You may think that you’ve tried every budgeting method there is, but there’s a lot we could learn from other countries when it comes to saving money.
One money-management technique that’s gained popularity in the UK in recent years is the Japanese method, known as Kakeibo (pronounced kah-keh-boh).
Here we explain how Kakeibo works and what you need to do if you want to give it a go yourself.
What is Kakeibo?
In Japan, Kakeibo is a popular way for households to manage their finances. However, it’s more than a budgeting system, as it focuses on a mindful, deliberate way of managing money. It involves both documenting income and outgoings, as well as giving careful thought to where money is spent.
The word Kakeibo roughly translates as ‘household money ledger’, and in its simplest form, that’s exactly what it is – a journal that you use to note down your money goals and track your income and outgoings. The thing that sets Kakeibo apart from a standard money diary, however, is that the process is designed for you to observe and review your money habits and make improvements.
Kakeibo was introduced in 1904 by Hani Motoko in Japan’s first women’s magazine as a way to help housewives manage their household finances effectively. Originally, Kakeibo was a process that involved noting income and outgoings on paper, but it’s since massively grown in popularity and people use a range of methods to document their Kakeibo. For example, they may use specially designed journals, spreadsheets, apps and more.
Taking a mindful approach to your money
The main difference between Kakeibo and other budgeting methods is that it prompts you to consider your motivations when spending money. Most of us have an emotional connection to our spending habits, and Kakeibo asks you to consider why you’re spending money the way you are.
The process of Kakeibo involves three main steps – at each stage, you’re asked to think about your approach to money:
- Planning – when you plan your budget you’ll need to anticipate how you spend your money, allotting a certain amount to categories, such as needs, wants and emergencies.
- Spending – as you spend your money, you’ll be prompted to think twice about every purchase you’ve made and add it to a particular category. You’ll see certain categories growing faster or slower than others which might make you reconsider your spending habits during the month.
- Reflecting – when the time comes to review your finances, you’ll take a view of how you’ve spent money during the month. You’ll note how much you’ve spent in each category. You’ll need to ask yourself to consider how your spending shows which areas of your life you value most.
Who might benefit from the Kakeibo budgeting method?
Anyone can create their own Kakeibo, even on a piece of paper. Its flexibility and simplicity mean that it should suit a range of people’s needs.
Kakeibo is focused on improving your finances mindfully and sustainably, so it could be a particularly good option for anyone looking to take a more considered approach to their money, and create new positive financial habits.
How can you get started with Kakeibo?
When creating your Kakeibo, try to write things down by hand as the whole idea is to take more time and make more effort to consider your spending.
Try to think of keeping your Kakeibo as an enjoyable, and even relaxing activity. Why not get a cup of tea or coffee and take your time with it? In modern life we don’t often take time to slow down, so use it as a moment of calm.
You don’t need anything other than a pen and paper to get started. However, if it’s your first time creating your own Kakeibo, you might want to invest in a specially designed journal to encourage you to keep track. Amazon has a number of options you might like to consider.
You can take a number of approaches to Kakeibo, but the basic process stays the same. You plan your finances, record your spending and then reflect on how things went each month and think about ways to improve.
Kakeibo asks you to carry out a basic equation:
To find the information for this equation, you should ask yourself the following:
1. How much money do I have to spend?
Add up your income, including any employment income, investment returns, benefit payments, pension income and so on. Make sure the sums you write down are after tax and any other deductibles such as pension contributions.
At this point, you can factor in your essential costs, and deduct this from your total income. This includes things such as rent or mortgage payments, bills, insurance, and so on.
You’ll then have a clear idea of exactly how much money you have left for savings and other spending.
2. How much money would I like to save?
This second point sets Kakeibo apart from other budgeting methods. Rather than looking at your spending first and putting the rest aside as savings, it asks you to prioritise considering how much you’d like to save.
When thinking about how much money you want to save it can be a good idea to set yourself a goal or intention for the month. Your goal doesn’t need to be groundbreaking, but it should be realistic and achievable. It could be as simple as “I want to contribute more to my pension each month” or “I want to understand how I spend my money”.
The idea is that by setting a goal and prioritising it over other spending, you’ll be more focussed on building a positive view of saving. It also gives you something to reflect on at the end of the month.
