Looking for a new budgeting technique? Try Kakeibo!

Looking for a new budgeting technique?  Try Kakeibo!
2021 / 10 / 12

Kakeibo is a 117-year-old Japanese budgeting technique whereby users have claimed the technique has helped cut monthly expenses by up to 35%.  In English, Kakeibo translates to household account book.  This budgeting technique requires you to physically handwrite your monthly income, monthly savings goals and expenses.  By handwriting your expenses, the idea is you will become more aware of how you spend your money.  This technique asks users to answer four questions:

  1. How much money do you have available? (income from all sources).
  2. How much would you like to save? (savings goals).
  3. How much are you spending? (handwritten ledger of all expenses).
  4. How can you improve? (assess monthly performance and ask how you can improve for future months).

As you handwrite your monthly expenses (ideally as you incur them so you do not forget any), you must group them into one of four categories:

  1. Needs — these are musts; non-negotiable, such as a mortgage or rent, car payment, other debt payments, utilities, groceries, insurance, etc.
  2. Wants — these are negotiable and could be reduced or eliminated.  Examples may include dining out, new clothing, alcohol, morning coffee, etc.
  3. Culture — examples might include streaming services, movies, music, books, etc.
  4. Unexpected — examples might include house or vehicle repairs, medical or dental expenses, appliance repair, pet health, etc.

Steps to implement Kakeibo:

  1. Buy a journal to handwrite income, savings goals, expenses and notes at month-end for what went well and where you could improve for future months.
  2. Create your budget — for every month, record your projected household income and projected monthly expenses.
  3. Set your savings goal for the month — after completing step 2, subtract projected expenses from projected household income.  The difference will be your savings goal which could be broken down into multiple savings goals such as emergency savings, funds to pay-down debt, down-payment for house, retirement savings, vacation, etc.
  4. Track your spending for the month grouping all expenses into one of the four categories noted above.
  5. Calculate money spent in each of the four categories — upon month end, calculate the total spent by adding the sum of all expenses noted in each of the four categories and deduct from household income.  Determine if the end result matches your savings goal.
  6. Assess your performance — did you meet, exceed or fall short of your savings goal.  If you did not meet your goal, write down the reasons for not meeting your goal as well as what you think you could do for the following month to improve.