With Makara Sankranti, a long and lovely holiday season comes to a grand close. Now it’s time to gear up for the new year ahead. Business goals, final exams and financial year end targets are going to be the main focus areas.
With all the festivities coming to an end for the year, family expenditure will also fall drastically. Festival discounts, Diwali and year end sale banners have attracted a lot of our attention in the past few months. So household budgets have been under great strain. It’s time now to take a step back and prune our monthly budgets. It’s time to mind our spends.
There is plenty of focus among our youth to increase their income levels through job upgrades, higher education, foreign posting and so on. However, there is very little attention paid to reducing expenses. After all, reducing expenses has the same effect on the budget as increasing incomes! But this simple fact doesn’t seem to register strongly among us.
Let’s explore a popular Japanese budgeting method – Kakeibo – which helps to regulate and prune household expenditure to a great extent.
What is Kakeibo?
Kakeibo roughly translates to “household finance ledger” in Japanese and was invented in 1904 by a woman named Hani Motoko. She also has the distinction of being Japan’s first female journalist. Kakeibo is a simple, pen and paper approach to managing our finances. Kakeibo helps to us to regulate our expenses in an easy and effective method.
In principle it is just a ledger with money inflow and outflow recorded month after month. However, it’s meant to be a manual exercise using pen and paper. The idea is to sincerely record by hand, all income sources, mandatory expenses and discretionary spends. The effect of seeing the numbers on paper is supposed to have a strong psychological impact on the mind. It helps us realise how many of the expenses incurred were unnecessary and totally avoidable.
How does Kakeibo benefit?
First of all, maintaining a journal of all the expenses helps us discover the emotional compulsion we feel about spending, when do we spend and why. To celebrate, to while away idle time, due to peer pressure, to ward off depression and so on are the common reasons of casual spending.
Next benefit is the ability to categorize spends based on purpose and occasion. Which is the most common excessive expenditure we incur – dining out, clothes, partying, leisure travel, movies. Once we get an idea of which is the most dominant expense, it becomes much easier to keep a tab on it.
What next? How to get started with Kakeibo?
- Get a journal / accounting book with income and expense listing. Start at the beginning of a month and faithfully record all income sources and expenses, even the minor ones.
- Keep aside a few minutes every day to fill the journal. If we leave it to be accumulated for days, we might forget some of the items.
- As you record the items, your brain will process the reasons behind why we incurred that expense. What is worth buying? Could it have waited? Was it an impulsive buy, lured by marketing gimmicks?
- Mark expenses as mandatory and discretionary, and also categorize by purpose. That way, we know what percentage of our expenditure is necessary, and how much of it is excess. What percentage of our expenses could have been converted into savings.
- Compare the figures month on month. Set gradual improvement goals for 3-6 months duration. Once you meet your improvement goal, set a tougher one for the next tenure.
- Whatever money is saved as a result of avoided unnecessary expense must be invested into lucrative and safe saving instruments. This way, you get into the habit of setting aside a portion of our monthly income automatically for saving.
- Avoid use of credit card and personal loans as they are instruments of spending beyond our means. Debit cards, direct pay mobile wallets and cash are better because they only let us spend what we have in hand, not beyond.
Japan is quite similar to India in its traditional and conservative society. We also share a prudent financial sense among our population. The Kakeibo method of saving is quite apt for the India scenario as well. Historically, both countries have had the highest savings rates among its public. But now, the culture of excessive consumerism is catching up among our youth. We hope the Kakeibo method helps to install a sense of responsibility and prudence with regard to our spending habits.
We at Shanthala Chits have always considered ourselves as equal partners in the financial stability and welfare of our investors. We strongly believe that a financially secure household is at the central core of any prosperous nation. So we urge our readers and depositors to take their money matters seriously. Regulating expenses is as critical as increasing incomes. Our sincere wishes for your financial well-being.
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