20,99 €
Mehr erfahren.
- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
An intuitive and eye-opening guide to halal investing In Halal Investing for Beginners: How to Start, Grow and Scale Your Halal Investment Portfolio, a team of Oxford-educated Islamic finance gurus deliver a one-of-a-kind investing roadmap for Muslims who want to watch their savings grow while abiding by Islamic law. You'll learn to distinguish between halal and haram investment products, get key strategies for saving on your taxes, learn to build a variety of portfolios, and more. In the book, the authors introduce and explain the wide variety of investment products available to investors who wish to restrict their financial activity to that which is consistent with Shariah law, including asset categories like equities, gold, art, start-ups, and even property. You'll also find: * Advice for every stage of life, including how to go halal for the first time, how to write an Islamic will, and how to build a halal pension * Portfolio construction guidance for every risk tolerance, from high-growth to low risk * Explanations of the important difference between "ethical" and "ESG" investment products and halal investments An essential resource for Muslims who seek to invest while remaining true to their faith and values, Halal Investing for Beginners is the intuitive and easy-to-follow investment tutorial that everyday Muslims have been waiting for.
Sie lesen das E-Book in den Legimi-Apps auf:
Seitenzahl: 409
Veröffentlichungsjahr: 2023
Ähnliche
Table of Contents
Cover
Title Page
Copyright
Dedication
Foreword
Acknowledgements
About the Authors
Introduction
The Why
How to Use This Book
Structure of Each Part
Global Readers
Notes
PART I: The Basics of Investing and Personal Finance
1 Personal Finance Essentials
Notes
2 Breaking Even
Getting onto the Housing Ladder
Notes
3 Islamic Wills
Notes
4 Pensions
For People Living in Countries That Charge Tax
For People Living in Countries That Don't Charge Tax
Notes
5 Your Rainy Day Fund
How Much Should You Save in a Rainy Day Fund?
Should You Invest Your Rainy Day Fund?
Are Rainy Day Funds Completely Necessary?
Notes
6 Going Halal for the First Time and the Purification of Wealth
Income
Financing
Investments
Zakat
Notes
PART II: How to Develop Your Investment Strategy
7 Your Investment Mindset
Plan for the Exit and the Unexpected
How Hands‐On Should You Be?
The Three Types of “Hands‐On”
Making Decisions as a Family
Notes
8 Building the Blocks
Rent or Buy?
Life's Big Events
Retirement (and Pre‐Retirement)
Pensions for Business Owners or the Self‐Employed (Which Employees Can Also Take Advantage Of)
Notes
9 How to Do Basic Due Diligence into an Investment Company
Notes
10 Tax‐Saving Strategies
Investments
Personal Finance
Note
11 Weighing up Risk and Reward
Mixing and Matching between Risk and Reward
Note
PART III: Investment and Sharia Considerations for Popular Investment Categories
12 Stocks
What Is It?
Returns on Offer
Stocks vs Funds
Is My Money Safe?
Can I Get My Money Back Easily?
Sharia Considerations
How Can I Get Access to Stocks?
Notes
13 Fixed Income
Property: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back Easily?
Sharia Considerations
How Can I Get Access?
SME Financing: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back Easily?
Sharia Considerations
How Can I Get Access?
Property Financing (Savings Accounts): What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back Easily?
Sharia Considerations
How Can I Get Access?
Property Financing (Bridge and Development Finance): What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back Easily?
Sharia Considerations
How Can I Get Access?
Sukuk: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back Easily?
Sharia Considerations
How Can I Get Access?
Notes
14 Alternative Assets
Crypto: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back?
Sharia Considerations
How Can I Get Access?
Startups: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back?
Sharia Considerations
How Can I Get Access?
Private Equity: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back?
Sharia Considerations
How Can I Get Access?
Gold: What Is It?
Returns on Offer
Is My Money Safe?
Can I Get My Money Back?
Sharia Considerations
How Can I Get Access?
A Note on Other Assets
How Halal Should You Go?
Overarching Impact Considerations
Notes
PART IV: How to Construct a Robust Portfolio
15 Portfolio Theory
Having a Goal Is 80% of the Solution
What Goals Should You Have for Your Money?
