Forget Budgeting – Do Conscious Spending

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Posted by jamie | Posted in -Featured-, Personal Finance | Posted on 15-06-2009

For this months blog matsuri on living on a budget in Japan, I knew I had to write something. I mean, would the frugalista ever be forgiven if he didn’t write something about budgeting? I can make my excuses about a favourite places in Japan perhaps, having only made it as far as Tokyo last week despite having lived here for 6 years! Surely, Billy of Tune in Tokyo is expecting something of me this month. But dammit, I hate budgeting. Writing down everything I spend and totaling up everything each day? Thanks, but I have a life. Limiting myself to spending less each month on something I love? Err, screw you, hippy. Saving 5 yen by going to a different 100 yen store that absorbs the cost of consumption tax themselves? Whatever, if you really enjoy counting pennies then go ahead, I will not be wasting my time accompanying you on your epic adventure to the ancient realm of scroogedom. I do, however, spend consciously.

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Yes, the truth is out – the frugalista does not budget, because the frugalista does not need to. Being frugal is state of mind, man~ Being frugal is not about budgeting, being cheap with your money, or holding back on the things you enjoy. It’s not about cutting up your credit cards either – I have 2 Japanese Visa cards and some from my account in the UK too. No – it’s about setting up your finances so that everything is automatic and all that’s left is for you to enjoy life and make the most of your time here in Japan.

A few days after payday, my rent is automatically transferred. My credit card balances are automatically paid in full every month. My investment is automatically deducted and placed in my offshore fund. Another deduction is automatically placed into my savings account. Anything left is for me to spend that month, guilt free on whatever the hell I want. And I can check my balance online, anytime I want, with an itemized bill at the end of each month for what I spent on my credit card.

There are a couple of key ingredients that you need in order for this to work though.

1. You need a bank in Japan with online banking. I’ve recently joined Shinsei bank, and with it’s online ENGLISH banking it’s by far the best in Japan, especially compared to the likes of Kyoto bank which is possibly the most backward Japanese banking institution I have ever had the displeasure of dealing with. They give you a free transfer each month in the basic account and free withdrawals from 7-11 ATMs – what a unique concept, eh? Free withdrawals at ATMs, crazy I tell you! If you come here on the JET program as I did, do not allow yourself to be goaded into the nearest Japanese bank for the sake of convenience for the Japanese guy who got the lame job of guiding the new gaijin around town. As soon as you can, get a decent bank account set up and start automating your life.

2. You need a credit card – a Japanese credit card. I wrote about this before, and I still think it’s hard for foreigners to be approved for a credit card when they first come to Japan, but some readers were adamant that it was easy. Ask your bank after you’ve had a few months with them, and always apply for the lowest amount of credit with the “don’t need cashing” option. Never, ever, use your credit card to get cash out at an ATM – you will start paying interest on that money immediately and it will harm your credit score.

3. Start investing and do it automatically, every month that you are here. If you’ve come to Japan right after college then chances are you really aren’t thinking about mutual funds and investment portfolios and such, but the truth is that the next 3 years of your life you’re likely to have a cushy, well paid stable job and you may as well take advantage of it to start investing. Most new millionaires are not rich by starting their own business or winning the lottery, but simply by starting their long-term investment when they were young and keeping it automatic. Here’s some figures taken from the most wonderful book I Will Teach You To Be Rich, which I highly recommend:

Smart Sally invests $100 a month, starting at age 25, for just 10 years. With an 8% rate of return, by age 65, her investment is worth a whopping $350,000. Dumb Dan invests the same amount ($100 a month), but starts when he is 35 – and he continues to pay that much every month for 30 years! At the same rate of return, at age 65, his investment is worth just $270,000. Even though he invested for 20 more years than Smart Sally, he’s still $80,000 behind!

If you take nothing else out of the matsuri this month, which would be frankly impossible, please at least start investing. I have a wonderful investment manager who answers all my questions, and if you’d like me to put you in touch with him personally please just drop me an email and I will forward your details on. He would be more than willing to chat to your on the phone or answer your questions via email about investing – and I know you’ll thank me when you retire early and can enjoy yourself without financial worries later in life. Getting rich is not a quick thing – it takes real planning and the most important thing is to start investing today!

