FINANCIAL PLANNING TIPS

MANAGE YOUR BUDGET

• Know the difference between a “need” and a “want”.

• Track your daily expenses closely for four (4) to six (6) months until you know your spending habits well enough to develop a realistic budget.  

• Periodically review your fixed and variable expenses; don’t assume fixed expenses can’t be adjusted too.

• Save five (5) to ten (10) percent of your net income every month.  Pay yourself first – don’t just save the leftovers.

MANAGE YOUR CREDIT

• Pay your bills on time to maintain a good credit record.  If you get into difficulties contact your creditors and explain your situation.

• Avoid using your credit cards unless you plan to pay the total amount due at the end of the month (or if you are trying to build up a good credit rating).  STAY AWAY FROM PAYING INTEREST AND LATE PAYMENT FEES.  With regard to Interest which is a component of Riba, this is prohibited in Islam and there are many verses in the Quran and ahadith which mention this.

Hazrat Jabir (ra) has reported that the Messenger of Allah (SAW) cursed the devourer of usury, its payer, its scribe and its two witnesses.  He also said that they were equal (in sin).

MANAGE YOUR INVESTMENTS

• Establish an emergency fund first, before you invest.  Your emergency fund should have the equivalent of three (3) to six (6) months’ income.

• Work with someone you trust, and who understands your financial objectives.

• Never invest in something you don’t understand.

• Be a little sceptical.  If it sounds too good to be true, it almost certainly is.

• Don’t put all your eggs in one basket.  Work for a balanced investment plan that permits your capital base to grow, and that can provide income when you need it.

• Once you’ve made investments pay attention to them.  Ask questions, and stay informed.

MANAGE YOUR RETIREMENT AND ESTATE PLANNING

• Keep records in a system that others can understand and access.  Should something untoward happen to you, it will be easier to sort out your affairs.  Have someone you trust know where all financial and legal records are, as well as the names of lawyers, accountants, and other advisers.

• Ask your employer’s benefits administrator to explain all your employee benefits so you can include information in your personal records.  Make maximum use of benefits when they are needed and decide whether you should supplement them.

• Periodically check the amounts accruing in pension plans, supplemental annuities, etc.

• Make a will and review it periodically.  Couples should avoid mutual wills.  It is the duty of a Muslim who has anything to bequeath not to let two nights pass without writing a Will about it.  This is even more important for us today as the laws of inheritance in the countries most of us live are in contradiction to the Shari’a of Islam.