that is out of our control like Hospital expenses, car breakdowns, and so on.
Analyzing the Expenses
After categorizing, review your expenses every month and this review will help you to answer the essential question - How can I Improve?. To improve your spending you need to answer the following set of questions. Honest answers are a prerequisite in Kakeibo.
The questions are
- How much money available?
- How much do you want to save?
- How much you are spending?
- How can you improve?
You'll know about your financial status after answering the above questions in a detailed way, you can also improve your financial discipline by making a detailed plan for the upcoming month and keep it as a reference for your expenses. By taking close look at your spending, you can effectively manage the expenses and can save more money. If you are able to achieve your monthly financial goals then it will be easy to achieve your annual financial goal.
Ideas to stay away for Non essential buying
Kakeibo is all about reducing your spending on nonessential goods. It is a system of mindful spending. Here are some ideas to avoid nonessential spending.
- If you like an item but you consider it as nonessential, then don't buy it for the next 24 hours. Even after a day, if you still want to buy the same item means you can spend on it, otherwise the money can be directed to your savings.
- Stay away from discounts and offer sales. They will lure you to buy nonessential things.
- Check your bank balances frequently in order to stay aware of the money available in your hand
- Pay in cash when you purchase things and avoid card or digital payment.
- Stick reminders in your wallet (like Do I really need this? and so on).
Why Kakeibo is so effective?
Kakeibo is all about writing in hand and not using technology. Numerous Studies confirms the effectiveness of writing and its impact on our mind. It helps to increase your saving of up to 35%. It is very simple as it doesn't have any big calculations and anyone can use kakeibo. When Hani Motoko introduced this idea, she targeted to provide financial freedom to the women in the household. On the whole, it brings discipline in the way of life.
As Campbell R. McConnell famously quoted that, "Savings, remember, is the prerequisite for investment", it is essential to save as much as possible to stay comfortable. 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