Journey To Understanding Finance The Islamic Way: savings

When Reality Kicks In...(Part 1)

business 6/06/2016 02:26:00 am

Bismillah...

Assalammualaikum my dear loyal blog readers.

Salam Ramadhan Mubarak to all my Muslim blogreaders. It has been two months since I blogged a new topic (exclude seminar/talk summaries), duly because April was the month of exam preparation and exams for my first trimester and May was the start of my second trimester.

Some may wonder why I took up double major in Accounting and Finance, and not just either one of it. Passion. Passion about money management to help the community, which was instilled since I was in my last year in Polytechnic.

How does Accounting and Finance actually enable me to help the community? As you all know that Accounting deals with business accounts and Finance deals with the investment portions. Both have macroeconomics and microeconomics impact in a country and throughout the whole world. Both actually involves alot of planning and decision making. I can relate both majors into an individual, in terms of an individual perspective of how an individual should manage their financials, on a smaller scale but with a major impact to the whole economy cycle. Sounds complicated right?

Here's a diagram which I have drawn of the whole economy cycle (I hope it does not look that complicated).

Blue arrows represent contribution or spending. Black arrows represent profit gained.

To improve the economy, it starts with YOU as an Individual or as a Business (depends on which point of view you are looking at).

Spend wisely, invest using knowledge, protect with the right coverage, constantly invest in yourself in terms of acquiring new skills or knowledge. All these requires Knowledge. An individual has to constantly seek knowledge, especially Financial Literacy.

I've been mentioning of a financial bubble/ticking financial time bomb which may burst/explode anytime soon if the economy does not change its direction. If you can recall the 2008/2009-Mortgage Crisis in the US.

I'll continue in my next blogpost, in syaa Allah, on what is exactly the financial bubble. Aamiin. Stay tuned! Kindly provide feedbacks if the pictorial above is rather self-explanatory or confusing.

Kindly help me do a survey study in order for me to provide the right knowledge to you. Thank you. (Survey is here)

Wassalam.

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Talk Summary: Q&A On Money Matters (8 May 2016) @ Guthrie Building

expenses 5/16/2016 07:04:00 am

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Event Summary: WOW Workshop - Insurance: A Need or Confusion? (6 February 2016)

expenses 2/06/2016 10:14:00 pm

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Part 5:Public Speaking Experience @ Menjana Masa Depan Yang CerahForum @ NKF Kim Keat Road, 15 November 2015.

financial plan 12/21/2015 11:44:00 am

Bismillah...

Assalammualaikum everyone! Here is the final summary of the forum. Thank you for patiently waiting for the complete set of my summary of the forum. I hope all of you have gained some knowledge through my experiences and enjoyed reading them.

So here goes to the final summary which will be the Conclusion (Overview).

In Conclusion, as a human, we have to lead a simple life, learn to help one another, stay happy with your family by your side and live according to religious and country laws. This creates a harmonious life, so that in times when you need help, people will willingly help you.

Sorry but I have been repeating this, but because I care for my blogreaders, I shall repeat my mantra: Save 10% of your Salary for your Emergency Savings, which is 6 months worth of monthly expenses.

Be smart when spending for your expenses, plan out your monthly expenses at the beginning of the month, track your daily expenditure and then review your monthly expenses at the end of the month and ensure that you cut down on the unnecessary expenses. Yes, I know that most of you would be groaning because of the tedious steps you have to do. Always remember, something good for you, doesn't come easy. One has to be discipline and put in efforts in order to be successful. Make sure you are being consistent.

Once you have the basics such as Emergency Savings, proceed on to do Investments. When you receive profits, don't forget to pay your Zakat of 2.5% and donate some money to the needy.

Ensure that you have also start planning for your Wealth Distribution. Keep in mind that one day when you are not around, make it a clear cut kind of wealth distribution so as to provide miscommunication. This is where you should have instilled good life values in your spouse and children at the very start when the family is young. Ensure that they are taught to be grateful with what have been given to them and not be greedy.

Last but not least, I have been harping about the importance of your financial planning, as this is important especially when you are feeling unwell, a sick person spends more money as compared to a healthy individual.

