Planning a Budget

1) Know yourself

Before you start planning your budget, take some time to observe and record your current income, expenses, and spending habits.

Take note of your:

• Assets – the things you own that are of value e.g. your car, motorcycle, computer, etc.
• Liabilities – what you owe others e.g. vehicle loan, personal loan, unpaid bills, etc.

2) Set your priorities (needs & wants)

Differentiate between the things you need and the things you want. Your needs are always more important than your wants. Identify your top 3 goals, e.g. retirement planning, a down payment for a home, emergency savings. 

3) Plan out your budget

Look at your current expenses and identify what items you can save on and what items you don’t actually need. At the same time, look at things you should spend money on, like paying off your credit card debt or buying medical insurance. 

Use an expense tracking app or a simple journal to record all your expenses

There are many apps available to track your spending habits, and you should choose one that suits your needs. Spendee is an example of a tracking app that is both functional and easy to use.

Try it out for a week or, even better, for a month. You’ll be amazed to learn where your money is going.

Have a look at your monthly income and expenses

Now that you have all your spending information, use our worksheet to see where your money is going. 

Don’t be afraid of what you think you might see.

Items	Budgeting Tips
FIXED EXPENSES:
Rent	If your rental agreement is ending soon, try to negotiate a lower rent for the next rental period, or shop around for a cheaper place to rent.
Utility bills	Simple tips to save on your utility bills include using energy efficient bulbs, setting your air-conditioner to a higher temperature (e.g. 25°C), and having shorter showers.
Food	Eat out less often to save on your food expenses. Do you really need to eat out for lunch every day or can you sometimes bring lunch from home?
High interest debt repayment (Debt with high interest rates e.g. credit cards, hire purchase loans, personal loans)	Because of high interest rates, it is best to pay off these debts as soon as possible to avoid late payment penalties and to keep your debt under control.   Paying off high interest debt saves you about 18% of interest annually, so every ringgit you pay off is like a guaranteed high-return investment!
Other loan repayments (E.g. home loans, car loans)	Pay these on time to avoid being charged a penalty or late payment fees.
COMMON EXPENSES:
Daily travel (Fuel, parking, toll)	Use public transportation. If you must drive, leave early to avoid traffic and save on fuel.
Phone & internet	Are you using the right phone & internet package to match your needs? A prepaid phone plan might be cheaper than a postpaid one. Always keep an eye out for special offers as well.
Home-related costs (e.g. service fees for apartments, home repairs, etc.)	Try fixing the simple home-repair problems on your own or seek the help of family and friends, instead of hiring someone to do it for you.
Clothing	Always shop around for the best deals and buy items on sale whenever possible.
Other expenses (E.g. insurance, gym membership, courses, etc.)	Certain activities like exercising and learning new skills can be done for free, e.g. by watching videos and reading articles online.
INCOME-RELATED EXPENSES:
Taxes on other income	If you have any side income on top of your salary, make sure to declare this income and pay your taxes in full each year to avoid penalties in future years.

	Short Term	Long Term
Needs (Necessities)	Home-cooked food Affordable rent Affordable groceries Emergency funds Essential clothing Basic utilities Basic mobile subscription Basic phone	Retirement Public education  Basic home  Life insurance (if you have dependents) Basic car/motorcycle Basic medical insurance Basic household equipment
Wants (Extras)	Netflix The latest smartphone Starbucks coffee Family holiday Cigarettes Expensive watch Expensive clothes Restaurant food Air-conditioning	Vacation  Premium car/motorcycle Luxury home Expensive furniture Private education Private medical treatment  High-end medical insurance

Decide on a few priorities for your budget next month. Use the diagram below to help you figure out your priorities in the short and long terms.

Budget quadrants

• Needs (Necessities)

Your needs are the important items that will get you through your daily life.  These are the things you need in order to live such as food, a home, transportation, etc.  

• Wants (Extras)

Wants are the things you desire to buy for your pleasure or convenience. For example, home-cooked food is a need but eating out at restaurants is a want, because you don’t have to eat out. You just like to. Driving a car can be a need if you have no other option, but often it is a want because you don’t like taking public transportation.

• Short Term

Consider items you will need to spend money on in the next few weeks or months.

• Long Term

Long-term items are items you purchase that you will use over the next few decades.

By thinking about what you need in the short run and long run, you’ll have a better idea of how much you need to save for the future. 

We’ve included some examples in each section to help you get started, but feel free to make any changes to suit your own situation.

Now that you’ve clarified your short term and long term needs and wants, have a look at your worksheet again and figure out what your new budget will look like after you’ve cut out the expenses you don’t need and included the expenses you do need. 

