In the world of personal finance, the "Traffic Light Saving Method" introduced by Japanese financial expert Miki Nishiyama is a simple yet effective strategy.¹ This method divides your monthly income into red, yellow, and green zones, helping you plan spending and savings more rationally. Not only does it steadily grow your savings, but it also encourages more mindful spending. The "Red Light Zone" concept, in particular, has become a favorite among young professionals for quickly accumulating funds.

Red Light: "Pause" Savings for Big Goals

In the "Traffic Light Saving Method," the red light doesn’t just signal a warning for spending—it’s a reserve for future needs. According to Mishi Nishiyama, red represents "pause," meaning this portion of money isn’t off-limits but is specifically reserved for large, planned expenses like buying a home, a car, or investing in education. She recommends setting aside about one-third of your monthly income into the red light zone to grow savings faster and discourage unnecessary expenses.

The key here is to pause and think before tapping into your red light savings. For instance, if you’re tempted to use this money to buy an expensive gadget, ask yourself if it aligns with your financial goals and avoid impulsive decisions that could derail your long-term plans.

Take Sarah, for example. As a recent graduate earning $1,200 a month, she allocates $400 to her red light zone, aiming to save for a down payment on a home in three years. She strictly avoids touching this money, even if she feels the urge to buy a new smartphone. Instead, she reminds herself of her goal and reconsiders whether the expense is truly necessary.

The magic of red light savings lies in its dual purpose: it’s both an emergency fund and a stepping stone toward your dreams. Every dollar saved in the red light zone brings you closer to achieving your future goals.

Yellow and Green Lights: Balanced Spending for Everyday Life

Alongside red light savings, the yellow and green zones cover daily expenses. The yellow light represents "moderate spending," including entertainment, dining out, and non-essential purchases. Setting clear budgets for this category prevents overspending and ensures it doesn’t disrupt your overall financial plan.

A key tip for yellow light spending is reasonable allocation. For example, you might set aside 20% of your income for small pleasures like movie tickets, coffee, or dining out. This approach lets you enjoy life without the guilt of overspending or the stress of excessive frugality.

The green light, on the other hand, covers essential expenses like rent, utilities, and groceries. These unavoidable costs can still be optimized by choosing cost-effective products or hunting for discounts.

Miki Nishiyama’s system isn’t about restricting spending—it’s about helping you become more aware of where your money goes, turning personal finance into an intentional and empowering process.

Start with the Red Light to Build Financial Security

The heart of the "Traffic Light Saving Method" lies in the red light zone, which acts as the foundation for long-term financial security. Whether you’re saving for a down payment, building an education fund, or planning a dream vacation, this "pause" fund serves as a powerful support system for achieving your goals.

Once you start practicing the "Traffic Light Saving Method," you’ll find that personal finance is no longer just a numbers game. It becomes a form of self-management deeply connected to your life. Through this simple system, you’ll be able to plan your expenses with more clarity and develop smarter spending habits.

Why not start today? Divide your monthly income into red, yellow, and green zones and stick to the plan. You might be surprised to discover that saving money isn’t boring at all—it brings a sense of accomplishment and security for the future!