Would you want to worry when you are having lack of funds when you are sick? No?

Then why wait? When you can actually take actions and start planning now before its too late.

It's your responsibility to ensure that your life are in order. Not others. Other people around you, who really cares, have limited capability to help you. The only one who can help you is yourself.

With this, I seek forgiveness for my lacking in writing, the mistakes I made, is from myself, and the good and knowledge is from Allah. Till we meet in the next blogpost, if God permits. Aamiin.

Wassalam.

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Part 3:Public Speaking Experience @ Menjana Masa Depan Yang CerahForum @ NKF Kim Keat Road, 15 November 2015.

expenses 12/10/2015 01:13:00 am

Bismillah.

Assalammualaikum to my dear blogreaders.

This summary blogpost is the 3rd of 5 for the Menjana Masa Depan Yang Cerah Forum. Keep on looking out for the upcoming blogpost.

Last blogpost I wrote about "Understanding Needs and Wants" and "Financial & Life Plan for different stages of life". In this blogpost, I will be covering about what I shared during my session, "Managing Expenses and Creating Emergency Funds".

Here's the action plan:

1) List down your Life Plan for the next 5years, 10years, 20years etc.

2) Include your Financial Plan into your Life Plan. This Financial Plan is to plan how much you should have by that age. Not only that, include the type of financial instrument that will be used to help achieve your financial goals.

Now you already have your Life Plan and Financial Plan, it's time to go down to the core, which is how you manage your Income, Expenses and Emergency Savings.

Before sharing how you manage your Income, Expenses and Emergency Savings, I would like to put this across:

Are you in denial? Yes? No?

You should save first, and then spend the balance.

Proceed on reading tips on managing your Income, Expenses and Emergency Funds.

First ensure that you have set aside at least 10% of your salary for Emergency Savings.

Then list down your Fixed Expenses:
1) Mobile Bill
2) Transport

Next shall be your Variable Expenses:
1) Utilities
2) Groceries
3) Food (Eating out/Lunch out)
4) Medical Expenses
5) Children allowances
6) Handphone bills/Telco bills

Tips: Try to cut down on unnecessary spending.

Here are some of the things you can cut down on:

Handphone Bill:You can try to minimize usage of watching videos on the go, so as to not over exceed your internet data usage.
Groceries: Try to find cheaper options for the goods you are purchasing. Healthy food does not need to be expensive. List down the food items you plan to buy and plan ahead of your daily meals menu.
Food & Beverage: Cut down on the frequency of eating out or lunching out. Try to cook dinner at home and pack your lunches. This sure saves alot of money.
Transportation: Cut down on using taxi to go to your destination.
Utilities: Switch off lights and fans if you are not in that particular room. Opt for fans instead of air-condition as air conditioner uses more electricity.

Don't forget to give some donations. :)

So, as per the scenario in the figure above, the total Expenditures is $2,690. Mr Ahmad has a surplus of $460.

Emergency Funds are funds where you only use it in case of emergency where you really need money to bail yourself out from financial difficulty. These funds are the ones that you set aside 10% of your income/salary before you spend on expenses.

Emergency Funds (6 months worth of expenses) = $2,690 x 6 = $16,140

Kindly ensure that you have enough Emergency Funds before proceeding on Investments or other kinds of activities which requires funds.

Lookout for my next blogpost where I'll be covering more on "Investments and Estate Planning". Au revoir (Till we meet again.).

Wassalam.

Taken during the Forum.

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Investments? What's that?

finance 8/28/2015 11:20:00 pm

Bismillah.

Assalammualaikum everyone.

In this blogpost, I will uncover about Investments. For those of us who are not financial savvy, I may use some technical jargon, but will explain what it means, just in case when you meet your advisers, you will understand what they are actually explaining and providing you.

Long Term Investments:

Long investment horizon of more than one year.

Short Term Investments:

Short investment horizon of less than 12 months.

High Risk Investments:

Usually expose with high level of risk but it comes with high profits.
This type of investment are usually being recommended to medium to high risk tolerant type of investor.

