Boring Boring Personal Finance

If you're a football (soccer) fan like me, you're probably familiar with the chant "Boring boring *football team". A team that focuses too much on defence, yet still manage to "steal" a win.

Personal finance is very much like that.

Some people use creative strategies, focusing on increasing income, hacking their mind to save and accumulate wealth. But then there are those that focuses on the defense, the simple and frugal lifestyle yet still manage coming out as a winner. You can test all sides and see which fits best. Maybe the austere lifestyle fits you and will get you to where you want.

"And We divided them into twelve descendant tribes [as distinct] nations. And We inspired to Moses when his people implored him for water, "Strike with your staff the stone," and there gushed forth from it twelve springs. Every people knew its watering place. And We shaded them with clouds and sent down upon them manna and quails, [saying], "Eat from the good things with which We have provided you." And they wronged Us not, but they were [only] wronging themselves." 7. Surat Al-'A raf (The Heights; 160)

Every person may have different strategies and unlike sports, everyone end up winners. Because the strategy and the outcome is what truly matter. Like the quote image, doing the same things will result the same thing. Which is a very a good thing.

Saving 5% of income will result in an increase of 5% in saving. Do it over and over again, you'll come out a winner.

Evaluate, Plan, and Action

It's 2015. A new year, a perfect time to evaluate, plan, and take action.

I've kept it simple, and it works (Evaluation, Plan & Action)

Early on, I wanted to input all my transactions in an app and I figured that was the way to do things. It didn't work for me. I ended up with a simple budget with very few categories and that basically gave me an outline of things I should spend on monthly. That's all I needed. Once I budgeted and took action, it became automatic.

I paid my children first (Evaluation & Plan)

I made a promise to my children (5 & 8) that I will give $10 each month, and they can spend $20 of it once they reached $120. They reached it, spent it, and bought gold with what's left. I've set a target for them to own variants grams of gold in relation to their allowance. They own 1 gram (+/- $50), so they'll need to have 2 grams and as their allowance (in the future wage) increases, they'll have a lifetime (and habit!) to collect the 2.5, 3, 4, 5, 10, 25, 50, 100, 250, and 500 grams of gold (Indonesian Antam gold). Those gold will represent the stages in their life of having sum amount in allowances and wages.

Invest in myself  (Evaluation, Plan & Action)
I haven't been able to set aside for myself and actually, I did not setup a plan for it either. Total failure. This year, I will be applying a bit of my children's plan to myself ($10/mth), opened an account that will give me the ability to purchase mutual funds  and hopefully kickstart everything into gear. Also, one thing I'll need to start for this year is a retirement account.

Controlling wants (Evaluation & Plan)
I've failed in controlling my impulsive wants. I bought a phone and I love it. It's a Windows Lumia 535 phone. It's great for my budget and my needs, but I should have been able to hold it off a bit longer. This year, I'll try to put barriers on my spending through a 30-day list for my wants, 2 items out for 1 item in, and doing an experiences vs possessions comparison to hold off my impulses. I'll be posting some articles based on windows apps and the success/failure of barriers.

Al-Amwali (Evaluation & Plan)
I've written around the same amount of articles, I target myself to write around the same amount, look back on ideas that I've post and apply those that I haven't.

Let's get through 2015 with much improvements from 2014. InshaAllah.

In Search of the Way to Save

Looking to the stars - Calvin & Hobbes

Personal finance is personal. Rule-of-thumbs may be a good start, but it surely isn't for everyone. I certainly have my own way to budget, and out of all the apps I've looked through to help me, not one found to be a perfect fit. I then stumbled upon an iOS app, earmark. It's a social saving-spending app for you to set the top five things you'd like to buy and share it with everyone, including status updates when you forego spending to save for said five items. Pretty neat.