The Role Time Horizons Play in Battle Plans
Notes
16 Case Study: Conservative
What We Would Advise
Notes
17 Case Study: Moderate
18 Case Study: Aggressive
Notes
Parting Thoughts
Continuing Your Education
General Economics and Investment Grounding
Islamic Investment
Stocks‐Specific Investing
Startup Investing
Helpful Resources
Index
End User License Agreement
List of Tables
Chapter 7
Table 7.1 Range of investment involvement
Chapter 13
Table 13.1 Comparison of sukuk and a bond
Chapter 14
Table 14.1 Sharia analyses of accessing gold
Chapter 15
Table 15.1 Overall risk and return profile
Table 15.2 Goals and investment decisions
Chapter 16
Table 16.1 The conservative approach
Chapter 17
Table 17.1 The moderate approach
Table 17.2 The moderate approach after 5 years
Chapter 18
Table 18.1 The aggressive approach
List of Illustrations
Introduction
Figure 0.1 Global wealth.
Figure 0.2 Global wealth range.
Chapter 2
Figure 2.1 Key considerations.
Chapter 4
Figure 4.1 The savings lifecycle.
Chapter 5
Figure 5.1 Investment stages.
Chapter 6
Figure 6.1
Top holdings.
Figure 6.2 A typical Aviva pension fund.
Chapter 8
Figure 8.1 Average price by type of property in the United Kingdom, 1985–202...
Figure 8.2 Percentage change (yearly) by property type in the United Kingdom...
Figure 8.3 Real residential property prices for the United Arab Emirates, 20...
Figure 8.4 Personal planner – start your investment journey 1.
Figure 8.5 Personal planner – start your investment journey 2.
Figure 8.6 Some examples of different portfolios.
Figure 8.7 Retirement strategy.
Figure 8.8 Flexible income drawdown.
Chapter 11
Figure 11.1 Asset risk.
Chapter 12
Figure 12.1 Stock stages.
Figure 12.2 S&P 500 Index: 90‐Year Historical Chart (December
2022).
Chapter 13
Figure 13.1 Home transformation.
Figure 13.2 Continuum of risk and reward.
Chapter 14
Figure 14.1 Performance of the crypto market.
Figure 14.2 NFT #3619.
Figure 14.3 Power law distribution.
Figure 14.4 Screenshot of conversation.
Figure 14.5 Performance of private equity.
Figure 14.6 Performance of the gold market.
Figure 14.7 The best luxury watch brands to invest in.
Figure 14.8 Masterworks: comparison of performance, 1995–2021.
Guide
Cover Page
Title Page
Copyright
Dedication
Foreword
Acknowledgements
About the Authors
Introduction
Table of Contents
Begin Reading
Parting Thoughts
Continuing Your Education
Helpful Resources
Index
Wiley End User License Agreement
Pages
iii
iv
v
ix
x
xi
xiii
xv
xvi
xvii
xviii
xix
xx
xxi
1
3
4
5
6
7
8
9
10
11
13
14
15
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
35
37
38
39
40
41
42
43
44
45
46
47
48
49
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
77
78
79
80
81
82
83
84
85
87
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
213
214
215
216
217
218
219
221
222
223
225
226
227
228
229
230
231
232
243
244
245
246
247
248
249
250
251
252
253
254
255
256
257
258
259
Halal Investing for Beginners
How to Start, Grow and Scale Your Halal Investment Portfolio
Ibrahim KhanMohsin Patel
This edition first published 2023
© 2023 John Wiley & Sons Ltd
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.
The right of Ibrahim Khan and Mohsin Patel to be identified as the authors of this work has been asserted in accordance with law.
Registered Office(s)
John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA
John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK
Editorial Office
The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK
For details of our global editorial offices, customer services, and more information about Wiley products visit us at www.wiley.com.
Wiley also publishes its books in a variety of electronic formats and by print‐on‐demand. Some content that appears in standard print versions of this book may not be available in other formats.
Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book.
Limit of Liability/Disclaimer of Warranty
While the publisher and authors have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials or promotional statements for this work. The fact that an organization, website, or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and authors endorse the information or services the organization, website, or product may provide or recommendations it may make. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation. You should consult with a specialist where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
Library of Congress Cataloging‐in‐Publication Data is available:
ISBN 9781394178049 (Hardback)
ISBN 9781394178056 (ePDF)
ISBN 9781394178063 (ePub)
Cover Design: Wiley
Cover Image: © Daisy and Bumble/Shutterstock
Author photos: Courtesy of Ibrahim Khan and Mohsin Patel
To our patient, superhuman wives, without whom nothing would ever happen half as well in our lives, and to our wise parents, who pushed us at the right times and hugged us at the right times – may Allah reward you all immensely.
