A Japanese Mindful Budgeting System

An effective budgeting strategy can help you achieve your financial goals sooner. The good news is that there are plenty of systems from which to choose. The Kakeibo budgeting system is perhaps lesser-known but is a simple and free way to track your financial progress and make a spending plan. Here is a closer look at how this method can help improve your finances without complicated spreadsheets or expensive apps.

What is Kakeibo?

Kakeibo is Japanese for “financial household ledger.” This budgeting method was introduced in 1904 by Japan’s first female journalist – Hani Makoto. The primary goals of this system are to make a pen-and-paper budget to quickly track spending and find ways to save money for your financial goals. The intent is to create a manageable household budget that only takes a few minutes to complete.

Like any budget, you need to expend some initial effort upfront, but the ongoing time commitment can be minimal. In addition to tracking your expenses and making financial goals, you complete an end-of-month review. During this review, you ask four questions to see you can improve the way you manage money.

While Japanese households have been using this method for over a century to encourage saving and minimize unnecessary spending, the practice has only been gaining traction in the West since 2018.

Who Should Use the Kakeibo Budgeting System?

Consider using Kakeibo if you prefer a paper-based budget instead of a spreadsheet or app. If you prefer a digital budget, several Kakeibo apps exist for Android and Apple users. While tracking your finances by pen and paper may not seem exciting in our high-tech world, it’s free and can be easier to follow.

A paper budget can be more time-consuming as you must manually tally your monthly spending by category. However, writing down your transactions and having a physical copy of your budget can make you more aware of your financial progress.

Kakeibo can also be an alternative to well-known budgeting strategies like the 50/30/20 rule or cash envelope system. These practices can help improve your finances, but you may prefer the investigative yet straightforward mindset of Kakeibo.

How to Use Kakeibo

You will make a Kakeibo journal to make your financial goals, plus track your income and spending. This step-by-step guide will help you start using this system.

1. Track Your Income and Expenses on Paper

First, write your income and expenses on paper for one month. This exercise can be tedious, but it’s the most accurate way to see exactly how you spend each dollar. Include every expense, such as:

• Housing costs (i.e., rent and utilities)
• Insurance
• Retirement plan contributions
• Entertainment

Most people use a paper journal (with either lined or blank paper), and others prefer printable budget worksheets built to write expenses by category. This exercise helps you estimate how much you’re currently spending by category.

You might decide to categorize your spending by type, so it’s easier to tally up your totals at the end of the month. Another option is listing each transaction by calendar day.

If you choose this tracking method, you can still assign a category so you can quickly calculate your spending in-depth during the end-of-month review. You can use these spending amounts as a baseline for the next steps.

2. Identify Fixed Expenses

After tabulating your total monthly expenses, determine which transactions are your fixed expenses. Then, subtract your fixed expenses from your monthly income to estimate your remaining cash. Some of your basic living expenses include:

• Rent/mortgage payment
• Electric, gas, and trash services
• Insurance
• Commuting expenses
• Childcare

3. Create Monthly Savings Goals

As this budgeting method prioritizes saving money and delaying instant gratification, creating savings goals is crucial. You will focus on at least one goal you want to save for after paying your basic living expenses. Deciding how soon you want to complete this goal lets you estimate how much you must save. From here, you can choose how much you want to set aside for your optional expenses.

4. Categorize Weekly Spending into the Kakeibo Pillars

After you’ve tracked your spending and designated your savings goals, you assign each expense to one of these pillars:

• Needs: Housing, groceries, debt payments, cell phone bill, savings goals
• Wants: Restaurant or takeout, hobbies, new but unnecessary shoes
• Cultural: Theater, sports events, books, entertainment, streaming services
• Unexpected: Car repairs, doctor’s visits, home repairs

It can be easier to make your spending plan if you assign weekly spending goals. For instance, you might set aside $100 a week for cultural-related expenses. Use your best judgment to decide if it’s a want or a need for some expenses.

You can also look for ways to reduce spending on your essential expenses like insurance, groceries, and cell phone bills. Also, Kakeibo is unique in that the cultural and unexpected pillars are separated from needs and wants.

While the culture and unexpected pillars might have a small savings amount, it’s still a good idea to plan for them as most of us have entertainment and surprise expenses each month. This approach is similar to the 50/30/20 ratio for needs, wants, and saving. However, you’re not bound to a specific percentage. So while needs might be your biggest category, you can decide how to budget for each pillar.

5. Conduct Monthly Reviews

It’s important to review your income and expenses through a monthly review. Use this time to compare your actual spending to your estimates. Keeping tabs on your income can help you decide if you should trim your discretionary purchases to avoid overspending in leaner months if you earn a variable income.

It’s also not a bad idea to periodically track your spending throughout the month. This way, you can shift some of your cash or slow down if you want to achieve your monthly goals.

Reflection Questions

To make the end-of-month review easier, you can ask these four questions:

1. How much money do you have?
2. How much money do you want to save?
3. Are you spending too much in some categories?
4. How can you improve?

As you can see from these questions, saving money is a priority. But, unfortunately, less restrictive budgeting strategies may not encourage saving as much as possible. In addition to the reflection questions, also evaluate your monthly savings goal.

Feel free to switch plans as circumstances change to save the first portion of your disposable income for your purpose. While money isn’t the only way to measure success, taking these questions seriously when you first start using Kakeibo can minimize stress so you can spend less time budgeting soon.

6. Repeat the Process

At the start of each month, you create a new journal entry, make any necessary adjustments to your savings plan, and start tracking your income and expenses again. After paying your fixed costs, you can divvy up the rest of your money for your savings goals and remaining needs, wants, and culture spending. To help inspire you, here are some other ways to simplify your finances.

Kakeibo Pros and Cons

To help you compare Kakeibo with other popular budgeting systems, I’ve listed some positives and negatives of the Kakeibo Japanese mindful budgeting system below.

Positives

• Prioritizes saving money
• Easy-to-start and customizable
• Multiple spending pillars
• It doesn’t require software

Negatives

• Manually tracking expenses can be time-consuming
• Designed for pen-and-paper budgeting
• Four budget categories might be too many for the budget-adverse

Kakeibo FAQs

The following questions can give you a better understanding of incorporating Kakeibo into your financial routine.

Final Thoughts on the Kakeibo Budget

The Kakeibo strategy can be an excellent fit if you emphasize saving money and don’t mind using a paper journal. This system makes identifying your fixed and optional expenses easy while challenging you to improve how you handle cash. Other methods can be better if you want something that’s more detail-oriented so you can analyze your spending by category or with in-depth graphs. However, these complex systems can require more time or a paid annual subscription for a budgeting app.