Three things I like about this:

1. Clarity. It would help me take a step back and remind myself that I have saving goals to achieve. In moments of need of clarity, I think this app would help me when my mind start playing the justifying-a-purchase games.
2. Motivation. We are social beings and our motivations sometimes require that social interaction. "Not buying this for that trip, proud of myself", and then receiving a supporting reply from a friend, "you go girl! let's make it to Makkah". Seriously, saving for hajj is hard...
3. Communication. Sometimes other people make our personal spending plans. Hanging out, do this, eat that. Those things add up.When we make it known to friends we're saving for something, it makes communicating personal intentions and rejecting an offer a lot easier.
4. Behaviour. People get easily hooked on social media outlets. If we get hooked on the app, we get hooked on our goals, we will achieve it.

What I don't like, but they might actually be right, is;

"We hate budgeting. 

So does everyone, ever.

We hate budgeting. So does 99.9% of the population.

We also like spending money. So does 100% of the population. 

Earmark helps people who hate budgeting save money while spending it."

I like that I've set myself a budget. It's life changing. But I guess for those who haven't, this app might actually work. For myself. I don't know. I don't have an iPhone. What I'm interested in most is whether I can apply earmarking [designate (something, typically funds or resources) for a particular purpose.] for myself.

So, what I'm proposing to do is to:

1. Unify my goals. I'm going to follow the findings that people become better savers when they have a single goal (pdf link). So I'll unify a single goal to the items I'd like to buy with a goal of higher calling or a long-term based goal like retirement.
2. Partition. Increase the chance of success of earmarking by separating the money physically, especially if the money has a visual reminder (pdf link). So, create a custom printed wristlet, or wallet (2), with a picture as my reminder.

Now, if I have a wallet for zakah, what are my visual cues...

"Is the description of Paradise, which the righteous are promised, wherein are rivers of water unaltered, rivers of milk the taste of which never changes, rivers of wine delicious to those who drink, and rivers of purified honey, in which they will have from all [kinds of] fruits and forgiveness from their Lord, [...]"

47.Surat Muĥammad (Muhammad; 15)

"He will forgive for you your sins and admit you to gardens beneath which rivers flow and pleasant dwellings in gardens of perpetual residence. That is the great attainment."

61. Surat Aş-Şaf (The Ranks; 12)

One way ticket to Jannah. Insha'Allah.

Being Rational During An Irrational State

Financial Samurai

I've turned in my resignation letter, and I've taken it back. Circumstances change quickly. I feel I've made the right decision to resign but the timing wasn't. What I'm trying to avoid is making decision in an irrational state. It's hard to know when you're being irrational, so I choose to go to the personal finance blog that I really trust, the financial samurai. The website has a useful tip of 15 things to consider before we choose to resign from our job. I'm going taking some of them off, so it will be 12 rather than 15.

1) What are you really unhappy about? 
Always the first question to ask but maybe the most hardest to answer with an honest heart. I am still trying to list the source of my unhappiness.

2) How large is your safety net?
Having a drought savings/emergency savings is essential. Prophet Yusuf a.s. had one because he knew a drought is coming. Quitting is a little bit different, because I am causing myself to face a drought of income. Do I have 12 months of savings? No. This is the easiest question to answer, and because the answer is no, I am not quitting now.

3) Calculate your monthly cash burn rate. 
I know how much I burn monthly, and I burn all my income in a month to pre-planned and some unplanned purchases. Financial samurai suggests finding that value and multiply it by 12 to 24 for an emergency of 1 to 2 years.

4) Calculate your passive income streams. 
It's possibly to be unemployed but still produce income if we have passive income streams. Passive income are income that are not produced by our main source of income. Usually it is described as income produced without doing anything. I don't like that description because there's always a certain amount of work that goes into an income. Whether it's renting properties or even royalties. There is an amount of work that goes into it.

5) List out all the things you plan to do. 
I have so many things I want to do during my temporary unemployment. Finishing up on my books. Maybe my unhappiness is due to the fact that I don't have time to do the things that I wish to do on the side...