Foreword
While Islamic finance has grown at an institutional level around the world, it has often been underserved at a grassroots level. The average person still has questions about what Islamic finance is, how it differs from traditional finance, and why they should invest in sharia‐compliant products. There are several impediments to the growth of Islamic finance in the UK, including regulatory, political, and access to sharia‐compliant capital, as well as a lack of human resources. One significant barrier that is frequently overlooked is a lack of Islamic financial literacy. This is an area in which Islamic Finance Guru (IFG) has excelled.
What began as a blog has grown into a global platform with millions of beneficiaries worldwide; IFG has become a household name in Muslim personal finance. Throughout this journey, I consider myself fortunate to have kept in touch with and collaborated on various projects and initiatives with my two dear brothers, Ibrahim Khan and Mohsin Patel. Their work is truly legacy‐building, and I pray that they see the fruits of their efforts and hard work in the Eternal Life.
It was only a matter of time before they were approached by a major publisher to write about Islamic finance, so this book comes as no surprise. I read through the book and was very pleased with the hands‐on approach it provides. It greatly simplifies investing and provides people with a road map for navigating the halal investing world. This book is more than just a theoretical write‐up; it is the culmination of years of deep learning, insights, and personal experiences. This book is both a “hack” and an “accelerator”; it is thousands of hours of learning condensed into a few hundred pages. It will truly save people years of learning time and fast forward their journey into the world of halal investing. Ibrahim and Mohsin have curated a powerful tool to educate this generation of Muslims about halal investing.
May God accept my dear brothers' efforts and take them from strength to strength in facilitating halal globally.
Mufti Faraz AdamAmanah Advisors
Acknowledgements
We would like to thank the IFG team – particularly Sarah Brooking – for their support throughout the writing period, countless evenings of reviews and edits, and for working so tirelessly on our mission to level up Muslims financially.
A sincere note of thanks to Mufti Faraz Adam who has been a quiet, thoughtful and dynamic font of wisdom to us for many years, and for taking the time to comment thoroughly on this book as well.
And, finally, a thank you to the entire Wiley team for seeing the potential and then making this all happen in such a professional, seamless way.
About the Authors
Ibrahim Khan is the CEO and co‐founder of Islamic Finance Guru and its sister company, Cur8 Capital, one of the most prominent Islamic investing platforms globally. He read Philosophy, Politics, and Economics at the University of Oxford, then went on to specialise in Islamic finance through a Master's and a traditional Alimiyyah degree. He worked for a number of years in corporate law, first for Ashurst and then for Debevoise & Plimpton. He holds a Diploma in Investment Advice & Financial Planning and a Certificate in Investment Management. He is based in London.
Mohsin Patel is the COO and co‐founder of Islamic Finance Guru and Cur8 Capital. He read French and Russian at the University of Oxford. He subsequently specialised in Islamic finance through an Islamic Finance Diploma. He worked in corporate law at Squire Patton Boggs, before going full‐time at Islamic Finance Guru in 2019. He holds a Diploma in Investment Advice & Financial Planning and a Certificate in Investment Management. He splits his time between the UK and the UAE.
Introduction
I first realised there was a problem when a financial advisor approached me about managing my money.1
I was working as a trainee in corporate law at the time and invited him into our plush London offices. This didn’t disconcert him in the slightest – he was very familiar with these sorts of settings.
He walked me through his beautiful models. I should be accumulating in my youth and decumulating in my retirement. Pensions were good, as was insurance. Financing should be used strategically as a tool throughout my life to smooth out purchases and get onto the property ladder quicker, and tax‐efficient investments should be used to build my nest egg.
This was all brilliant and made perfect sense to me. I was ready to go full‐on Wolf of Wall Street – but there was one big catch.
Literally nothing he had offered to me was sharia‐compliant.
I rang my best friend and long‐time business partner Mohsin that evening.
“We need to figure this one out, Mohsin. We’re going to have savings soon and we need to manage them properly. And it’s completely barmy that in a twenty‐first‐century world a quarter of the world’s population still doesn’t have financial products that they can actually use.”
Mohsin agreed and, in an evening of discussion, debate, and idea creation, Islamic Finance Guru (or IFG) was born: a blog to share our research into halal investing and personal finance.2
Thus started an eight‐year journey (to date) of research, discovery, and building financial products that helped scratch our own itch. In that time, we gained Islamic qualifications, sat our financial advisor exams, qualified as corporate lawyers, got married, and had kids.
Today, only through the grace of God, IFG is one of the most prominent Islamic investing websites globally, with its own suite of financial tools and investment products.
