Zero-Savings Households Are Surging! 5 Household Management Techniques to Survive on an Average Annual Income

Japan's Household Crisis! Zero-Savings Households Reach Record High

In recent years, the number of "zero-savings households" in Japan has been surging. According to the "Public Opinion Survey on Household Financial Behavior" by the Central Council for Financial Services Information, the percentage of households with zero savings has reached a record high, a trend particularly notable among younger generations and single-person households.

In this article, we explain practical household management techniques and asset-building methods for average-income households to survive the era of inflation, incorporating specific data and case studies. Of particular note are effective expenditure reduction measures that can be implemented even when income is not increasing, and specific methods for asset formation that can be started with small amounts. We will explain in detail the concrete steps to escape from having zero savings.

While Japan's average annual income is said to be approximately 4.3 million yen, supporting a family and increasing savings on this amount has become extremely difficult in the current inflationary environment. However, with proper knowledge of household management and asset formation, it is entirely possible to build assets for the future even with an average income.

Three Factors Behind the Increase in Zero-Savings Households

There are three main factors behind the increase in zero-savings households.

1. Long-term Decline in Real Wages

Real wages in Japan have been declining for a long time. According to the Ministry of Health, Labour and Welfare's "Monthly Labour Survey," the real wage index has been on a downward trend since peaking in 1997, and there are no signs of recovery even in 2023. Especially since 2022, wage growth has not kept pace with rising inflation, leading to a decline in real purchasing power.

With the average annual income said to be around 4.3 million yen, the rising prices of daily necessities are hitting household budgets hard, making savings that were previously possible difficult. Real wages have fallen by about 15% over the past 20 years, meaning that even while doing the same work, there is a reality of declining real income.

2. Rising Prices and Increased Cost of Living

Since 2022, full-scale inflation has been progressing in Japan as well. According to the Ministry of Internal Affairs and Communications' Consumer Price Index, the prices of many daily necessities, centered on food, are rising, and the price hikes in utilities such as electricity, gas, and water, as well as food, are putting pressure on household budgets.

Due to the trend of "price pass-through" that has continued into this year, many products have seen price increases. In particular, the rise in prices of food and daily necessities purchased on a regular basis has a significant impact on household budgets, reducing the amount that can be set aside for savings even in households that previously had some leeway.

3. Changes in Consumption Propensity Due to Future Anxiety

It has also been pointed out that there is a trend of increasing "consumption for enjoying the present" due to distrust in the pension system and anxiety about future economic prospects. Especially among the younger generation, the idea that "the future will be tough anyway, so let's enjoy the present" is spreading.

According to the survey results from the Central Council for Financial Services Information, it is shown that the percentage of young people in their 20s and 30s who answer that they "are not saving for old age" is increasing. It has been pointed out that anxiety about the future may paradoxically be encouraging "current consumption," leading to a decline in the savings rate.

5 Effective Household Management Techniques for Average-Income Households

As effective household management methods that can be practiced even by households with an average annual income (approx. 4.3 million yen), we introduce the following five strategies.

1. Thorough Review of Fixed Costs

The first step to improving household finances is to review the fixed costs that occur every month without fail. It is recommended to pay particular attention to the following items:

• Housing costs: It is ideal to keep rent or mortgage payments within 30% of your income

• Communication costs: You can save about 5,000 yen per month by canceling unnecessary options and switching to a low-cost SIM

• Insurance premiums: You can save tens of thousands of yen per year by checking for overlapping coverage and reviewing your policies

• Subscriptions: Save several thousand yen per month by canceling services you rarely use

In many cases, you can save 200,000 to 300,000 yen per year just by reviewing your fixed costs. Regarding communication costs in particular, switching from a major carrier to a low-cost SIM can save a family of four over 10,000 yen per month.

2. Reducing waste through "visualization"

Next, use household account book apps or credit card statements to "visualize" your spending. Many people are unaware of the waste that occurs "without them realizing it."

Specific methods include:

• Automatically categorizing and analyzing expenses with a household account book app (such as Money Forward ME)

• Establishing a habit of checking expenses on a weekly basis

• Introducing a 24-hour rule to curb "impulse buying" and "emotional spending"

• Switching partially to cash payments to get a better sense of your spending

By visualizing expenses, many average households discover about 10,000 to 20,000 yen per month in "unnoticed waste." In particular, small but frequent expenses (such as buying drinks at convenience stores) add up to a significant amount.

3. Streamlining food expenses

For the average household, food expenses are one of the categories with the most room for reduction:

• Planning weekly menus and buying groceries in bulk

• Shopping during sales or at specific times of day

• Thoroughly managing your refrigerator to eliminate food waste

• Controlling the frequency of eating out or buying prepared meals (setting a monthly budget)

According to the Ministry of Internal Affairs and Communications' Family Income and Expenditure Survey, the average food cost for a family of four is about 80,000 yen per month. By streamlining these food expenses, you can save 10,000 to 20,000 yen per month, which leads to 120,000 to 240,000 yen in annual savings.

4. Practicing "Pay Yourself First"

I will introduce the principle of "Pay Yourself First," which means paying yourself (your future) as soon as you receive income. Specifically:

• Setting up automatic transfers to savings/investment accounts on payday

• Aiming to put at least 10% of your income into savings

• Building a habit of putting at least 50% of bonuses into savings/investments

• The "maintain standard of living" strategy of putting all raises into savings

People who practice this method tend to succeed in building assets more than three times as effectively as those who do not. In particular, the shift in mindset from "saving what is left after spending" to "spending what is left after saving first" is crucial.

