Kakeibo is tool to manage your finances using pen-and-paper. It was invented in 1904 in Japan to manage household expenses. It's quite a simple tool, and I found it much more effective and much easier than envelope budgeting (YNAB) and other approaches I tried.
Kakeibo helped me dramatically improve my savings rate for FIRE. There's nothing to buy and no subscription, and it's easy to learn. On this page, I'll detail how I use it.
There are three main parts to Kakeibo:
At the start of each month, you'll write a budget based on your expectations of what you'll need to spend. As the month progresses, you'll record your expenses into four categories (Need, Want, Culture, and Extra). Each week you'll review your expenses and self-reflect, finding opportunities to improve. At the end of the month, you'll adjust your expectations for next months' budget based on the last months' learnings.
Write down how much you'll earn this month after tax. Now add up your fixed monthly expenses which must be paid. Things like mortgage/rent, utilities, car payments, insurance, and subscriptions. Subtract this number from your total earnings. Now pick a number you'd like to save this month. For instance, you might aim to save 30% of your income after fixed expenses. Subtract this number from what you have left after fixed expenses.
The amount that remains is available for you to spend this month, and that's what we'll build our Kakeibo budget around.
Kakeibo categorizes every transaction into four buckets: Needs, Wants, Culture, and Extra. Needs are things you can't live without: groceries, clothes, gas for your car. Wants are things you enjoy but aren't essential: eating out, jewelry, entertainment. Culture is anything which improves your life and help you grow as a person: hobbies, gym memberships, museums. Extra is anything unexpected: sudden car and home repairs, gifts, medical bills.
Write down the four categories (Needs, Wants, Culture, and Extra) and assign a percentage of your total available based on how much you'd like to spend in each category this month. Ensure you only budget up the money you have available to spend after fixed expenses and savings. This is your budget and it's your north star this month for how to spend your money.
Each time you spend money, whether it's on a credit card or with cash, record what you bought, the amount you spent, and its category. I use shorthand and round to make it easy. For instance:
| Date | Category | Description | Amount |
|---|---|---|---|
| 6/26 | W | Movie theater | 22 |
| C | Museum | 8 | |
| 6/27 | E | Library late fee | 1 |
| N | Groceries | 35 |
I carry a journal with me to make recording easy. When I don't have my journal or can't write it down at the moment, I save the receipt and record it when I get home.
I found that needing to record every expense makes me question whether I really want to spend the money before I do. Just writing it down makes me more mindful and deliberate over the money I spend.
There are two points of self-reflection in the Kakeibo process: weekly and monthly.
At the end of each week, you'll sum up how much you spent in each category. Ask yourself how much you spent, how much you saved, whether any purchases could have been avoided, and what you'd like to differently next week.
At the end of each month, you'll sum up your four categories and compare how much you spent in each of them against what you planned to spend. Then adjust your budgeted amounts for the next month's plan.
I very much like this practice of reflecting on every purchase. It's not just focusing on how to spend less--it's about how you can invest more into yourself and your growth, or about how you can spend more on other people. Find the things that make you happy and double-down on those while whittling away the things that don't really matter to you.