Over this journey, we’ve had the privilege of interacting with thousands of Muslims also on the same path as us. We’ve interacted with students just starting out on their journey, single mums looking to stabilise their finances after a divorce, a scam victim who is fearfully looking to invest again for the first time, billionaires who made their money in crypto, and – because we deal mostly with Muslims – lots and lots of doctors. Despite the variety of these backgrounds, these individuals actually had a lot in common when it came to the challenges they were facing in their investment journeys.
These challenges were:
Wondering what is halal or haram in the investment world – from the most basic products to the most complex.
Being keen to learn about personal finance and investment strategies that were sharia‐compliant.
Looking for advice, coaching, and guidance on their investments.
Wanting to understand what halal investment options there actually were for them to take up.
Much of our content on IFG and in this book has been inspired by the questions we’ve received over the years from our audience members. We have written hundreds of thousands of words, shot over 150 videos, and given talks up and down the UK and abroad on these topics.
But what we had never done till now was condense it all down into one neat package. This book is our attempt at doing just that. It is a distillation of all those conversations, articles, videos, and lectures – suffused with a healthy dose of practicality to get you moving from “learning” to “doing”. We hope you enjoy it and learn something new.
The Why
But before we dive into the action, it is important to remind ourselves what is at stake here.
The religious texts are very clear – hoarding and passively sitting on cash are frowned upon. The Qur’an says, “But as for him who is stingy and self‐satisfied, and denies the good, We will pave his way to difficulty.”3
More broadly, zakat is a 2.5% compulsory charitable donation on every Muslim’s stagnant wealth every year. Interestingly though, zakat does not generally apply to investments. In other words, zakat is effectively a wealth tax, encouraging the circulation and investment of money, rather than it sitting in cash. We can see therefore that the sharī‘a – the Islamic legal code – has always been pro‐investment.
But today this message has taken on a particular urgency. According to an annual report on global wealth by Credit Suisse,4 the global average net worth at the end of 2021 was $87,489, a staggering 12.7% increase from 2020 and the fastest annual rate of growth ever recorded.
Some quick back‐of‐the‐napkin analysis of their numbers, accounting for Muslim populations, indicates that global Muslim net worth is approximately $16,702. In other words, the Muslim community is approximately five times poorer than the rest of the world.
This can be seen in Figure 0.1.
Figure 0.1 Global wealth.
Source: Davies et al., 2022 / Credit Suisse Group/ Public Domain.
With the exception of some of the smaller Gulf States, much of the Muslim‐majority country belt stretching across North Africa and across the Middle East and subcontinent has wealth in the lowest two bands. This puts the task ahead of the Muslim community in a rather different light: we must look after our wealth not just for ourselves, but the greater good. This is particularly so for the most affluent Muslims.
As can be seen in Figure 0.2, the top 13% of the population owns 85.9% of global wealth. That means that if you’re reading this book and are lucky enough to be in that bracket, there is an additional onus on you to ensure your wealth is (1) invested and growing; and (2) allocated to investments that do more than just give profit.
We actually ran the numbers on what it would take for the Muslim community as a whole to get back to a level financial playing field, and what we found was that if every Muslim earned around 12% per annum on their savings – roughly 4–5% above the global average returns – it would take just 35 years to close that gap.
Figure 0.2 Global wealth range.
Source: Davies et al., 2022 / Credit Suisse Group/ Public Domain.
The goal is actually achievable and could even be attained in our lifetime. We’ve made it our mission at IFG to do precisely this – and this book is a key part of that journey. The more Muslims who are educated about investing well, the more they are likely to invest profitably.
Right, enough preaching, let’s get down to business.
How to Use This Book
This book is divided into four Parts:
Part I
‐ The basics of investing and personal finance
Part II
‐ How to develop your investment strategy
Part III
‐ Investment and sharia considerations for popular investment categories
Part IV
‐ How to construct a robust portfolio
The first time you read this book, we would suggest reading from start to finish. Then, when you revisit the book,5 you should just dip in and out of the Parts that are most pertinent to your personal situation. We would expect Part III in particular to become a reference section for your ongoing investment activities.
We also want to make sure that this book isn’t just a theoretical primer full of nice platitudes that is read once and then sits on a shelf getting dusty. At the end of this book, we want you to have the toolkit to be able to take control of your finances and have the confidence to use those tools too.
Specifically you should be able to do the following:
Construct a personal finance foundation for your own life.
Measure your own risk appetite in order to decide what your overall portfolio will look like.
Explain what popular investment categories are to a beginner.
Discredit myths about investing the next time you hear them.