3. How much am I spending?
To answer this question, you’ll need to create a budget of what you anticipate spending during the month, and then track your spending:
Creating a budget
At the start of the month, think about how you plan to spend your money and create a budget to reflect this. This budget will include all your variable costs such as food shops, spending on clothes, days out, gifts, emergencies and so on. This doesn’t need to be precise – it’s a rough guide to how you think you spend your money.
Traditional Kakeibo categorises spending into four broad groups: needs, wants, culture and unexpected. However, the point of Kakeibo is to make the process as simple to maintain as possible, so create categories that make sense to you.
Tracking your spending
Once you’ve created a budget and start spending, you’ll need to keep a journal of what you’ve bought, when you bought it, how much you spent, and which of your categories it falls under. So each time you make a purchase or pay for a service, you’ll make a note of it and assign the cost to one of your categories.
The process might sound overwhelming, but there are plenty of options that can simplify Kakeibo:
- Think weekly – If writing down your spending as you go doesn’t work for you, set aside half an hour a week to note everything down.
- Always get a receipt – Many Japanese Kakeibo journals come with a plastic wallet for you to keep all of your receipts in. Asking for a receipt and keeping hold of it can make it easy for you to keep track of your spending.
- Track through online banking – Alternatively, you can use your online banking payment history to see your spending.
- Pay in cash – One method some people use for Kakeibo is cash budgeting, which is sometimes known as ‘cash stuffing’, or ‘envelope budgeting’. This involves putting money into different envelopes or pots in line with your budget categories. This method might mean you pay less attention to the smaller spending within each category but will give you a high-level overview of your spending. You can read more about cash budgeting in our article Five budgeting methods you might not have heard of.
4. How can I improve next month?
If you’ve kept track of your spending and categorised it all, you’ll have a really clear overview of how you’ve spent your money at the end of the month.
Now you can look for small ways to improve your money habits. One really important thing to bear in mind during this step is that you aren’t looking for points to criticise, you’re simply making observations and finding small tweaks. Add these improvements either to your money goal, or make adjustments to your budget and see how it goes next month.
For example, you might notice that your spending in one category is higher than you anticipated. Think about why you spent more in this area than you thought you would. Does this mean that the category is a priority for you, and is an area you might want to allocate more funds to? Or maybe you’ll reflect that some of the spending wasn’t necessary and will aim to spend more carefully next month.
Hopefully, you will also have been able to save a small amount of money, but if you weren’t able to, then it’s worth considering why you didn’t manage it. Think about the way you spent money this month, and ask yourself whether you prioritised your savings, or something else. There’s no judgement to this question, but it might prompt you to reassess your goals, and your budget.
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Some concepts to bear in mind when reviewing your Kakeibo
There are a few Japanese concepts that may help you to focus on reviewing your spending habits from a positive perspective:
Ikigai
This is about living with purpose. It involves finding what you’re good at, what the world needs, what you love and what you can be paid for. When it comes to thinking about your Kakeibo process, remembering the ikigai concept can encourage you to find the most fulfilling way to spend your money, and to focus on the positive things your money can achieve. It may help you to avoid getting caught up in the negative feelings so many of us can experience when dealing with our finances.
Wabi-sabi
This focuses on accepting the transience of things and acknowledging the beauty in imperfection. Wabi-sabi can be a useful thing to consider when looking at your Kakeibo as it encourages you to do things well rather than perfectly. For example, making the attempt to maintain a Kakeibo at all is a positive step towards managing your finances, but it’s important to not overwhelm yourself with trying to do it perfectly.
Kaizen
This is a Japanese business philosophy that focuses on continuous improvement and encouraging an openness to change. Kaizen says that the best improvements are made when lots of little efforts are combined, and when it comes to your Kakeibo, you should look to make small improvements that overall contribute to a more positive financial outlook.
Finally…
Kakeibo is about taking control of your money and feeling empowered to use it to build a fulfilling life, rather than spending without thinking. That said, it’s not a method that will suit everyone.
If this has got you thinking about other ways to get a better grip on your finances, have a look at our articles How to make a budget and stick to it and What’s your money personality? for more inspiration.
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