By Rafiq Hidayat Mohd Ramli
Managing your finances in the new normal is inevitable. You need to adjust yourself to have control over your financial situation.
Most of our lives have changed either gradually or drastically since the start of year 2020 due to the pandemic crisis. The deeper we went into the Movement Control Order (MCO), the more people out there started to worry on how they would continue to survive if the MCO continues indefinitely. Phrases such as emergency funding started to become a normal vocabulary for most as constant reminders or sharing was done by those within the financial space.
As of 4th May 2020, Malaysia is currently under what has been termed as Conditional MCO. In this conditional phase, most businesses have now been allowed to reopen with certain SOPs and guidelines being shared by the government on how they can safely operate throughout the current conditional phase.
Individuals are also provided SOPs and guidelines on how we should go about living our daily lives, as the threat of the pandemic will still be there at least for the next one to two years according to most experts. Most people out there have coined this new way of living, working, and running our business as the new normal in which all of us will have to adjust to, until the pandemic is under control or a vaccine/cure has been found.
This brings me to the point I was going to make. If the way we live has to adjust to this so-called “new normal”, will there be any changes to how we manage our personal finances? In this article, I will share how we should go about managing our finances in the new normal for the benefit of the readers out there.
#1. Review Your Personal Budget
First things first, we need to have a hard look at our personal budgets. Identify all your current expenses – this can be done from either your credit card statements, bills, and bank statements among others. Don’t limit your effort on your monthly expenses, but expand it further to the non-regular expenses e.g. quarterly, annually or even ad-hoc spending.
#2. Identifying Needs vs. Wants
The next step is to identify your actual needs and what are the wants that can be reduced or removed from your budget. My easiest way of identifying the difference between these two categories is that anything that falls under needs is something that will affect your ability to live. Anything that doesn’t fall under that category would be considered a want.
There will also be less spending at least for the next one to two years for those that love to travel (especially overseas travel) as most countries might not be opening their borders to tourists due to fear of the virus coming in to wreak havoc on their respective countries. Even if you can go to other countries, you might be quarantined before you can truly enter the country and also quarantined when you return to Malaysia.
Most employees are also expected to continue to work from home in this new normal, which will lead to less time on the road, which would mean less money spent on petrol (which is the cheapest it has been in the longest time), toll, and even parking. There would also be less wear and tear of your vehicles, which would hopefully lead to reduce spending on replacing parts that have worn out due to usage.
#3. Review or Manage Your Loan or Debt Commitments
A subset of this budget preparation would be your loan or debt commitments. With the 6-month automatic loan moratorium, you should look into taking advantage of this time to start reducing your debts with higher interest, starting with credit cards and personal loans. This in turn will help you reduce interest charges and if you’re disciplined enough, you might come out from this period with reduced or no credit card debts. Good riddance, and congratulations to you for taking the first step towards becoming financially independent.
#4. Preparing Your Emergency Funding
After re-analyzing your budget, you would be able to identify what would be the amount that you would need in order to survive for at least 6 months if you should lose your main source of income, be it your salary or business-related income. Better still, extend the goal to having at least 12 months in your emergency funding. It doesn’t hurt to take extra precautions. Remember the term emergency funding that you have learnt earlier during the MCO, now would be the time for you to kick-start your plans to actually have your own personal emergency funding. Yay for adulting!
You should make it a habit to put aside a certain amount from your monthly income into your emergency savings on a regular basis. Don’t make the mistake of trying to save after you have paid all your bills, spent on your wants and needs. Consider saving into your emergency funding as a monthly commitment that you need to put aside. This will help you to be more disciplined and help you to achieve your goal of having your 6 months emergency funding earlier instead of later. This is important, as we are still not out of the woods yet. If the economy doesn’t recover and you do lose your main source of income, at least now you would have some funds in order to help you figure out what are the next steps that you need to take in order to secure a new source of income to replace the one that you have lost. The opportunity provided by the automatic loan moratorium can also be used to help you build up your emergency funding if you haven’t yet done so.
For those currently using instruments that are prone to market movements such as stocks, unit trusts, or even gold as a means for your emergency funding, please take note, that your emergency funding should mostly be saved in an instrument that is liquid (able to withdraw within a few days if needed) and also not exposed to market movements i.e, you capital will not be reduced if the market goes south.
#5. Creating a Robust Investment Portfolio
In terms of savings or investing, please start looking into creating an investment portfolio. Diversify. If you are someone who has a sizable amount allocated to an asset class, e.g. property, my advice is don’t double down on buying additional property right now even though property prices might be going down, and there might good potential purchases for you out there. Remember, we do not know exactly how long this “new normal” will continue to last.
What would happen to your new property purchases if no one can afford to rent or buy it from you as they’ve lost their source of income? How long would you be able to last i.e. your emergency funding/war chest if the above scenario continues indefinitely? Having a diversified investment portfolio would be able to help take advantage of different movement in all the different markets which will help you achieve your wealth accumulation goals.
Managing your finances in the new normal doesn’t seem to be much different compared to how it should have been managed before the pandemic. It is just that most people did not take the necessary precautions nor planning to ensure that their finances would be able to withstand such shocks.
One good thing about the pandemic, is that more and more people are now aware the importance of managing your finances and even understand the importance of proper financial planning to the overall health of your personal finances. I hope that we have all learnt our lesson here, and will start to look into managing our finances more effectively for our own benefits in the future.
What is the most important aspect to manage your finances in this new normal situation? Share with us in the comments section below.