Now that you hate the words Personal Finance a little less (or at least I’m hoping so), let’s dig a little deeper and see what it actually needs you to do.
Budgeting is a pretty simple concept. Write down everything!
Hani Motoko, Japan’s first female journalist, believed that financial stability is an essential key to happiness. In 1904, she published her accounting book designed to help Japanese housewives manage their budgets and invented “Kakeibo”.
This book has gained a new wave of publicity, with its recent publication in English language, by Fumiko Chiba.
What does “Kakeibo” mean? It translates to “household financial ledger”.
What are the pillars of this concept or better still what questions should you ask yourself?
- How Much Do I Have Available?
- How Much Do I Want to Save?
- How Much Am I Spending?
- How Can I Improve?
At the beginning of every month, you pen down what your income sources are, what will you be saving and what you will be spending on, and at the end of the month, you reflect on the process and how closely you followed the plan.
How Much Do I Have Available?
What this means is that you write down every source of income. You may think there is only one. But let’s think a little longer.
Your sources of income include all of this and more:
- Salary Income / Profit Income
- Interest Income
- Rental Income
- Royalty Income
- Capital Gains
- Money you receive from your earning partner to run the house
Is that all? Are you missing something? Let’s dive deeper.
- Gift Money on birthdays, festivals, special occasions (yes money that you get in the “lifafa” from your loved ones that you never account for or your brother transfers to your account for no apparent reason)
- Money that your friend had borrowed months ago and you’d forgotten about and has now found its way back
- Clothes that you returned, because you didn’t feel like wearing it when you got home, from that impulsive shopping spree- yes we all fail to treat that money as income.
How Much Do I Want to Save?
Well, I think all of us would like to say, A Million Bucks.
But let’s get real here. We all have an idea about our income and expenses.
Set yourself a realistic target.
If you feel you’re living pay check to pay check, set yourself say a target of saving 10% of the salary or if you aren’t fond of percentages and have a fluctuating income – write down that absolute number.
Don’t be disappointed even if it is INR 5000 or less than that.
It is said that you can save a third of your annual income with regular and detailed use of the Kakeibo.
Don’t we all want that?
How Much Am I Spending?
Categorise, Categorise, Categorise.
Yes, that’s the emphasis I want to lay.
Split your expenses as:
Survival: Rent, Food, Fuel, Medicine, House Helps (yes I’ll put that there because we know their value more than ever, thanks to Covid-19)
Fitness & Education: Gym Membership, Books, Courses, Trainings, Webinars, etc.
Entertainment: Netflix, Movies, Concerts, Eating Out, Short Trips, that extra piece of clothing or that new shade of lipstick or that stunning pair of heels you couldn’t take your eyes off of.
Extras: All of those unexpected expenses on repairs, or birthdays & festivals, basically anything that is annually recurring.
Yes, Yes I know. Aren’t we shocked looking at how much we actually spend on each of the categories?
Now that reality has hit us hard in the face, it’s up to us to decide how much we are willing to spend on each category.
This brings us to the last question.
How Can I Improve?
Now that you have it all penned down and in front of you, review, review & review.
Review these weekly or monthly to see where you are vs your actual plan.
Did you underspend and manage to save some money or did you overshoot your budget and cross the line?
Is there anything you need to spend less or more on, is there something that you could avoid?
Is there that one less shopping trip that you can make?
A reality check will help you identify the areas where you can improve. It will also help you draw up a more realistic budget for the following month.
Each month is a chance to reflect and start afresh.
The key to a Successful Financial life is Monetary Mindfulness and with Kakeibo you will be able to spend mindfully and know exactly where your money is going.
Your financial life will begin to turn around when you take responsibility for it.
So, what are you waiting for 😉
Let’s get moving!!