6) Think about others. 
An unexpected whammy. My wife is pregnant with my third child.

7) Will a sabbatical do the trick? 
I'm considering asking for a sabbatical to get the kinks out of my system. I'll have to ask the human resource department for this.

8) How open is the Bank of Mom and Dad? 
I've been a burden long enough, no need to add more years into my account.

9) Are you willing to work at McDonald’s? 
It's better to be underemployed rather than unemployed. During the toughest time, Prophet Yusuf alayhi-salaam still had years of production even if they were poor. Because losing 100% of income will be one of the most difficult thing to live by.

10) Do you have something else lined up?
Yes, I do. Not final, but it's something.

11) Take your time to quit. 
I had a bonus coming and I turned in a resignation letter. A dumb thing to do, which made the cancellation justified.

12) Talk to as many people who’ve quit as possible. 
Any one quit their job recently?

Staying Motivated

Source: Wikimedia

I've tried to create a habit where I have a 20-minute exercise everyday. It worked. For a week. It was no different with money. So, I've kind of automated myself by spending on it immediately. Spend to save and invest. My money move immediately when it comes on payday. Then, I reward myself.

I spend on things like soda, strawberry smoothie ice cream and indulge after I do something for my financial well-being. The little things I love become rewards for myself. If you've seen animal trainers giving snacks as reward for the animals after they do something, this is basically using that technique.

The final two steps is about staying motivated, moving forward, and the importance of creating a healthy habit. And so, we have finally crossed the finished line, 30 steps to a better financial future. Let's go!

Financial Team Assemble!

Financial Team Assemble! Image: Marvel Avengers

 The one thing I've learned from past experiences of working in teams is that the best team assembled are those that include diverse talents. Step 28 suggests your team should consist of a tax advisor, credit counselor, financial planner and lawyer. Kiplinger suggests a dream team of a financial planner, investment adviser, estate-planning lawyer, and an accountant. The two only showing a slight difference depending on where you are with your money, one being in debt and the other with solid finances and ready to invest.

 It all sounds good when personal finance books suggests that you should build a team as if we're all Tony Stark's with money to burn, thus often forget to mention the costs associated with it.

 Spoiler: it's not cheap.

 Now, don't take this the wrong way. I'm not trying to sell the idea to readers that they should spend their hard-earned money on professionals. I'm having a hard time to convince myself to do that actually. So, this is actually me, trying to convince myself.

 According to the article from Kiplinger, financial planners come at a cost of $200-300/hour. There are online financial planners such as LearnVest offering combined services of financial planning plus technological support that starts from $89 one time fee, plus a $19 monthly fee. If I take the "5-year planner" plan, it would be $299 + $19/month, or about $527. That's probably the cost of a "free phone" plus a year contract phone plan or maybe a gadget. So, gadget vs financial planner.

I'm going to consider my happiness on making this decision. I'll categorize this financial planning purchase as a one-time, one-year subscription experience purchase. Am I sold on it? Not yet. I think I'll focus on how I budget my first year and what I achieve.

The Qadr of Money

Source: Vakil.org

I am going to pile Step 18, Step 19, Step 20, and Step 21 together in one post because they are very much connected to each other. Hopefully I can tie everything together neatly here. Before we start, please watch the video below:



Steps 18-21 is all about budgeting, and budgeting is about the present to the future, not the past. Think of budgeting as a guidance in assigning each and every dollar a job, and with the guidance created, you have peace of mind of how you will live in the present and upcoming month. It's much more peaceful than spending aimlessly and hope all will be well. So, we create a predestination of where will each dollar will go to based on the things we know will come. Things called fixed, variable and periodic expenses like mortgage/rent, utilities, insurance, birthdays and so on. When the money have been predestined to certain jobs, they cannot go anywhere else, like the comic strip above. Do not let your free will create chaos on the flow of your money. Automatically impede the movement of your money once your receive your paycheck.

