One Budget Under One Roof
On 7 October 2011 the Prime Minister Dato’ Sri Najib Tun Razak tabled the 2012 Budget. Before 2012 rolls in, let’s review a few key points from the Budget and consider their possible effects on your household budget.
Readjust your household budget to ease cost of living?
With rising inflation around the world, Malaysians are not spared from rising costs either. Thankfully, petrol subsidies are maintained, at least for another year. While the government’s assistance may offer some reprieve, a household could probably better face the rising cost of living by managing its household spending. That is why you need a 2012 Household Budget of your own.
Start your own household budget
The word “budget” may seem like a straitjacket, curbing you from living your desired lifestyle. That may not necessarily be the case. In its purest form, a budget is a plan for your money that can help you achieve your life’s larger goals.
Unlike the national budget that takes into consideration a myriad of sectors and people groups, a household budget is far simpler. It may comprise of these 4 major components below.
Your household budget may evolve according to income, stage in life and future plans. As your life’s priorities change, so will the percentage of income you place on your household budget’s major components. For example, if you have young children, you may find that you need to spend more money on their food, education, toys and others. Later in life, as they become independent, your need to support them financially may diminish.
Where do you start?
Here are 8 key principles in household budgeting:
1. Track your money
Note your income and daily expenses to gauge your earning and spending habits. How you want to do this is up to you. Pencil your expenses into a notebook. Tap them into an application like HomeBudget. Or key into an Excel sheet or online tools such as www.budgettracker.com and www.budgetpulse.com. You do not need to keep up with this indefinitely but long enough for you to observe patterns.Don’t forget the little cash expenses too. Usually it’s easy to list the big ones like your mortgage but forget the daily newspaper you buy on the way to work.
2. Review your earning and spending
At the end of every month, tally up your daily expenditure. You will now have a monthly snapshot of your spending. Review the data and note the red flags. Are you spending too much on DVDs? Could you possibly shave RM200 from eating out and channel it towards an investment such as a retirement fund?
3. Have clear priorities
Without goals, budgeting is just a chore. But if your heart is set on some thing you want, your budget becomes the roadmap. Is it a new house? An extraordinary vacation? Work it into your budget to progress towards your dreams.
4. Assign every ringgit a job
With your priorities in mind, you can then begin to assign every ringgit to categories in your household budget. Spending becomes purposeful and not driven by impulse or your account balance.
5. Break payments down
Turn time into your ally. If you know you have large payments such as your child’s college semester fees in a few months’ time, break it down into smaller portions. Make it a goal to save the needed amount every month. When the time comes, you will be ready.
6. Do it month by month
Fortunately you don’t have to map out the entire year like the government does. Set a reminder on the 15th day of every month to plan for the next month’s budget, taking into account special events that costs money, payments due, the amount you’ve saved or overspent. You can consider using convenient payment methods such as HSBC’s Bill Payment service via online@hsbc and HSBC Mobile Banking. These services are available 24 hours a day, 7 days a week. You can select and create your personal Payee List from the list available, set up recurring payments and easily settle outstanding bills every month without missing a payment. Review the previous month’s budget as a guideline and look for ways that you may improve your budget. Please log on to www.hsbc.com.my to find out more about how you can pay your bills in comfort.
7. Spread out the safety net
An unexpected home repair, hefty car repair bill can derail your best laid plans. An emergency fund is a smart step to help cushion life’s unpredictable moments. If you don’t have one, start budgeting it in.
8. Fine tune along the way
You may not get it right the first time round. But keep at it and allow yourself some flexibility to adjust and tweak your budget. Do keep it simple so you can stick to your budget with ease.
Dealing with rising debt
The monthly salary comes in. By the first week, it’s half gone as the home loan, car loan and credit card debt payments become due. That’s the situation Malaysian households find themselves caught in.
The Star reported that the “Malaysian household debt service ratio, which measures the ratio of debt payments to disposable personal income, has jumped about 10% points to 49% in 2009 before easing slightly to 47.8% in 2010.”4 Which means, Malaysia households spend almost half their disposal income for debt repayments, leaving them with very little for food, transportation and other living expenses.
Housing loans top the list as the biggest portion of the Malaysian household debt, followed by passenger car loans, personal loans and credit cards.
Is there any cause for concern? “Generally a debt service ratio of 30% is acceptable, i.e. one third of a household income is used to pay off debt (principal and interest). Looking at the problem from the ratio of household debt to disposable income, this ratio is 140.4% for Malaysia, one of the highest in the world; above that of Singapore at 105.3%, USA at 123.3% and Thailand at 52.7% in 2009. This means that the loans taken by each household in Malaysia is on average 1.4 times more than its household income.” writes The Malaysian Insider.5
In the long run, a high debt ratio may make the economy and financial sector more vulnerable to instability and crisis. “Debt is like a rubber band. Stretched too far and it will snap, and that is just what’s happening in Europe and recently with the United States when the government reached the ends of its debt elasticity,” reports The Star.4 Growth in personal consumption driven by debt, rather than by income growth, is not sustainable and will be derailed with an increase in interest rates and inflation.5
If you find yourself taking on more debt that you should, take immediate measures to reduce it.
Reconsider your home loan
Refinance it if you are paying too much interest. Choose a flexible home loan like the HSBC Amanah HomeSmart-i that lets you pay more when you can, so that you can whittle down the interest payable. You may choose to deposit your salary and bonuses into HomeSmart-i account and withdraw them if you need to. As interest is calculated on a daily basis based on your current outstanding balance, retaining more money in your account will help reduce your current outstanding balance and interest.
Review your outstanding credit card balances
If you are paying up to 17.5% p.a. interest rate on your other bank’s credit card balance, why not consolidate your other banks credit cards outstanding balance to your HSBC credit card? HSBC has a Balance Transfer (BT) programme which gives you savings on interest up to 78%. Log on to www.hsbc.com.my for HSBC Balance Transfer offers.
Get professional financial advice
You may want to consult the Credit Counselling and Debt Management Agency, or commonly known as Agensi Kaunseling dan Pengurusan Kredit (AKPK). AKPK is an agency set up by Bank Negara Malaysia in April 2006 which offers counselling and advice on managing your finances wisely – from budgeting, money management and credit related issues. Please visit www.akpk.org.my for more details.
For more information on how you can manage your household budget, save and invest more, please talk to your Relationship Manager.
1 New Straits Times, “Middle income group included” 13 October 2011
2 New Straits Times, ‘My First Home Scheme’ launched. 8 March 2011
3 The Star, “Malaysia likely to reach ageing nation status by 2035, 27 April 2010
4 The Star, “Rising Household Debt”, 17 September 2011
5 The Malaysian Insider, “Household debt in Malaysia – Is it sustainable? — S.M. Mohamed Idris”, 26 April 2011