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Objective Of Islamic Financial Planning

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sharifah nazura

on 18 February 2015

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Transcript of Objective Of Islamic Financial Planning

Chapter 1
Introduction to Islamic Financial Planning
SHARIFAH NAZURA BT SYED NOH
Why we learn Financial Planning?
Life is uncertain
lead a worry-free & financially secure life.
be able to deal with all kind of risks in life.
DEFINITION OF
FINANCIAL PLANNING

Financial Planning can
be defined as ….
an effort by an individual or corporation in managing the financial affairs to meet life goals.

the development and implementation of a plan of action to efficiently make the most of available resources to meet your financial objectives or goals.

the process of determining whether and how an individual can meet life goals through proper management of financial resources.

Concept of Islamic Financial Planning
Involves the effort by an individual/corporation in managing their financial affairs in accordance with the shariah to meet their life goals.
1) Elements that differentiate the two are as follows:
the additional activities/areas not found in conventional
planning for haj
payment of zakat
takaful planning and
assets distribution according to shariah,
2) the prime concern for Muslim investors in investment planning (wealth accumulation) is to ensure that all investment activities are shariah-compliant,
3) the financing (in conventional is called borrowing) aspect must be in line with the shariah principles, one of which and the most important is, no element of riba (interest-free).

Islamic Financial Planning
in Al-Quran and Hadith
“ The time! Verily, Man is in loss, except those who believe (in Islam) and do the righteous good deed and recommend one another to the truth and recommend one another to patience”.
(Surah Al Asr : 103, 1-3)
Importance of time and thus implies that we need to set our goals in life

ii. “And render to the kindred their due rights, as (also) to those in want, and to the wayfarer. But squander not (your wealth) in the manner of spend rift. Verily spend rift are brothers of the evil ones and the evil one is to his Lord ungrateful”
(Surah Al Isra : 26)

Importance of where and how to spend our wealth

“ Whoever works righteousness, man or woman, and has faith, verily, to him will We give a new life, and life that is good and pure, and We will bestow on such their reward according to the best of their actions ”.
(Surah Al Nahl: 96)
We learned how to work, how to live and the benefits that we will get

According to Al Bukhari and Muslim our Prophet Muhammad S.A.W (pbuh) mentioned .. “ Remember five things before comes five things, healthy before sick, young before old, rich before poor, spacious before tight, life before death”

Prophet Muhammad S.A.W said, meaning ,
“Works for your worldly as you expects to live one thousand years and do good deeds for your Hereafter as you will die tomorrow”
We learned how to work
WEALTH
Definition of wealth:
‘abundance of valuable material possessions or resources’
‘all property that has a money value or an exchangeable value’‘an income beyond the daily and basic requirements of a family’ or ‘surplus income’
Features: accumulation of income over a
period of time

CATEGORIES OF WEALTH:
Immovable properties
Movable properties
Financial assets/ commercial papers
Valuable minerals
Valuable gemstones
Energy sources
Objects of arts
Animals
adornment

Islamic Perspective of Wealth
1. Wealth is a form of trial by Allah
Accumulation or acquisition of wealth is allowed in fact in some circumstances becomes mandatory.
It should not abused or misused.
Wealth is a form of trial by Allah towards His servants
“And know that your properties and your children are but a trial; and that it is Allah with whom lies your highest reward”
(Surah Al-Anfal (8:28))

2. Wealth is a trust (amanah)
“Wealth and children are the adornment of the life of the world. But the good righteous deeds that lasts, are better with your Lord for rewards and better in respect of hope”
(Surah Al-Kahfi (18:46))

“And spend of that whereof He has made you trustees”
(Surah Al-Hadiid (57:7))

3. Wealth as Means to Achieve Al-falah
Wealth as means to achieve al-falah - to be successful in this world and in the Hereafter.
“ O ye who believe! Shall I show you a commerce that will save you from the painful doom? Ye should believe in Allah and his messenger, and should strive for the cause of Allah with your wealth and your lives. That is better for you, if ye did but know. He will forgive you your sins and bring you into Gardens underneath which rivers flow, and pleasant dwellings in Gardens of Eden. That is the supreme triumph”