Have a firm grounding in the mainstream Islamic positions on popular investments.
We have also provided an investment checklist document that you should fill out for yourself as you progress through the book. You can get a downloadable PDF version.6
Structure of Each Part
First, we’re going to cover some very practical personal finance foundations that will help you to think about how you allocate your money in life. This is all the essential, not‐so‐exciting stuff that forms the backbone to healthy finances. We’ll be covering:
Breaking even.
Islamic wills.
Pensions.
Rainy day funds.
Going halal for the first time.
In Part II, we start drilling into investments but we’re more interested in helping you understand the why and how of investing here, rather than the what. We cover:
Your investment mindset and dealing with different circumstances that you’ll be facing.
The basic building blocks of investments: buying a house, achieving investment goals, and retirement.
How to do basic due diligence into an investment company.
Key tax‐saving strategies.
How to weigh up risk and reward.
In Part III, we’ll actually get down to the nitty‐gritty. We cover various different investment options under the three big umbrella terms:
The stock market.
Fixed income.
Alternative assets.
For each investment we cover, we answer the following questions:
What is it?
What are the returns on offer?
Is your money safe?
Can you get your money back easily?
What are the sharia considerations (including zakat)?
How can you get access to it?
In Part IV, we pull everything together and move you to action. We cover portfolio construction – how you actually craft an investment pot for yourself – and present three realistic case studies of individuals at different life stages with very different incomes, goals, and ambitions.
Global Readers
Just a quick note for those readers among you who do not live in the United Kingdom. This book will regularly express money and examples in pounds sterling and certain aspects of our coverage will be somewhat UK‐oriented. However, in most cases, what we cover in this book has global application as the lessons apply to investments generally, regardless of the particulars of each country.
Even for the very specifically UK‐oriented discussions (of which there aren’t too many), take this as a nudge to go on the internet and find out if your country has something similar. For example, if we are talking about tax incentives to invest in startups – and you are based in Bulgaria – check if Bulgaria has something similar.7 Most governments the world over will be looking to incentivise the same behaviours, so chances are actually quite high that there is considerable overlap in the areas that they incentivise.
Notes
1.
We'll be using “we” for much of this book but every so often we'll be speaking in the first person. Where we do this, we'll note who is speaking. In this instance, it is Ibrahim.
2.
If we had known it would grow as big as it has done, we might have spent a bit more thought on the name. A mate of ours had a website called “transferguru” and it was about money transfer. So, in a leap of imagination, we thought to replace the word “transfer” with “Islamic finance”, thus Islamic Finance Guru was born.
3.
Qur'an
. 92: 8–11.
https://quran.com/92/8-11
(accessed 14 December 2022).
4.
J. Davies, R. Lluberas, and A. Shorrocks,
Global Wealth Report
(13th edition) (Zurich: Credit Suisse Research Institute, 2022).
https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-report-2022-en.pdf
(accessed 14 December 2022).
5.
Naturally we assume you will be regularly revisiting this book, given the soft spot in your heart we will have won through notes like this one.
6.
Halal Investment Checklist and Financial Journey.
http://www.islamicfinanceguru.com/resources/investment-checklist
.
7.
We took our own lead and decided to Google Bulgarian tax incentives and we found a ton. Point proved!
PART IThe Basics of Investing and Personal Finance
1Personal Finance Essentials
Most complex skills have only a few true experts. There are only a handful of world‐class tennis players, surgeons, or lawyers in the world, and yet the tennis academies, medical schools, and law schools are full of prospective future experts. What happens to these hopefuls that winnows the field so dramatically?
Complex skills are based upon the learning and repetition of many smaller factoids, activities, and actions. Over time, these thought patterns, skill sets, and movements become so ingrained that a skilled surgeon can mentally walk their way through a complex surgery entirely in their head.
But the problem with these simple factoids, repetitions, and skill sets is that they are often not the glamorous end result usually associated with practising that craft. Hitting 100 balls alone on a tennis court is just not as exciting as playing on Centre Court at Wimbledon. And yet understanding and honing the basics incredibly well are what the later successes are based upon.
The same is the case when it comes to investments and personal finances. The glamorous side of investing is taking meetings with the next Mark Zuckerberg, looking into his eyes and deciding to invest all your money in his company because you can see where this rocket ship is headed. It's having films like The Big Short made about your decisions. It's picking the next stock, cryptocoin, or asset class before it becomes huge and making enough to retire off the back of it.
