Using the Kakeibo Method

You estimate your income for the month ahead, then plan how much you want to save and how much you can afford to spend. In your ledger – whether paper or digital – you track what happens. Next month you do the same, looking to make small improvements to your finances, month-by-month (kaizen).

A Kakeibo budget is one example of a zero-based-budget. When you set a Kakeibo budget, you follow the same principles as with zbb. But one of the advantages of Kakeibo is that it sets out a clear and easy-to-understand methodology. The Kakeibo template gives you a great introduction to personal budgeting.

Before the start of each month, you figure out how much income you expect to receive. Then you decide how to allocate the whole of that income between various spending and saving categories. In other words, you set spending and savings goals for the month.

Let’s use some figures to give an overview about how it works:

• $3,000                   Estimated income (after tax)
• $1,200                   Necessities (items you must pay – like mortgage or rent)
• $1,800                   Money left after necessities
• $   200                    Savings goal for the month
• $1,600                   Money available after savings (allocate this to budget categories)

This is just an overview. You’ll need to list your $1,200 necessities – and how much you must spend on each. The same for the $1,600, which covers all your ‘optional’ spending. List your optional spending categories, then decide how much you will spend on each category. In total, the amount must equal your estimate of money available after deducting your savings goal.

To improve your personal finances, you must live within your means. Over a year there will be ups and downs but, on average, your income must be more than the cost of your current lifestyle. If your income exceeds your spending, you can allocate your surplus to savings accounts or paying off debt.

When you use Kakeibo budgeting, you train yourself to think this way. You don’t have to be a minimalist, or stop going out to restaurants or on holiday. Budgeting is a great way to save for dream lifestyle, but why not enjoy yourself along the way?

Kakeibo teaches ‘mindful spending’. You set financial goals and dreams, think about you’d like to spend your hard-earned money next month, cut out spending that doesn’t fit into your plan, maybe restructure your life to reduce spending on necessities. Could the family make do with one less car – or a less expensive car

During the month, you record each item of spending (or saving). To start with, keep a record of your spending at the end of each day. There are three reasons. First, it’s much easier to keep on top of things. Second, it makes you more mindful of your spending. Third, personal budgeting gets much easier if you build good budgeting habits into your life. Remember to include every spending mechanism you use, otherwise you’re not getting an accurate picture:

• Direct debit
• Bank transfer
• Debit card
• Cash
• Sinking funds
• Emergency fund
• Credit card (try not to use these)