(Surah Al-Shaff (61:10-12))
Conditions to Acquire Wealth
in Islam

Accumulated in an honest
manner

Managed in a responsible manner benefiting not only its owner and family but also the community as a whole

Does not distract Muslims from their strong faith in Allah

Spending wealth in Islam
For his own expenditures
For his family members
For his immediate relatives
For other persons under his care
Other spending activities such as sadaqah, tabarru’, waqf, wassiyyah, hibah

NECESSITY OF WEALTH IN ISLAM
Protect a country’s from enemies
To spread Islam and/or diffuse misconception
Protect from exploitation
Surplus production is better than subsistence-level production
Serve the needs of others (charitable purpose)
Greater development and comfortable for life for mankind
Sharing promotes goodwill and social harmony
Allah encourages the propagation of Islam


Concept of debt in Islam
Debt must be free from interest or based on qard hasan.
Debt must be in written form.
Debt must be paid back by the borrower.
Fulfilling the requirements of a debt transaction

Requirement of Debt Transaction in Islam
the utterance of the aqd (spoken offer and acceptance between the two parties) – an agreement.
the writer of the debt who is fair and just – trusted by both parties and to follow the instruction of both parties.
witness to the debt transaction – minimum of two parties to the debt transaction – borrower and lender, profiles of each are mentioned clearly in the agreement and not force the writer to amend any material information in the agreement such as the amount.
stated amount or wealth borrowed – details of transaction such as amount borrowed must be clearly stated in the agreement.


1) Bring prosperity and blessed life
How to achieve?
Concern about halal & haram of earnings
Understand the concept of tawakkal and redha
Concern about the barakah concept
Spend on the right priorities

Obj 2 : Provide Financial Stability(Earnings = Consumption)
Identify current financial position
Understand about financial status
Net worth = Asset – Liability
Adopt appropriate life style :
(Lower income, Intermediate income, High income)
Solution for financial problems
(e.g Al Rahn, Qard Hassan, Debt, Tax mgmt)
Obj 3 : To Be Financially Independent
How to achieve?
Having good investment (money creates money)
(ex Properties, Shares, Bonds, Unit trusts, etc.)
Having takaful protection
Having a retirement planning scheme
(ex pension, EPF, life annuity)
Having alternative incomes
(ex e-business, takaful or UT agents)


Obj 4 : Preparation For Hereafter Life
How to achieve?
Investing in knowledge
Performing Hajj (Pilgrimage)
Paying Zakah
Giving Sadaqah (charity) or Waqf
Preparing a Wasiat (will) and Hibah (gift)
Faraid

Significant of Islamic Financial Planning
In general:
Improve standard of living
Minimize financial disaster
Ability to invest optimally
Accumulate sufficient wealth over time


Personal Financial Planning Process
Step 1 : Assess current financial resources/status
List all assets and liabilities,
List all income sources and expenditure,
(Construct Balance Sheet & Income Statement)
Asset – Liabilities = NET WORTH
Income – Expenses = NET SAVINGS

2. Define Financial Goals
Goals : what an individual wants to achieve out of the business or the investment activities performed.
Goals depends on a person’s wants, needs, personality, attitudes values.

3. Develop systematic financial plans
Steps to be taken to achieve the goals (specify actions).

Example of financial plans:
Savings plan
Investment plan
Liability plan
Housing plan
Retirement plan
Estate plan
Insurance plan

4. Implement Financial Plans
To follow what have been decided
Maintain discipline to implement with in the time frame
To review progress

5. Monitor Results and Review Plans/Goals
Monitoring involves monitoring closely the progress made at a specific period of time.

If progress seems to be slow, corrective actions have to be taken.

Monitor closely progress

Take corrective actions, if needed

Revise goals, if financial conditions change drastically and goals become unrealistic

PROCESS OF FINANCIAL PLANNING
Full transcript