15 April 2021
It can be easy to lose track of your finances during the holy month of Ramadan as you head out to iftars with close family and friends, shop for Eid, and donate to charity. Overspending could eat into your or your family’s short-term financial goals, especially if you end up accumulating credit card debt or dipping into your savings and investments to pay for unplanned expenses.
Ramadan has already started, but it’s not too late to get a hold of your finances, similar to how you might manage your expenses while on holiday. Think of the holy month as an opportunity to take stock of your finances and set healthy financial habits for the future.
Here are some ways you can plan your finances this Ramadan.
We want to make certain times a year special, which is a recipe for overspending. So, understand how much you can spend without compromising your current or future finances. That amount is your budget for you to spend on food, clothing, gifts, entertainment, and donations.
Stick to your budget and don’t skip saving and investing. Also, try not to put more than you can realistically pay off on your credit card. By dipping into your savings and investments, you could miss out on longer-term gains and disrupt them from compounding.
Here’s an extra tip to keep you on track with your finances throughout the holy month: If you’re spending this Ramadan with your family or partner, consider planning your budget together to keep you motivated.
By spending intentionally, you'll be practising values consistent with Ramadan: mindfulness, self-control, and moderation. So, weigh up your options carefully and consider where it’s worth spending and where you can look for cheaper alternatives instead. Remember, your expenses at this time of year can add up quickly.
Here are a few simple ways you can spend smarter this Ramadan:
With COVID measures in place, it’s even easier to keep your finances in check. Instead of eating out, consider breaking fast at home more often over the holy month.
Thoughtful gift-giving starts with knowing what the recipient will enjoy and appreciate. Giving homemade sweets and snacks or inviting friends and family over for dinner can often be more personal and cost-effective than gifting commercial clothes, jewellery, or toys.
It’s easy to misjudge your appetite on an empty stomach and spend more than you need to on food - many people tend to overeat when breaking their fast, impacting their health. Sticking to your food budget is one way you can avoid overeating while keeping your financial health in check.
Consider wearing your best outfits instead of buying new ones and reusing decorations you already have, such as lights and banners from previous years’ celebrations. And if you decide to purchase a new outfit, try looking for something that you’ll be able to wear multiple times.
Have you already made shopping lists and taken note of recipes? Was that last iftar you hosted a winner with your family and friends? Who did you give gifts to this year? Keep these notes on hand for next year’s Ramadan.
Taking note of your Ramadan planning can help you plan for the next holiday. You could even buy your gifts throughout the year rather than waiting for the Ramadan. If you know you want to get your sister a shawl, why not keep a lookout for one during the months ahead rather than waiting for Ramadan to start shopping?
When we shop at the last minute, we’re more likely to pay more for the convenience of getting something quickly and easily, which can add up and significantly inflate our expenses.
And remember, preparing in advance isn’t just about maintaining your financial health - it’ll also save you time and energy during the holy month so that you can focus on spending quality time with your family and friends.
If you already have a monthly savings or investment plan for your mid- to long-term goals, then why not set up a holiday fund? You can use this fund to cover any holiday expenses including next year’s Ramadan, and you can always top it up for other holidays, too.
Here’s an example of how you could save up for the next Ramadan using a dedicated fund:
Let’s say you want to set aside $5,000 USD next Ramadan for clothes, food, and gifts. You can start setting aside $1000 USD of your monthly income several months in advance to fund your expenses next Ramadan.
That way you won’t feel guilty for spending money you’ve already set aside for Ramadan, reducing any emotional or financial stress that comes with planning for the occasion. Having a plan will also prevent you from spending your safety net or dipping into your long-term savings and investments to pay for last-minute expenses.
Ramadan is an opportunity to reflect, build discipline, and practise self-control. It can also be an opportunity to build healthy financial habits, which will prepare you for a wide range of expected and unexpected expenses.
As Ramadan is a predictable and recurring expense each year, make sure you give yourself the freedom to relax and enjoy the holy month by considering its expenses as part of your overall financial plan. The habits you practise today can go a long way in building your wealth for tomorrow.