But before you get the right to do that without improperly risking your wealth, you must grasp the basics of personal finance. Unless you do that, you're going to be as out of your depth as any of us would be if we were to inexplicably find ourselves on Centre Court against a world‐class tennis player.
This chapter starts with the absolute fundamentals and the rest of the book builds on that.
Personal finance, when done well, is not just “a thing” you do once and then forget about, it is your ongoing relationship to money. Indeed, you already do have a relationship with money before you started reading this book. It might be a happy‐go‐lucky relationship but where you're not honest with each other. It might be a tempestuous relationship that goes through extreme highs and lows. It might be a relationship where you are settling for satisfactory rather than true love. It could even be an abusive relationship.1
The aim of this book is to give you a perspective on the implications of your current relationship and to sketch out alternatives.
The key ingredients to the base layer of personal finances are:
Breaking even.
2
Getting an Islamic will.
Getting your pension (or regular savings) up and running.
Setting up a rainy day fund.
Going halal and purifying historic investments.
Notes
1.
Never let it be said that we cannot flog a metaphor long enough.
2.
Not to be confused with “getting even”, a pursuit that is far more difficult and often comes with long criminal sentences.
2Breaking Even
The UK financial sector recently went through a major convulsion due to a mini‐Budget announced by the then Chancellor of the Exchequer, Kwasi Kwarteng.
The government announced that it would be spending aggressively to stimulate growth while making swingeing cuts to taxes. However, the markets reacted extremely badly to this and the pound hit its lowest points ever against the dollar. Meanwhile, there is a crisis brewing in the pensions sector as a result of these market dislocations.
Why did the markets react this way? Surely in a time of recession, extra spending would be welcome? The answer is the markets are concerned that in the long term the government's economic plan is unsustainable. The government is spending more than it makes, and, frankly, more than it can even safely borrow.
It's the same for our personal finances too. A very helpful way of understanding our own finances is to think of ourselves as a company.
The maths is simple. You have two scenarios:
or
In scenario 1, you are making a “profit” and, in scenario 2, you are making a loss. Scenario 2 is only sustainable for as long as your reserves last, or as long as you can borrow money in a sustainable way.
Scenario 2 is the one to avoid, as, if you stay there for any length of time, you will go bankrupt. That, of course, is a bad personal finance situation.
So how does one move from scenario 2 to scenario 1, and how does one increase the +ve number in scenario 1?
Well, again, there are two mathematical answers to that:
Increase your incomings.
Decrease your outgoings.
Or, even better, do both.
Increasing incomings can include:
Negotiating a salary raise.
Taking on an extra job.
Starting a side hustle.
Getting your spouse to start part‐time work.
Investing in income‐generating assets.
Selling your old clothes and items, not just binning them or throwing them away.
Ensuring you are claiming all government grants and benefits you are eligible for.
Ensuring you are not in the wrong tax band.
Ensuring you are effectively making tax returns that account for losses, charitable giving, etc.
Ensuring that you are investing wisely and getting a tax rebate where they are possible (more on this later).
Decreased outgoings means cutting costs. The first step is to understand what your costs are. Imagine having to allocate each of your bank transactions to a category and then getting a month‐by‐month summary of what those different categories look like. You might have a category called takeaways and realise that you're actually spending £150 per month on takeaways. Or you might have a category called fuel and realise you are spending more on fuel in the summer because of holiday travel. These are all insights on which you can take action.
Doing this activity doesn't have to always result in cutting things out either, but it will force you to ask yourself the question, “Do I need this?” and that really is half the battle.
If you do it well, you'll know month in, month out what your necessary expenses are – things like mortgage, bills, fuel, and medical costs. You'll also pinpoint what your more flexible payments are – things which are not strictly necessary but you buy them anyway. This could be things like buying gifts for Eid, going on holiday, or redoing your kitchen.
So how does one go about tracking their transactions? Well, we've tried the whole spectrum of options and what we found actually gives great insights is to pretend we are a company and run our own expenses as a company. So we subscribe to a paid software which is actually designed for businesses – an app called FreeAgent.1
That's just our preference though, and if you are starting out, we would try the many personal finance tracking apps that are out there: Emma and Money Dashboard are a couple of examples. Frankly, today even the main banking apps do a pretty good job of this. We personally have experience of Starling, Monzo, and HSBC and they all do a reasonable job.
Once you have this basic financial data about yourself, you can think about where you can make some savings.
Here's a practical list of ideas on how to cut expenses:
Refinance your mortgage – making sure you're not paying too much here as the cost really adds up over time because we're dealing with large amounts.
Switch utility companies or get a packaged deal with one company.