Low Risk Investments:

Commonly expose to low level of risk and comes with lesser profits.
This type of investment are usually recommended to low risk to medium risk tolerant type of investor or an investor who plans to keep aside their money for a short period of time.

Glossary:

Investment Horizon: Duration of investment.
Risk: Investment risk factors can be due to economical, socio-political, natural disaster, market and other types of factors.
High Risk Tolerant Investor: An individual who are willing to lose a large amount of money for a certain period of time before the market recovers, and willing to hold on during the period of time the market is not doing well.
Medium Risk Tolerant Investor: An individual who are willing to lose a minimal amount of money for a certain period of time before the market recovers, and either willing to change to another fund or type of investments during the period of time the market is not doing well.
Low Risk Tolerant Investor: An individual who is not willing to lose their money at all.

I have shared the basics of what are investments and the technical jargons. So here is the real thing...

I have some friends who FB message me: "I would like to invest... How do I go about it?" or "What is the best investment plan can you suggest to me?". Want to know what I answer them? Stay tuned for the next blogpost on Monday, 31 August 2015. Till then.

Wassalam.

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Introduction To Financial Planning and Life Planning (Part 2)

estate plan 8/21/2015 07:55:00 pm

Bismillah.

Assalammualaikum everyone! Salam Jum'ah Mubarak! I am sure some of you are waiting for my blogposts. Thank you for your patience in waiting.

I ended my last Monday's blogpost on the first Life Cycle Phase-Young (1-25 yrs old). I will cover the rest of the Life Cycle Phases in this blogpost. Here goes...

Family Formation (26-35 yrs old):

I am sure, majority of us around this age are financially stable and are looking forward to build our very own family or already have a young family with young kids. Want some tips?

Getting married (FDB: Future Detailed Blogpost):

1) Plan your wedding with your partner, compromise and keep it at low cost but of quality.

2) Shop around for good wedding package, venues, invitation cards (if you can design your own card, it will be cheaper), catering etc.

3) Honeymoon destinations? Check out Tripzilla or Agoda or other well-known sites. Make sure you do your homework.

4) Saving for wedding? It is a matter of sacrifice and discipline. It is either you choose to have:

Set up a small online business
Sign up for investment schemes eg.

2.1: CPF Investment Schemes (you may start investing your CPF if you are at not an undischarged bankrupt, have more than $20k in your OA, and or have more than $40k in your SA) ,or

2.2: Endownment schemes (I would advise those who wants to take this, to start as early as 5 years before marriage age, as some endowment plans can withdraw partial amount after 5 years or 10years, depends on the contract - check with your financial advisor.

3. Cut down on your unnecessary expenses, bring home-cooked lunch, or cycle from home to work (if only your workplace is nearby home) or cut down on taking taxi.

Young Family With Young Kids:

Dont feel that your kids are a burden as they are actually blessings from Allah. Keep this in mind whenever you feel financially pressured. Fret not. Here are some tips that I gathered from the people around me who are young and have their own kids.

1) Buy your kids milk formula at Traditional Chinese Medicine (TCM) Halls as they are much cheaper.

2) New mummies out there, breastfeeding is good for both mother and child as it helps create a special bond between both. Not only that, your child actually obtain lots of nutrients from your breastmilk. Plus, this is a cheaper alternative.

3) Diapers: Need not get the most expensive ones (find quality but cheaper cost), because your baby only use them once and then throw them away. I suggest for home daytime use, you can make your own home-made diaper (cheaper, but you need to keep washing the cloth).

4) Baby clothes: Baby grows very fast especially when from newborn. Get for your baby clothes that can last until he/she is 2mths old or more (its going to be abit baggy). Cheapest options are hand-me-down clothes from your relatives or friends whose kids have outgrown them.

5) Saving for your kids:

Open a bank account for your child and save monthly.
Start an endowment plan of 10 years or more (keep in mind this saving is for your child's college/university fees or their wedding)
Don't forget to apply for insurance (get Takaful Insurance, if you have this option) for your kids). Have a mindset that this is for emergency days in case your kids got sick and hospitalised and you are lack slightly in terms of financial.
Get your kids to start saving money on their own with their pocket money. Encourage them to save at least 50 cents a week or more (depends on individual parents). Point is, educate them about managing their finances.