4. You need to be aware of your fixed expenses each month. Fortunately as long as you don’t go crazy with the aircon on all-night or talk incessantly on your keitai, your utilities are going to be fairly similar every month. Work out roughly how much of your fixed income will be deducted each month and then you’ll be able to work out how much you should be automatically investing, saving – and what’s left after all of that. Here’s a general plan of conscious spending, and how much that breaks down as for the typical post-tax ALT income of ¥250,000 a month:

50-60% Fixed expenses – this includes rent, student loan payments, utilities etc. (¥125,000-¥150,000).

10-20% Saving – for big events, vacations, emergency fund, moving house fees. (¥25,000-¥50,000)

10% Investment (¥25,000)

30% Guilt-free spending and charitable donations (¥75,000)

If you can’t survive on only ¥75,000 spending money each month, you really ought to readjust your lifestyle and reevaluate what you consider to be worthwhile of your time and money.

5. Never spend more than you can afford. You don’t have to track your expenditure daily or limit yourself to 500 yen for lunch, you just have to keep a track of the major things you spend and bear in mind all the little things are going to add “a bit more” on at the end. The fact that you’re going to use your credit card to do this, and that you’re regularly saving some money, means that if you get the bill and you’re going to be short this month then no worries because you’ll still have time to shift money from your savings to your normal account, all of which can be done easily online!

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(The photo used in this post is a creative commons licensed photograph from Flickr user the_toe_stubber)

Comments (21)

Some good advice there on starting early with the investment.

I’d be interested to hear how Shinsei online banking compares with Citibank.

I started with Mizuho when I arrived and couldn’t use their online banking because it was all in Japanese. So I switched to Citibank and I discovered that to do an online transfer, even on the English page, you still need to enter the Bank name and branch details in Katakana! Their ATMs are also Japanese only for the transfers section.
.-= Jon Allen´s last blog ..Tokyo Design Festa 2009 =-.

Great article man! I want to ask you about investing now – I know nothing and will be in the exact situation you describe in a few months!

No, I mean I *really* know nothing here. I gather from the word investment we mean putting money somewhere that it likely to reap us rewards. That’s about all I know. Where to start..?
.-= Mike´s last blog ..New Monkey Island and Remake! =-.

[…] post on conscious spending was awesome. It took the idea of budgeting in Japan into an entirely new […]

[…] Japan presents: Forget Budgeting – Do Conscious Spending "Being frugal is state of mind, man~ Being frugal is not about budgeting, being cheap with your […]

quite easily one of the better written and most useful entries in this month’s matsuri.

This info will be very useful in the future
.-= Jamaipanese´s last blog ..Eden of the East – Anime Review =-.

Ditto, good info on investing.

Thanks for the kind words all! More info on investing coming up soon!

Do you have any good places that you recommend to help me get started in investing?

Thanks for the site. But, really, all those books like ‘I will teach you..’, etc., assume you can get a constant x% (8, in that example). In real life, investments sometimes loose money. Remember, (an obvious point most don’t consider) the market does not print dollar bills, it only re-distributes them. For every person who makes 1 dollar, someone else has to loose 1 dollar. You could end up on either side of that equation.

You’re right about investments – they certainly do carry a risk. right now my investment is worth about $1000 less than I’ve paid into it – but not surprising considering the financial situation america is in. However, in the long run it will pay off, I am confident. Even if it works out to be 0% growth at the end of it all, it will still have been a consistent way for me to automatically save money, rather than simply promising myself to set it aside. If I’m being honest, I’ll say right now that without the automated nature of the payments I probably would have spent the “extra” money in my account each month and be left with zero savings – so in that respect, even if it doesn’t perform as well as I think it will, it was still a good decision.

I’m not so sure about your ideas on the money game though – the federal reserve *does* actually print money, more money each year in fact, which is why money is gradually devalued. More millionaires are made every day, yet proportionally the same people are not made poorer. If you do nothing with your dollar bill, it will be worth less in a few years, because the money supply indeed increases.

If you’d like to learn more about the federal reserve and the entire banking system, I suggest you watch zeitgeist @ http://video.google.com/videoplay?docid=-594683847743189197# (the last part is about the monetary system).

[…] Most credit cards offer 0.5-1% cashback or points; if you’re investing ¥50,000 a month through your credit card and paying off the balance in full, that works out to at least ¥6,000 free money every year just from your investment. You’ll also get itemised bills every month so you can track your purchases more accurately (though, you wouldn’t need to if you were consciously spending instead of meticulously budgeting). […]

nice opinion! You might want to follow up to this topic right;2

Another Fantastic post, I is going to be certain to save this post in my Digg account. Have a good day.

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