How a more intentional approach to money can dramatically increase your wealth (and make you happier!)
Picture this: You’re living in Japan—maybe even far away from your family and friends back home. You have a wonderful life now, a stable partner, a job with the right income, security, and fulfillment. Not to forget: access to every seasonal Starbucks or Tully’s latte you’d ever want. But you wake up the day after and suddenly this is all gone.
What are you going to do and will you be able to protect yourself financially? Do you even know how much you spend each month?
Now, forgive me if I sound like your grandma back home, but these are important stuff to keep in mind—especially when you live abroad in a country where no job is really thatsecure.
Savings in Japan: starting with the basics
As the late Carl Sanburg said, “money is power” and while these words usually get associated with politics, the actual meaning lands much closer to home. Having your own stash of cash means that you will be able to weather any kind of situation: from divorce to death or even disaster.
Money allows you to save yourself from abusive situations. A lack of independent funds is often a reason why many women stay in unhappy relationships. It allows you to walk away from a soul-crushing job. To negotiate raises or tell your handsy boss to go to hell with no fear of starving. Most importantly for me, it is also the ticket to retiring several decades early to pursue your passions. And this, I believe, is the ultimate freedom.
Having your own stash of cash means that you will be able to weather any kind of situation
However, like all worthy endeavors, it requires a few lifestyle changes and joining a simple three-step program. Reducing your expenses, saving up and then making your money work for you. Here’s what you can do to boost frugality and investment in your daily life.
1. The other “F Word”: reducing your expenses
Frugality is a concept that many shy away from, as it inspires images of boring people who haven’t bought clothes in a decade and subsist on rice and cup noodles in Japan. But this is a rather skewed view. Japan can be particularly dangerous to the wallet, as the ever-present convenience stores, limited seasonal flavors and vending machines are tempting you at every corner.
But how can you resist alimited edition Peach Milk Tea beveragefrom Tully’s Coffee?! (It is actually quite tasty)
Truth is, many frugal people (or minimalists) look pretty normal. They have nice clothes, do not live in hovels. You might even be surprised to learn that they are known to buy things like laptops, bottles of wine and gourmet coffee.
However, they only buy a few pieces of long-lasting, quality clothing per year, or do frequent clothes swaps. Their rent is kept low, by choosing locations that are just a little bit further from central Tokyo or smaller than is common. Purchases are made intentionally and fall within a pre-set budget. They are likely to pack lunches and eat out less.
To summarize, they abide by a set of rules that help them keep more money inside their wallet.
Balance is key
You certainly have to keep some luxuries for your own sanity (mine, for example, are yoga classes, regular lunches at vegan restaurants and hiking day trips) but you can’t have them all every time you are tempted. To set yourself an objective: think about whether eating expensive lunch out every day is worth working another five years of your life.
Savvy Tips: how to reduce your monthly expenses in Japan
- Download a free budgeting app (I like Toshlbecause you can easily switch between currencies) and get in the habit of logging all—we do emphasize on the allhere—your expenses, to see how much you spend per month
- Find areas in which you can start cutting down with minimal pain, but don’t try to change your lifestyle all at once, as you will get discouraged
- Start packing a bento lunch at least three times a week. Eating out (even from conbini) every day is both very expensive and unhealthy
- Revise your mobile phone plan. If you’re still paying ¥10,000/month, you’re probably doing something wrong. High fees for phones and internetare avoidable—with a little research you can slash your bills in half
- When moving or searching for an apartment, make sure rent is less than 25 percent of your salary. Just by choosing a spot a 10 to 15-minute walk from the station, you can get a nice place for a decent price. See Real Estate Japanfor recommendations in English
2. Going on a Savings mission: not impossible
While it varies by country, in general people tend to save an amount that is easily reachable and doesn’t cause a ‘squeeze.’ In the US, the average savings rate is just 5%, while the Europeans’ average is 12%. Japan is on the high side with around 30% to 35%. However serious savings and investing opportunities happen when you start being able to sock away 50% or more of your income.
Aside from saving cash for emergencies, by teaching yourself and your family to spend and consume less, you quickly get used to a still-cushy lifestyle that is well below your means. This saves you from the vicious circle of lifestyle inflation—where the more you earn the more you spend.
Serious savings and investing opportunities happen when you start being able to sock away 50% or more of your income
Savvy Tips: saving (in preparation for investing)
- Set yourself a goal to keep on track, like paying off student loans by 2022, saving 50% of your post-tax salary or accumulating a six-month emergency fund. Having a clear number in mind makes it much easier to stay focused and fulfill your goal
- If you don’t have one already, open an account with Shinsei Bank. Not only do they have excellent English customer service and free withdrawal from most ATMs, but they also offer international transfers to certain countries for a flat ¥4,000 rate. Use this account as your savings account
- If you are planning to save and invest for retirement, a good rule of thumb is to have 25 times the amount you plan to spend yearly invested by the time you retire, so you can live off the interest of your investment. Take a look at your average expenses using the budgeting app as a guide, and figure out your “magic number” accordingly
3. Just saving is not enough—start investing
While saving money is a worthy endeavor, it should not be your final goal. Money kept in a regular bank account is actually not doing you much good. Due to inflation (and Japanese banks’ almost nonexistent to negative interest rates), money that is simply left to sit in a savings account slowly loses value over time.
Let your money do the work for you
My favorite option is investing in a low fee Index Fund. In simple terms, indexes are a giant granola bag of stocks, which allow you to own a little bit of stock from many of the world’s top companies without having to pick them individually. There are many different index funds you can choose, but I tend to go with funds that track the US stock market, as you can usually expect around 10% growth per year in compound interest on your investment.
money that is simply left to sit in a savings account slowly loses value over time
But keep doing your math
For a very simple example of the power of compound interest: let’s say you start spending more intentionally and save ¥20,000 (~$190) per month by cutting out the spur-of-the-moment purchases mentioned above.
Every month you transfer that amount into a simple index fund with a nine percent return. In 10 years, you can expect to have around ¥30,400,000 (~$34,650) in your pocket, despite only having invested $22,800. This means you essentially got an extra $11,850 for free, as your money is working for you. If you do this for 20 years, you would have around $116,645 and in 30 years $310,781—all with one tiny change.
Savvy Tips: how to start investing in five easy steps
- If you’re earning money overseas, your best bet is to invest using a Robo-Advisor—an automated financial planning platform. US citizens can use companies like Betterment or Wealthfront, but these services are popping up all over the world. Make sure to do your research before applying, and pick one with fees under 0.30%!
- Fill out the questionnaires and input your goals into the Robo-Advisor. It will create the right combination of investments for you
- Transfer as much money as you can from your Japanese savings account to the bank account in your country of origin
- Set up an automatic transfer, so that money is regularly deposited into the investment account
- Check the account a few times a year to make sure things look okay, and let compound interest do its magic
Learning how to save is an everyday task
If this sounds like gibberish to you, don’t worry, that’s how I felt when beginning my journey. To learn more about basic investing, upping your savings rate and maybe even retiring a decade (or two!) early, some of my favorite financial informers are the hilarious Bitches Get Riches, the family-oriented Smart Money Mamasand the classic Mr. Money Mustache.
For more Japan-specific tips on how to save a bit of cash every month, read our 6 tips on how to save money in Tokyoand budget tips for working women in Japanarticle.
Do you have any frugal tips or saving tricks to share? Let us know in the comments!