5. Creating Side Income

In parallel with reducing expenses, earning side income is another method:

• Freelance projects utilizing skills from your main job

• Selling digital content (photos, designs, articles, etc.)

• Selling unwanted items on flea market apps

• Using spare time for survey monitors or point sites

According to a survey by the Ministry of Internal Affairs and Communications, the number of employees with side jobs is on an upward trend. In particular, side jobs that utilize skills from one's main job can be expected to provide high hourly income, and many people are earning 30,000 to 50,000 yen per month in side income.

Basic Strategy for Asset Formation That Can Withstand Inflation

Building assets beyond just savings is now essential for life moving forward. Especially in an inflationary environment, cash alone will lose value, so appropriate investment is necessary.

Principles of Long-term, Diversified, and Cumulative Investment

As a basic principle of asset formation, there are three elements: "long-term, diversified, and cumulative investment":

• Long-term: Thinking on a time horizon of at least 10 years

• Diversification: Diversify across regions, asset classes, and time

• Accumulation: Invest a fixed amount regularly (Dollar-Cost Averaging)

According to a survey by the Japan Securities Dealers Association, investments that adhere to the principles of long-term, diversified, and systematic accumulation have generally yielded positive returns over any 20-year period in the past. In particular, it is more important to continue systematic investment than to worry about the timing of investments.

Utilizing NISA and iDeCo

As a standard method for utilizing tax-advantaged systems, there are NISA (Nippon Individual Savings Account) and iDeCo (Individual-type Defined Contribution pension plan):

• New NISA: Annual investment limit of 3.6 million yen, with an indefinite tax-exemption period

• iDeCo: Full amount of contributions is tax-deductible, investment gains are tax-free, and there are tax benefits upon receipt

According to Financial Services Agency documents, fully utilizing these systems can lead to a significant difference in the final asset amount even with the same investment amount. For example, if you invest 30,000 yen per month for 30 years, there could be a difference of approximately 3 million yen with the new NISA and approximately 5 million yen with iDeCo compared to a taxable account.

Effectiveness of Index Investing

As an investment method that is easy for beginners to start, index investing (investing in mutual funds or ETFs that track an index) is recommended:

• Low cost: Low trust fees (annual costs)

• Diversification effect: Can invest in many stocks at once

• Simple: No need for complex stock selection

From the Financial Services Agency's 'Public Opinion Survey on Asset Formation,' it is clear that many individual investors hesitate to invest because they are worried about stock selection. As a solution, investing in broad index funds such as global stocks or developed market stocks is suitable for beginners.

Roadmap to Escape from Households with Zero Savings

We propose concrete steps for households with zero savings to start building assets.

Step 1: Securing Emergency Funds

As a first step, secure emergency funds covering 3 to 6 months of living expenses. This serves as a safety net against unexpected expenses or a decrease in income.

According to a survey by the Central Council for Financial Services Information, there is a significant difference in the ability to handle sudden expenses between households that have emergency funds and those that do not. In particular, if there are no emergency funds, one is forced to rely on high-interest loans such as card loans for sudden expenses, which easily leads to a vicious cycle that further pressures the household budget.

Step 2: Repayment of High-Interest Debt

If you have high-interest debt such as credit card loans or cash advances, it is important to prioritize paying these off before investing. If you are carrying debt with an annual interest rate of 10% or more, paying it off has the same effect as earning a return of 10% or more per year.

According to the Japan Credit Counseling Association, many people who fall into multiple debt traps start with small amounts of borrowing. Because high-interest debt carries the risk of snowballing, it is important to pay it off as early as possible.

Step 3: Start Automated Investment Savings

Once you have secured your emergency fund and paid off high-interest debt, the next step is to start automated investment savings. Specifically:

• Opening a new NISA account and setting up monthly automatic contributions

• Enrolling in iDeCo and setting your contribution amount

• Diversified investing in assets such as global stock index funds

According to Financial Services Agency materials, it is important to continue investing based on the principles of long-term, installment, and diversified investment, even with small amounts. In particular, it is worth noting that you can start with as little as 5,000 yen per month, and that consistency is more important than the investment amount itself.

Step 4: Increasing Income and Gradually Expanding Investment Amounts

As a final step, you should gradually increase your investment amount while working to increase your income through skill development in your main job or by taking on a side hustle.

When your income increases, it is ideal to maintain a balance of about 50:50 between "improving your standard of living" and "increasing your investment amount." It is explained that this allows you to improve your current quality of life while also accelerating asset formation for the future.

Summary: The Key to Asset Formation Even on an Average Income

This article has comprehensively explained the background behind the increase in zero-savings households and methods for household management and asset formation that can be practiced even on an average income.

To summarize the key points:

1. The increase in zero-savings households is mainly due to declining real wages, rising prices, and changes in consumption propensity due to anxiety about the future

2. Effective household management techniques include reviewing fixed costs, visualizing spending, streamlining food expenses, practicing 'pay yourself first,' and creating side income

3. For asset formation that can withstand inflation, the principles of long-term, diversified, and installment investment, as well as utilizing NISA/iDeCo and index investing, are effective

4. To escape from having zero savings, a step-by-step approach is important: securing emergency funds -> paying off high-interest debt -> automated investment savings -> increasing income and investment amounts

Even with an average income, if you have the right knowledge of household management and asset formation, it is entirely possible to build assets for the future. The important thing is to take the first small step, regardless of your current situation.

Financial education is not taught in schools. Therefore, you have no choice but to actively improve your own financial literacy. I hope this article serves as your first step toward asset formation.