The Covid-19 pandemic brought a lot of changes to our lifestyle in the way we take care of our health. Wearing face masks, practising physical distancing, and the constant washing of hands and sanitising are all part of our daily habits now. However, another significant effect of the pandemic also necessitates change when it comes to the way we manage our money.
The number of unemployed persons in Malaysia spiked to as many as 741,6001 in August 2020, while many of those still in employment were faced with temporary salary deductions or put on unpaid leave. Either due to disruptions in the supply chain or a plunge in consumer demand, many businesses suffered great losses as well.
As such, it is now more important than ever to look at your finances and see how you can manage your money as the pandemic goes on.
Take stock of your finances
Regardless whether your income has been impacted due to Covid-19 or not, the first step to better managing your finances is to re-evaluate how much money you can afford to spend each month.
You should steer away from spending the same amount as before (even more so if you are part of the many employees currently going through a salary cut), or simply assuming that things will soon return to normal without you making any recalibration to your spending.
Start by taking note of how exactly your income has been affected in recent months, either through a loss of business, employment, or reduced salaries – and even if you are fortunate enough to have your income remain unchanged during the pandemic, take this as an opportunity to look over the ins and outs of your money. Once you’ve done that, the next step of accurately managing your expenses will be a lot easier: crafting an appropriate budget.
There are a few types of budgeting methods you can use, and we’ll talk about a few of them here below so that you can see which could be the right one for you.
01 The 50-30-20 method
The basic rule of thumb for the 50-30-20 method is easy enough to grasp: take your after-tax income and divide it up into three portions: 50% on needs, 30% on wants, and 20% for your savings. While this sounds simple enough to do, the success of this budgeting method relies on your ability to reliably classify your expenditure into the right categories.
“Needs” consist of payment obligations that are absolutely necessary for your survival, such as rent or housing payments, utility bills, car payments, groceries, insurance, and healthcare. “Wants” cover all the fun things like travel, entertainment, and luxury purchases, but may also include certain expenses that you might be surprised by.
For example, you could consider food a necessity, but dining out at a pricey restaurant instead of cooking at home is more of a want than a need. Even your Netflix subscription or non-essential clothing purchases will be categorised as wants.
Lastly, 20% of your income should go towards your “savings”, which can be kept in a high-interest savings account as your emergency fund or set aside for investment and retirement planning.
02 Zero-based budgeting
Zero-based budgeting is based on the idea that every ringgit you earn has to “work” for you. Using this method, you are encouraged to allocate every single bit of your income to a relevant category of expenses, so that you know exactly where your money is going each month.
At the end of the month, your income minus your expenditure should equal to zero (hence the name). Of course, this doesn’t mean that your bank account balance is zero at the end of the month – it just means that you have budgeted for every ringgit that you have spent and saved.
To carry out this method of budgeting, you need to list down your monthly income, followed by a detailed list of all your expenditure. This covers everything from the necessary bills and groceries to more frivolous expenses for your own enjoyment – and of course it includes saving and investing goals as well. From there, you can trim your expenses list (or increase your income, if that’s a practical option) so that you get to the goal of a zero balance at the end of the month.
You will need to do this ahead of every month to come up with a workable budget each time, so you can adjust the budget regularly to accommodate for your varying expenses or income flow throughout the year. If you’re someone who is very disciplined and likes a solid, detailed plan to stick to for the following weeks, then zero-based budgeting will be a good option for you.
03 The “envelope budget”
Just like the previous two methods, envelope budgeting involves dividing up your income into spending categories – but one that could be a bit more tangible depending on how you carry it out.
The idea originated from the traditional concept of sorting out cash into different categorical envelopes each month, following this simple rule: you can only spend what is in each envelope for the intended purpose and nothing more.
Thanks to modern technology, you can still use this method without physically stuffing cash into labelled envelopes - you can do so with the help of an app, a simple spreadsheet, or even multiple savings accounts. In some ways, the modern techniques help you be more accountable in ensuring you don’t tap into the other “envelopes” since everything is in black and white.
As usual, start with your discretionary income and decide on a budget, forming the different categories to become each “envelope” and allocating the money that you are “allowed to spend” on each category. Every time you make a payment, you will need to subtract that expense out from the relevant envelope.
“The key to making this
plan work is to be
The key to making this plan work is to be disciplined. For example, if you run out of funds for your “Dining” envelope, don’t be tempted to steal some money from “Groceries”, even if you think it doesn’t make a difference! If you have money left over in an envelope at the end of the month, you can keep it in for next month’s spending or take it out to add to your savings (although you should have a dedicated savings “envelope” too).
Some key tips to make budgeting work
No matter which budgeting method you choose, there are a few key things to remember so that you can manage your finances in the most effective way. Firstly, when planning out your budget, make sure that it is realistic – setting extremely stringent goals usually means that you will not be able to meet them. It’s also important to ensure that you set aside some expenses just for you, whether it’s for a satisfying meal or a piece of clothing to treat yourself with – it will help make the budgeting process more rewarding in the long run.
Especially in this changing economic period, it is important to take steps to fine tune and revise your budget frequently. What worked for you a month ago may not be the case in one or two months, so take the time to look over your budget and see what can be tightened up or relaxed each time. This can be viewed in a positive light as well – for example, if your employer reinstates your salary now that the economy is recovering, you can now revise your budget to suit your higher income.
Besides that, if you find your current loan commitments too high to manage, you should speak to your bank or lenders and discuss possible repayment assistance options. Bank Negara Malaysia has announced that the post-moratorium repayment assistance programme is open until the middle of 2021, and taking any assistance during this period will not affect a borrower’s credit health.
Repayment assistance options include an extension to the deferment period if a borrower was retrenched in 2020 due to the pandemic, or payment reduction plans for those who suffered reduction of income in 2020.
Adopting new budgeting habits may require you to make some changes to your lifestyle and how you handle your money, but these are imperative steps to ensure that you are making the most of your money despite the ongoing pandemic. And after all, it’s always a good idea to be wise with your money and practise good financial discipline even when there is no longer a global pandemic to worry about.
“Practice good financial discipline even when there is no longer a global pandemic to worry about.”
Malaysia Aug 2020 labour force expands but unemployment rate stays at 4.7%, 13 October 2020.