For example, you may decide that you don’t want to drive to work anymore, so you can significantly reduce your petrol costs in your worksheet. You may decide that you would like to pay off all your credit card debts first, and budget a higher amount for that in your worksheet. Reconsider your subscriptions like Netflix or Spotify – do you really need them? Or try switching to a family plan and sharing the subscription fees with others to reduce the cost of these items.

Here are some guides to help you through this process:

• Prioritise paying off credit card debt first

Don’t even talk about savings or bill payments if you have outstanding credit card debt. Credit card interest is incredibly high, and you can wind up paying 1/3 to 3 times more the cost of something if you leave it unpaid for a few years. You should try to pay this off as soon as possible!

• Budget to settle immediate dues from other loans

Paying off your other commitments regularly will help you maintain a good credit score, which will reduce your interest costs. Pay off these loans at a steady pace so you can also save a bit of money each month. 

• Aim to have at least 6 months of your salary in emergency funds 

Don’t forget that nothing is a given in life. At any point, you may lose your job, or fall ill and become unable to work. There may also be sudden repairs required for your home or your car. 

The best way to build up an emergency fund is to create a separate bank account and automatically transfer a portion of your monthly salary into the account as your savings for emergencies. You don’t have to allocate a significant amount, but you should keep this account separate from your other savings, and don’t touch it!

Knowing that you have a stash of emergency funds that is growing is a very comforting feeling. 

• Save as much as you can for your retirement and be sure to invest in something secure and inflation-proof

It’s a good idea to make voluntary contributions to EPF if you already have enough funds to cover emergency expenses and other short-term needs. Why? Because EPF guarantees a minimum return, is well-diversified, and produces satisfactory returns that will help to ensure that inflation won’t eat away at your money in the long run! 

If you would like to invest in other investment products, deal with people you trust, and always do your own research.  To learn more about investing, click here.

• Allocate 10% of salary for wants

It helps to put a cap on unnecessary expenses. This way you’ll have some money for fun and you will still feel good about yourself because you are exercising control over your expenses. 

• Make sure you have life insurance if you have dependents

Life insurance is not necessary if you don’t have anyone dependent on your income to survive. IF you do, then it is essential. Should anything happen to you, the insurance policy will ensure that your family is covered with a payout that will help them make ends meet when you are gone. 

Finally: General tips for financial management

• Take your financial situation in your own hands and believe that you can improve it. Remember that YOU are in control, so don’t place your financial fate on external factors. 

• Save even if it’s only a little bit every month. However low your income may be, there is usually some expenditure that can be done away with, allowing you to save and have some breathing room. 

• To cut down on your expenses, try to give up some of your wants. You’ll be surprised by how much you can save by giving up that daily Teh Tarik or Starbucks Coffee!

• Aim to be debt free. Debt gets in the way of freedom. Credit card debt is especially dangerous and should be avoided at all cost. 

There are no quick fixes to financial difficulties, but the process of managing it by identifying and cutting down your expenses, paying off debts, and saving for the future can be incredibly rewarding, no matter how bad your situation is. The key is to take the first step and go to the right place to seek help.

• Budget to pay off all your loans, especially your mortgage, before you retire! It’s easier to pay off your mortgage first than to invest your money and pay later.

(Acknowledgement: Certain sections of this content were inspired by advice from Suze Orman.) 

Have a go at filling in this worksheet to see where your money is going and decide on what items you might be able to reduce your spending.

Step 1: First, figure out how much money you get each month

Download editable template here.

Fill in your income information below:

INCOME	AMOUNT (RM)
Take home salary (The salary amount handed to you after tax, EPF, EIS, & SOCSO)
Other Income (Rent, business profits, part-time work)
Minus:
Taxes on other income (If applicable)
Net income

Step 2: Have a look at your expenses

If you’ve been tracking your spending with an app, you can enter the information from the app here. Otherwise, fill in what you know.

EXPENSES	AMOUNT (RM)
FIXED EXPENSES:
Rent
High interest debt repayment (Debt with high interest rates e.g. credit cards, hire purchase loans, personal loans)
Other loan repayments (E.g. home loans, car loans)
Insurance
COMMON EXPENSES:
Utility bills
Groceries
Other food expenses (e.g. takeaway food, snacks, coffees, restaurant meals, etc.)
Daily travel (Fuel, parking, toll)
Phone & internet
Home-related costs (e.g. service fees for apartments, home repairs, etc.)
Clothing
Other expenses (E.g. gym, courses, TV streaming subscriptions, etc.)
TOTAL EXPENSES

Step 3: Compare your net income with your total expenses

Are your total expenses more than your net income?

If they are, you could be getting into debt. Look for ways to cut down on your ‘wants’.

If they are not, you are able to save some money each month. You can look at what you might want to save for in the long term. 

For more info, re-read Steps 2 & 3 of Planning a Budget and check out our other articles on saving and investing!