Go on a cheaper holiday or do a staycation.
Sort out car insurance a month in advance – this is when prices are cheapest.
Insulate your home and police the usage of gas and electricity.
Wear jumpers at home.
Buy second‐hand rather than new.
Switch to a discount store rather than shop in a larger supermarket.
Get a more fuel‐efficient car.
Sign up to store memberships, such as the Tesco Clubcard. These can unlock better pricing and in some cases you get money back.
Talk to a debt management company and get your debts renegotiated.
Move to a cheaper flat or house if renting, or consider downsizing if you've bought.
Cut unnecessary and unused subscriptions.
Eat at home and plan out your meals for the week.
When you go shopping, shop with a list and don't make any other purchases apart from the things on the list.
If you buy something new, sell something old.
For larger purchases, don't make impulsive buys, sleep on it.
Rather than buying things, check on websites like Gumtree, Facebook Marketplace, Freecycle, and others where people are giving away free stuff.
Take a packed lunch to work and make your own coffee rather than buy it.
Really study how food can be stored and made to last and what food is okay to eat after its best‐before date.
We fully appreciate that if you implement all of the above suggestions religiously, you will automatically become “that interesting chap” at work and among the neighbours, but even if you implement just 25% of the above list, you'll end up saving a ton and retain your street cred.
Okay, now you've cut your expenses, you're hopefully making some savings every month. This is the free cash you have per month. So if you have £3000 coming in each month and you figure out that you spend £1,700 per month, that's £1,300 of free cash you have.
This is the capital you need to start doing something with in a way that is smart and sustainable in the long term. We'll talk a lot more about this investment aspect in the rest of the book.
Then you should turn your mind to any debts. If you have anything that is short‐term and relatively easy to get off your back, you should do that now. Whether it's a loan from a family member or friend, or whether it's some small haram debt you've incurred, just get the direct debits going and get it paid off if it's doable in the short term. It's best for your own mental well‐being and Islamically it's the right thing to do as well. Prioritise this before any investments.
For long‐term debts – things like mortgages, student loans, or perhaps large family loans – as long as you are not violating someone else's right or going against what was agreed, it is wise to set up a sustainable standing order to pay it off in the long term. But don't think that you cannot invest until the debt is repaid, you can and should continue to build your long‐term portfolio in parallel.
Getting onto the Housing Ladder
Talking of long‐term debts, there is one particularly important long‐term debt to call out: home financing.
We know an elderly man with four children who are now grown up. Each member of his family lives in their own London home, but none of this entire family pay any rent or mortgage payments.
How did they achieve that?
The simple secret is that, forty years ago, this man bought four homes on a mortgage for his children. They cost in total about £100,000 at the time. Today, with inflation and house price increases, that portfolio is worth in the millions.
Figuring out how to get on the housing ladder is possibly the single biggest strategic personal finance move you can make because of these long‐term outcomes.
This is not the book to cover the halal and haram of Islamic mortgages or other home financing solutions.2 We have covered this extensively in analysis on our website and YouTube channel, but we will assume you are comfortable with at least one form of Islamic home financing available.
The reason why getting on the housing ladder is such a key step of your personal finances is because home‐related costs are usually the most significant every month, and because, for most people, the most expensive asset they own is their home.
We have a “should I buy or rent?” calculator on our website3 which can be an effective tool for modelling out whether you should buy or rent. In the vast majority of cases it makes sense to buy rather than continue renting.
The reasoning behind that is pretty simple: with rent you pay £1,500 a month and none of that ever comes back. You add that up and add inflation and that is a hefty sum over 20 years. And you're still paying rent with no end in sight.
But if you buy a house, on the other hand, you typically face a lower monthly payment, and a portion of your monthly payment is going towards the purchase of your home, which you will see the upside of when you sell it.
Fast forward 20 years, and you're sitting on an asset that has appreciated considerably in that period, and your monthly home financing costs have now come down considerably or may even have stopped completely.
Let's put some numbers on this to really clarify the point. Babar wants to buy a house worth £400,000. He is going to put a deposit down of £80,000 and he has taken out a mortgage of 25 years paying 5.5% per annum.
If he were to rent that same property instead, he would pay £1,800 per month and he would look to invest his £80,000 in an investment. Let's assume he finds an investment that yields him 8% per annum. On this analysis, using our buy/rent calculator, Babar should buy his house as he would otherwise end up losing around £125,000.