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Family Development (36-45 yrs old)

At this point in time, majority of you would be having kids who are already in their primary school or secondary school stage. It is time to start thinking further about your investment plans and retirement plans.

Keep in mind:

- That you have to save at least 10% of your paycheck before spending on your expenses.

- Ensure that before you start investing, you should have at least 6mths worth of savings which enable you to pay for your expenses.
- Get yourself covered with insurance protection too.

- Ask yourself, how long do you plan to do this investment? The following ones are long-term investment strategies (FDB: Future Detailed Blogpost):

CPF Investment Schemes (you may start investing your CPF if you are at not an undischarged bankrupt, have more than $20k in your OA, and or have more than $40k in your SA) ,or
Endownment schemes (upon maturity, you will get a big sum of money which you can withdraw wholly. Don't forget to pay Zakat on Insurance of 2.5%)
Buy physical Gold bars at a low price. Sell them when you are out of money and no other options (make sure you sell them at a high price), or keep them for future inheritance for your kids when you passed on. Don't forget to pay Zakat on Gold if your Gold bar investments are above the Zakat Nisab value.
Invest in some Crowdfunding efforts.

- Short-Term investment strategies are as follows:

Fixed Deposit.
Savings account with the highest hibah.

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Family Maturity (46-55 yrs old)

This is the time when your kids are all-grown up, either in university or getting married.

Tips from Family Development Phase, also applies for this phase. Kindly refer to above.

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Retirement (55-? yrs old)
Congratulations upon reaching your Golden Age. It is time to relax and reap the benefits of your hardwork. By this age, your CPF can be withdrawn in large amounts. Remember to use them wisely, because it is your hard-earned money.

Tips from Family Development Phase is still applicable for this stage.

At this current age, it is time for you to think further ahead for your future generations. It is advisable to start estate planning for your love ones that you will leave to meet the Creator. Keep in mind on issues such as Faraidh and also Will (Wasiat)(FDB: Future Detailed Blogpost), and how it will affect in future, as in how will your kids react after you passed on. Try to minimize misunderstandings as I am sure all of us would want to leave the dunya in peace.
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Yaum Al-Akhirah (Infinity)
You are never too old or too young to start investing for your akhirah. Here are the things that you can do:

Sadaqah (Donation)/Infaq/Waqaf: These are the various forms of donations that we can channel to the various avenues such as the mosques, the less fortunate, orphans, set-up of a new islamic building, education for the students who are from low-income background and other examples.

Zakat: Zakat is a means whereby all Muslims who are wealthy enough, must purify their wealth through the act of giving charity. You have to pay zakat on your insurance, investments and savings, upon maturity or upon withdrawal or have been in possession for one whole year(savings/physical gold bars), as long as it is above the Zakat Nisab, and it is 2.5% of the value of your insurance/investments or savings.

Haji (Pilgrimage)/Umrah: Haji is part of the 5 pillars of Islam. When you have the means to go for Haji, save money with the intention that it is for you to embark on your journey to the Holy Land of Mekah. May Allah ease our affairs and enable us to visit the Holy Land of Mekah, at least once in a lifetime. Aamiin. For those of us who are unable to perform Haji due to lack of financials and would still want to visit the Holy Land of Mekah, you can start by performing Umrah first. Ultimately, it depends on individual's financial capability.
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Alhamdulillah. I have managed to cover all the different phases of life planning and financial planning. I hope it helps all of us to have a clearer picture and some ideas on managing our life. Always keep in mind that Allah does not burden His creations. Live life minimally, remain grounded in life and always remember to help people who are in need. Insyaallah, there are barakah in helping people who are in need. With that, I shall continue to an in-depth topic next Monday for some of those parts in this blogpost that I indicated as "(FDB: Future Detailed Blogpost)". All the knowledge that I have shared here is from Allah, and any flaws in this blogpost is from myself.