Despite COVID-19 restrictions easing across the country, the economic fallout from the pandemic continues to be felt by many thousands of Malaysians from all walks of life. However, it’s also the perfect time to look forward and make sure your finances are stronger than ever to meet whatever challenges arise down the track.
Indeed, with so many Malaysians still experiencing employment disruption like layoffs and reduced hours, now is an ideal moment to look at your budget, actual spending, and savings to make sure you can navigate these unprecedented times.
With that in mind, here are some simple and effective ways to budget with the money you have right now to make sure you build a safety net of savings and protect your financial health for the long term.
Revamp your budget
When it comes to budgeting, now’s a good time to get money smart so you can emerge stronger and more prepared in relation to your personal finances.
First, you’ll need to reassess your income. When it comes to this side of the ledger, you can split things up into dependable income, like your salary and things like capital gains from shares or dividends and examine what they look like now.
Depending on your individual circumstances, you might find your income has a new baseline if your hours have been reduced or if you’ve been impacted by a layoff caused by recent economic disruption. However, your spending may have fallen more than before COVID, creating excess savings which could be put away for emergency before your expenses increase again. Doing this analysis now, after the forced cut backs in spending during COVID may give you a foundation to start reassembling a sustainable budget that works with your expected income during these difficult times.
Cut your expenses
If you’re strapped for cash, the next thing you may want to do when figuring out your budget is look at how you’re spending your money and where you can make cuts. Some of these cuts may have already happened due to COVID with the forced reduction in your discretionary expenses like shopping, eating out, subscriptions and holidays. On fixed costs such as rent, utilities and insurances, you can actively look for better deals or ask for payments to be temporarily suspended or deferred, then restarted as social distancing eases and your financial situation becomes more certain.
Take a close look at essentials
With essential spending like housing, it also pays to get creative. For instance, if you’re renting, consider letting out a room to a lodger to help make up a sudden fall in income. Or, if you’re a home owner worried about falling behind on mortgage repayments, don’t hesitate to reach out to your lender about options for reducing your payments temporarily such as debt moratorium. You could also consider refinancing your home loan if that suits your particular financial circumstances.
Money for a rainy day
While some people may need to make fundamental changes to their budgets, today’s altered conditions also represent a chance to plan and safeguard against other unknown shocks that may occur down the track.
This is where building an emergency fund now is a smart idea. Just putting a small amount away on a regular basis can add up over time and make a big difference.
How much you should aim to have in your emergency fund will differ from person to person, but it’s advisable that it can cover the basics like rent or mortgage repayments, food, loan repayments, transport, utilities, and phone and internet for two or three months.
The final word
In these unprecedented times, being as smart as possible with your money is more important than ever. If history has taught us anything when it comes to budgeting, it’s that being on top of your personal finances goes a long way when you’re looking for extra security and peace of mind in times of greater uncertainty.
What is Raiz Philosophy? (Ringgit Cost Averaging)The Raiz Philosophy is to invest small amounts regularly. While this can’t eliminate market uncertainty, the Raiz Philosophy can help manage it, and at the same time help you learn about the markets, build financial confidence or just save and invest in the background of life. This is the well-known investment strategy, Ringgit Cost Averaging. Raiz automates the strategy and does it more frequently, with the average Raiz customer investing at least once a week. By investing small amounts regularly, the Raiz philosophy protects your investments from emotion. If prices go up, you buy fewer of the now more expensive shares and, if they go down, you buy more of the now cheaper shares. It’s an automated, disciplined approach to investing for the long term. Studies suggest that losses are twice as powerful, psychologically, as gains, leading this type of investment mindset to be more likely to make the mistake of needlessly selling holdings and switching to cash in a down market. By avoiding the media hype or fear in picking the ‘right time’ through regular contributions, investors can avoid both the euphoric and depressive investment traps. On average a Raiz customer saves RM150 a month with the average balance of a customer is RM1,250. In 2007, Buffett bet a New York hedge fund $1 million that his simple, low-cost investing strategy would outperform the hedge fund industry over 10 years. And he won. Stick to your savings plan and invest small amounts regularly, no matter the market condition. By protecting your investments from emotion, the Raiz Philosophy is one of the keys to helping you and our community to better reach your financial goals and enable a healthier balance over the long term. Remember: “The best time to plant a tree was 20 years ago. The second best time is now.” Any returns shown or implied in this article are not forecasts and are not reliable guides of future performance.
Avoids Bad TimingInvesting in one lump sum and trying to pick the best price to enter the stock is known as market timing and is something very difficult to do and get right. If an investor could have any superpower in the world, it would be to pick the low points of the market. Many have tried, succeeded and failed but no one knows exactly when the lows and highs will happen, and no one can stop unwanted surprises from happening. Ringgit Cost Averaging can provide a disciplined strategy as it ensures you are not too exposed to falls in the market when you buy at the top; and rewarding you when the market recovers, for buying when the market was falling. By not depending on the timing, RCA can smooth out the market’s ups and downs.
