With modern conveniences like auto-bill pay, direct deposit, monthly subscriptions, and credit cards, we as consumers are becoming increasingly decoupled from our finances. Whereas purchases used to involve physical interactions like exchanging cash or writing out a check, many of our transactions today are as quick and easy as tapping a card reader or tapping a button on your phone, and with the abundance of monthly subscription services, many of our purchases take place without us directly knowing they happened. And although our bank balances can be accessed from anywhere like never before, it is becoming easier to lose touch with the value and meaning behind those numbers in today’s financial world.
Many financial gurus advocate writing out a budget to keep better track of your finances. And while it is certainly worthwhile to make sure you are living within your means, without much meaning behind the numbers besides not letting yourself go broke, budgets can be easily forgotten or ignored.
The Japanese journalist Hani Motoko invented the kakeibo budgeting system in 1904 as a holistic, thoughtful way to keep track of your financial goals and spending habits. Kakeibo’s strength lies in helping you carefully, mindfully analyze every purchase you make. Over time, you will learn which items have greater value to you and which are not as important as your other financial goals.
Kakeibo’s Four Spending Categories
Kakeibo asks you to think about your spending within four categories:
At the beginning of the month, plan how much of your available funds (after your savings) you intend to allocate to each group. As you make purchases, record each one in a ledger according to its category. You will start each month planning the big picture of your financial goals, and day by day, you will keep track of your progress with each purchase. As the months go by, you will learn more about your spending habits, your priorities, and how you can improve.
These four groups will help you think about your purchases according to the value they bring to your life, not just by what they are. The lines between needs, wants, and culture (described below) are not always clear and may vary subjectively from person to person. You will have to be honest with yourself as you analyze the reasoning behind each of your purchases.
The “culture” category in kakeibo uniquely takes into account those purchases that we make for intellectual or personal development, like museums, books, and other forms of enriching entertainment. This category straddles the line between wants and needs. Kakeibo knows that some things that aren’t strictly “needs” are necessary to enjoy life, to grow as a person, and to make memories with your loved ones. After all, life is short, and the money we earn should be put towards our enjoyment of it.
Whereas other budgeting techniques encourage you to set spending limits on superficial categories like food and clothes, kakeibo encourages you to analyze the purpose of each individual purchase. When you buy an item of clothing, are you buying it because you need it for work, or are you buying it just because you felt like going shopping? Kakeibo helps you take those deeper connotations into account as you study your own spending habits.
On a monthly basis, as you reflect on your performance over the previous month and your current set of goals, you will be continually asking yourself four insightful questions:
- How much money would you like to be saving?
- How much spending money do you have available?
- How much are you spending?
- How can you improve?
Just by asking you to plan and group your purchases according to needs and wants can bring so much focus to your spending habits. Is what you’re buying truly a need or a want? If it’s a want, does it outweigh your desire to save toward your financial goals? Being constantly mindful of your written-down goals will go a long way towards keeping your spending in check.
Writing Down Your Purchases
Making purchases has become too easy in today’s world. You hardly need to think twice before you click a button or insert your credit card to buy something. This has made it too easy to buy things just to satisfy a craving and get that hit of dopamine, not because you really want or need them. Such conveniences can easily lead to excessive mindless spending.
Because kakeibo requires that you write down every purchase in a journal and group it into one of its four categories, you will be constantly reflecting upon the reason behind each purpose, what value the purchase actually brings to your life, and whether it was more important than putting that money toward your savings.
It is this writing down of transactions that I believe can bring so much value to consumers in the 2020s and bring back something that’s been lost in the digital economy. Buying something used to take a little work, whether that meant withdrawing some cash from the bank, writing out a check, or balancing your checkbook. The time it used to take for those transactions to happen gave us moments to digest what was happening. The more laborious process of yesteryear gave us a different emotional relationship with our finances than today. Today, you may take a passive glace at the historical record of your transactions in your bank statement at the end of the month, but at that point it’s too late to make any course corrections. Kakeibo can help us reinsert that element of mindful work into our purchasing decisions that can make us slow down, think about our decisions, and decide if it’s really worth it.
If you would like to learn more about the kakeibo budgeting system, we have included some links at the bottom of this article. The credit.com article also includes downloadable sheets to help you get started planning your month and tracking your ledger. We hope it can help you think more clearly about your spending habits and financial priorities.