When it comes to budgeting and saving, a lot of people like to throw around advice like it’s some sort of rule. If you don’t follow it for whatever reason, you’re wrong—and your finances will suffer.

But the reality is a little more nuanced than that. There are a lot of different budgeting and savings strategies. Some of these might work for you, while other people have more success with other techniques. With this in mind, we think it’s helpful for individuals to learn about a variety of different savings techniques so that they can find the one that best fits their needs and goals.

One interesting budgeting technique that is very popular in Japan is known as Kakeibo. Originally designed for Japanese housewives who were traditionally responsible for managing their household’s expenses, the technique has since evolved into the country’s preeminent budgeting strategy.

Below we take a look at what Kakeibo is, how it works, and the benefits of using the system so that you can decide if it’s right for you.

What is Kakeibo and how does it work?

Kakeibo is a Japanese budgeting technique that was conceived in 1905 by Japan’s first female journalist, Motoko Hani. The term literally translates into “household finance ledger” or “household accounting book” because of its emphasis on tracking expenses.

Kakeibo works by asking you to answer four questions:

1. How much money do you have to spend for the month?

First, you must determine your income for the month. How much money do you have, in total, available to spend for the month? If you have a regular paycheck, this would essentially equal whatever your take-home pay is after taxes and other deductions like retirement savings or health insurance premiums.

2. How much money do you want to save?

Next, you must determine a savings goal for the month. This goal should be definitive and realistic. For example, instead of saying “I want to save more money” you will pick an actual number to aim for—maybe $200. While it’s fine to challenge yourself by choosing an ambitious goal, it’s also important to be realistic and choose a goal that is actually possible.

3. How much money are you spending?

The third step involves actually keeping track of your spending during the month, as most other budgeting strategies will have you do. What’s different about Kakeibo, though, is that expenses are tracked in four distinct groups, called pillars:

• Needs: These are the things that you literally need to survive. Food, shelter, medications, insurance, household supplies, and other everyday needs fall into this category.

• Wants: These are the things that you might enjoy and want, but don’t need to survive. A new outfit, video game, or takeout meal would fall into this category.

• Culture: This category includes expenses related to engaging in cultural activities, such as buying books, visiting a museum, or seeing a movie or performance.

• Unexpected Expenses: These are those surprises that life throws at us from time to time, such as an unexpected visit to the doctor’s office, car maintenance, etc.

By breaking out your expenses into these four groups, it becomes a lot easier to understand exactly how you are spending your money each month. This can make it a lot easier to find places to cut expenses from your budget, which brings us to…

4. Find ways to improve for the month ahead.

At the end of the month, you’re encouraged to look back and reflect. Did you hit your savings goal? If you did, that’s great! Can you replicate it again next month? Do you think that you could be even more ambitious by choosing a larger goal? 

If you didn’t hit your goal, it’s important to think about why that is. Was the goal simply too ambitious? Did you have one too many unexpected expenses pop up that derailed an otherwise realistic goal? 

At the same time, you want to look at how you actually spent your money, so you can decide where to cut back moving forward. If, for example, you found yourself eating out at restaurants four times a week, you might pledge to do so just one fewer time each week in the month ahead. 

Benefits of Kakeibo

Kakeibo has two main benefits.

First, it helps us to break down our goals into smaller pieces, which are much easier to conceptualize and achieve. This is especially true when compared to long-term financial goals like saving for retirement, which take decades. While it’s important to think about the overarching goal every so often, it’s much easier to think about your goals on a month-by-month basis.

Second, Kakeibo simplifies how we think about expenses. Instead of having ten different categories for your expenses, with Kakeibo you only have to worry about four. This makes it much easier to zero in on a certain area of your budget, where you can potentially find ways to save money. 

Budgeting Is Only Half the Battle

Allio is here to help you work toward your financial goals—whether you follow Kakeibo or another budgeting strategy altogether, we’ve got you covered. 

Once you know how much money you have in your budget to dedicate to savings, you can set up a recurring investment that automatically transfers money into your portfolio, making saving and investing effortless. Likewise, our round up function allows you to invest every time you make a purchase, which is perfect for spenders.