Reduces RiskRinggit Cost Averaging is most effective in a long-term saving strategy. As the market moves up and down, ringgit-cost averaging over time reduces your risks of trying to pick the best times to invest from these swings. By viewing falling markets as buying opportunities, you can significantly enhance your long-term return potential when the market rebounds.
Removes Emotional InvestingPeople often make decisions based on emotion or loss aversion. Loss aversion refers to an investor’s tendency to strongly prefer avoiding losses to acquiring gains. Studies suggest that losses are twice as powerful, psychologically, as gains, leading this type of investment mindset to be more likely to make the mistake of needlessly selling holdings and switching to cash in a down market. By avoiding the media hype or fear in picking the ‘right time’, investors can avoid both the euphoric and depressive investment traps. Ringgit Cost Averaging strategy is in line with the Raiz’ philosophy and provides a disciplined strategy. “We don’t have to be smarter than the rest, we have to be more disciplined than the rest.” – Warren Buffett
There’s no reason to wait on cutting your spending back — you can spend less immediately. It doesn’t take any special financial knowledge and you can start right now.For instance, think about scaling back your discretionary spending. This will look different for different people, but it could include cutting back on buying takeaway lunches, cancelling unused subscriptions or returning those fancy sneakers you just bought online. If you’re serious, it also helps to distinguish what you need from what you want, especially in a society that suffers from so-called “affluenza”. By taking a good look at this, you may also be able to significantly reduce your weekly and monthly outgoings. However, there is a limit, especially for Malaysians living in an urban centre like Kuala Lumpur, where the cost of living is high. If this is you, it’s likely your fixed costs — things like rent and transport — could be tough to dramatically reduce. Earning more The benefit of earning more isn’t hard to see — the more you earn, the more financial options you have, which potentially puts you on a path to financial security and abundance. However, one downside of aiming to earn more is that it involves risk. Often, looking to earn more involves stepping out of your comfort zone, whether that means retraining, changing jobs, starting your own company, or going out solo as a freelancer in the gig economy. Also, just because you earn more doesn’t mean you’ll have more money at the end of the day. Sometimes it’s the case that you end up spending more when your earnings increase, making fiscal discipline all the more important as you climb the ladder of wealth. Why not spend less and earn more? Remember, there’s always the danger that you end up having less time — and inferior quality of life — if your increased earnings mean you end up working around the clock. Ultimately, it’s about balance. Aim to get to a point where you have enough money to spend on the things you love to do while working at a healthy and sustainable level.
The start of the year is the ideal time to make some financial resolutions for 2020. One of the most common resolutions, when it comes to personal finances, is to be a better saver for the year ahead. This sounds easy in theory, but can be harder to achieve in reality.
With that in mind, here are five simple tips to help you achieve your saving goals in 2020.
1. Have a concrete goal
It’s basic but often overlooked — you’re much more likely to shift your spending habits and get better at saving if you have something to aim at. While the particular goal is up to you - it could be a holiday, a new car, or some new clothes - make sure it’s clear and achievable.
2. Budget wisely
A budget is also important because it allows you to see where your money is going. Once you’ve examined your income and expenses, you’ll be in a position to know how much income you have to work with at any given time, which will help you to save more effectively in the future.
What also helps, when it comes to maximising your savings, is to look closely at your budget and figure out how much you spend on discretionary items like clothes, holidays and eating out to see where your expenses in these areas can be trimmed.
3. Analyse your expenses
While reducing expenses opens up more opportunity to save, so does some lateral thinking. For instance, it’s a good idea to keep on the lookout for cheaper deals when it comes to banking, insurance providers or memberships on things like gyms and streaming services.
It also pays to stay on the lookout for cheaper brands of clothing and food, as well as savings on utilities such as power or water.
4. Get out of debt
It’s simple — debt is not your friend if you’re trying to save. Indeed, you’ll be amazed how much easier saving is when you’re not fighting against spiralling debt.
If you’re in this boat, try and get across how the interest on your debt is calculated and when it’s charged as this can help you manage your repayments and avoid paying unnecessary interest. It’s also a good idea — if you have several debts – to try and pay off the debt with the highest rate of interest first.
5. Phone a friend!
Even for the most disciplined person, saving can get difficult at times. That’s why it can help to team up with a family member, friend or colleague who also has a saving goal.
Still, if you do have to do it alone, think about imposing some hard spending rules on yourself. For instance, when it comes to impulse buys, one option is to impose a 24-hour ban on splurging the cash after it hits your account. If you impose such a “cooling-off” period on yourself, you may realise that what you wanted to buy was not so essential after all.