Kakeibo: The age old Japanese art of saving money

This post will tell you what Kakeibo is and how its so successful in saving money.

Kakeibo in Japanese literally translates to “household account book”. Its basically a book keeping method in which you track your monthly income and expenses. Its that easy. But, it has some very strict rules which you need to follow due to which it allows you to save a lot of money.

Kakeibo basically asks you these 4 questions:

1. How much income do you recieve at the start of the month.
2. How much would you like to save.
3. How much do you spend.
4. How can you make things better.

At the start of the month, Kakeibo requires you to make a monthly income plan by noting down all your sources of income and when you will recieve them. Then you need to make a monthly savings plan in which you decide how much money you want to save in that month. Then you put away the money you want to save into some other account from which you won’t spend, or else make an FD, or invest it into something, anywhere is fine other than your spending account.Then you make a note of the monthly expenses you know for sure, example all bills, rent, etc. Now, whatever money is left from your income after you deduct the savings and the known monthly expenses should be divided into 4 main categories:

1. Expenses on living: All your monthly groceries, office commute and all necessary things we do in our daily routine come here.
2. Education: Training courses, books, any thing related to study will come here.
3. Entertainment: Movies, parties, tours, shopping, etc all the fun part come here.
4. Others: Whichever items cannot be covered in the above 3 parts come here.

Most of the unwanted and unplanned expenses happen in part 3 (entertainment). Now, the amount left over after savings and known monthly expenditure needs to be divided into 4 parts at the start of the month. You are the master, and you can decide which one gets what ratio of the leftover amount. Kakeibo requires you to maintain a small notebook with you all the time. Each time you spend money on something, you write that down in the notebook and see which category its going in. So, each time you shop or go to a movie, you can be careful as to see how many days are left in the month and how much budget is remaining for that section in the month. At the end of each month, you can check your plan that you had written at the start of the month and see if you were successful in living within the budget you had decided earlier on. You can see where you wasted money unwantedly and plan your budget for the next month and be careful not to waste money in that category.

If you are a software engineer, then you can see the relationship between kakeibo and a sprint cycle. As in the sprint, you plan all your tasks, same way in kakeibo you plan all your savings and expenditure. Throughout the sprint, you see that you complete your tasks before the deadline. Same way, in kakeibo you keep looking at the deadline of the month and see how much money you can spend per day, so that the budget for that category doesn’t finish before the month ends. As you need to do a retrospection in sprints when the sprint cycle ends, same way you look at the months expenditure at the end and see where you spent more and try to not make that mistake the next month.

If you feel that you can’t carry a book all the time with you, then you can make a note in your mobile and at the end of the month transfer all your stuff from the mobile to a book. But, the better way is to carry a book, because writing in a book is different than typing in a mobile, as the brain remembers more when you write something with your hand rather than when you type all the regular stuff in the mobile. Also, try making all your payments in cash. When you pay in cash, you realize the value of it rather than when you make online payments or card payments.

Its generally a good thing to divide the income from all sources into savings, liabilities, monthly expenditure and fun in the ratio of 30% for the first three and 10% for fun. Savings can be just FD’s, PPF’s, other investments. Liabilities are taxes, loans, car maintenance, etc. Even the house you stay in is a liability, as its not earning money, but you pay money for its maintainance, taxes, etc. Differences between assets and liabilities is a whole different topic and will be discussed in deep in another post. Expenditures and fun come in the monthly expenditures list above.

Some more tips to save money are mentioned below:

1. Whenever you shop, put the extra change that you recieve in the savings box and use it when it becomes a big amount.
2. Use a system of penalties. For example, each time you skip the gym, or don’t exercise, put away some fixed amount in the savings box. This way, you will either get disciplined or save more money. Its a win-win situation.
3. Divide the amount left from the incomes minus savings into 4 parts for 4 weeks of the month. Whatever is left after a week goes into the savings box.
4. Every time you go shopping and want to buy an unplanned item, delay it by a week or month, if you still want to buy it later, then buy it. This saves you from the shopping due to temptation.
5. Make a shopping list before you go to the supermarket, and follow the list, this saves you from buying unwanted things.
6. Want to go to a movie, go after having lunch or dinner, this will save you from the junk food you eat during the interval.

I would like to conclude by saying that once you try kakeibo for yourself for a month, you will become a big fan of this Japanese approach of living a simple life with no complications.