Of course, there are exceptions to the general rule. If you have access to a great investment that is consistently returning double‐digit returns that is quite safe too, this may be a better option instead. But history tells us that usually those safe, consistently‐returning, double‐digit investments are either not actually consistent, drop in return, or aren't safe.
Of course buying a home is not just a financial decision, consider Figure 2.1.
Figure 2.1 Key considerations.
Source:www.Islamicfinance.guru.
From a financial perspective, you are basically assessing the following conundrum: (1) should I take the deposit money I've saved and lock it up into a property and pay monthly mortgage payments?, or (2) should I take the deposit money and invest it, and pay rental payments on my house instead?
To answer this you'll have to think practically. Do you need to rent because you might move regularly, for example? Or perhaps even if you know renting might make more financial sense, you want the safety and security of buying a house without having to worry about making x % return a year on what would have been your deposit money. Or maybe you don't want the hassle of renting and a potentially bad landlord.
So when making this decision, first think it through financially, and then think it through practically. Sometimes practicality can outweigh the financial.
Notes
1.
https://www.freeagent.com/
.
2.
We are keen to keep this book's size and weight below the level where you require a weightlifting belt to safely read it.
3.
Should I Buy or Rent? Calculator:
https://buy-rent.mortgage.islamicfinanceguru.com
.
3Islamic Wills
Now that we have hopefully brought our financial ship back onto an even keel, and are at least breaking even every month, we can turn our attention to other urgent priorities.
Not to put a downer on things this early on in the book, but you will die at some point. And when you do, money is a key part of that conversation.
Muslims in the West should pay particular attention as you will need to get a specific type of will done in order for it to be sharia‐compliant. This is something you should look into as a priority if you haven't already got one.
In a well‐known hadith, the Prophet Muhammed (PBUH) said: “It is not permissible for any Muslim who has something to will to stay for two nights without having his Last Will and Testament written and kept ready with him.”1 This is particularly important if you don't live in a country governed by Islamic inheritance laws, as this usually means that if you die intestate (i.e. without a will), your affairs will be settled according to the law of the land – not the sharia.
Try not to leave it to the very last minute either. During the early part of the COVID‐19 pandemic, there was an almighty spike in our IFG wills service, and we were getting emotional emails and calls from customers on ventilation machines in hospital, some of whom unfortunately passed away and our will was in use far earlier than we would have wanted. This is not an unusual occurrence outside of the COVID‐19 pandemic either. We once got a call from a man in a taxi on his way to hospital for heart surgery.
Sorting out your Islamic will is an important way of organising your personal finances too. As part of the process of writing your will, you need to figure out your full portfolio and unlock access to many long‐forgotten pensions and investment accounts. You'll finally have to figure out how to do something about that land your mother left you in Delhi.
But there are serious money‐saving benefits too. Having a will means you can plan your inheritance tax much better and often side‐step it. In the UK an individual gets £325,000 as their tax‐free allowance on inheritance tax, and, including your primary residence, up to £500,000. If you are married, you can, with some tax planning, unlock up to £1 million free from inheritance tax.2
But if you are above the thresholds, then the taxman will charge your estate 40% above the tax‐free threshold. That is a very significant amount of money and it's worth spending some time to figure it all out now.
We regularly deal with families who have estates in the millions who haven't yet properly thought through inheritance tax planning. Thankfully they are now thinking about it and getting the relevant documentation in place to navigate the issue, but there are hundreds more families out there who are unnecessarily paying huge amounts of inheritance tax.
As a side note, avoiding inheritance tax legally is not morally dubious either. The HMRC literally encourages people to get a will to ensure they do not end up paying more tax than they need to.3
Having a will also allows you to leave a record of all your assets. On average, people without a will lose around £10k of their assets simply because they don't write down what they own and their heirs have no idea about those assets or how to get access to them. There is around £50 billion of unclaimed or lost assets currently in the UK alone4 and other countries report similar large sums.
Writing a will is pretty cheap and quick these days. For people with simple estates under £100,000 who are without children, we have compiled a list of free Islamic wills online5 that you can use.
For those with larger and more complex estates, there are now plenty of online Islamic will options (of which our Cur8 app is one) that can allow you to get your will done quickly and cheaply. We have written a detailed guide to Islamic wills and your options in an article you can access.6
For those with estates above £5 million, you are typically advised to talk to a tax advisor in parallel to your Islamic will drafting, as the two things feed quite closely into each other.
A little‐known way to get your will done online and drafted by a professional, cheaply, or even for free, is to use an Islamic charity's will offering service. We are partners with a number of major Islamic charities today and most of them offer an Islamic will service at a substantial discount or for free.