"..And peace will be upon he who follows the guidance." 

20. Surat Ţāhā (Ta-Ha; 47) 

And We did not create the heaven and the earth and that between them aimlessly. That is the assumption of those who disbelieve, so woe to those who disbelieve from the Fire.

38. Surat Şād (The Letter "Saad"; 27)

Indeed, all things We created with predestination.

54. Surat Al-Qamar (The Moon; 49)

Spend 'Til You Drop

Broke Monopoly

I had always been taught and told to save. Save for the things I want to buy. Save for my goals. I did exactly just that. I became proficient at saving. Once, I brought a bag of pennies to Toys R Us to buy a handheld game. You can imagine the horror that the clerk went through of counting pennies. By the time I was a young adult, I had developed a habit of saving and spending it all at once. But my spending was of useless spending and brought me to my financial demise. It is like a winning poker player who chooses to go all-in at his last hand and game, then ends up losing it all and being a loser. So, for a long time, I never saw the real lesson of spending when I always feel like a loser in the end.

And spend of your substance in the cause of Allah, and make not your own hands contribute to (your) destruction; but do good; for Allah loveth those who do good.

2. Surat Al-Baqarah (The Cow; 195)

And [they are] those who, when they spend, do so not excessively or sparingly but are ever, between that, [justly] moderate

25. Surat Al-Furqān (The Criterian; 67)

The focus should be balanced. Saving is important but, spending is equally as important. But the word that we all should be more focused on is "spend". The reason is, only through spending can we actually realize a benefit (or destruction!). Think about it. What benefit is there through saving if no spending actually occur? Even the money that WE SAVE in the bank, the BANK SPENDS for benefit. Benefit to the people working for the bank and society. It is the purpose of banks to gather money and redistribute them as loans. The bank profits, and those who borrow for purpose of business profits from income. Or if it is a car loan for example, the bank, the car dealership or person receiving the money benefits. The reminder of excessive spending is, as we all know, what happens on a bigger scale when everyone stretch themselves too thin.

Going back on the topic of step 17, saving for our goals. If you remember "The Priority Pyramid" teaches us the foundation and goals that we should build on; spending less than earned (no additional debt), consumer debt free (no credit card debt or car loans), and building an emergency fund. They are part of what Dave Ramsey calls "The Seven Baby Steps". All of these require spending, than actual saving. Now, there's nothing wrong with spending all your monthly income, if you spend it all your required expenses and the seven baby steps. Once you receive your paycheck, you automate yourself to start spending money to pay for your emergency and future expenses fund, debt, investment fund, college fund, a home, retirement fund and charity. In the end, you're left with nothing. You have spend 'til you drop. But this time, it's okay.

What benefits can you actually get from hoarding and not spending money anyway?

O you who have believed, indeed many of the scholars and the monks devour the wealth of people unjustly and avert [them] from the way of Allah . And those who hoard gold and silver and spend it not in the way of Allah - give them tidings of a painful punishment. | The Day when it will be heated in the fire of Hell and seared therewith will be their foreheads, their flanks, and their backs, [it will be said], "This is what you hoarded for yourselves, so taste what you used to hoard."

9. Surat At-Tawbah (The Repentance; 34-35)

Yikes! Okay, okay. That ayat is about embezzlement of funds, and not redistributing it. But, hopefully the importance of proper spending stands.

A Thousand Years Minus Fifty

Noah's Ark. Source: Wikipedia

And We certainly sent Noah to his people, and he remained among them a thousand years minus fifty years, and the flood seized them while they were wrongdoers.

29. Surat Al-`Ankabūt (The Spider; 14)

And construct the ship under Our observation and Our inspiration and do not address Me concerning those who have wronged; indeed, they are [to be] drowned."

11. Surat Hūd (Hud; 37)

And a sign for them is that We carried their forefathers in a laden ship.

36. Surat Yā-Sīn (Ya Sin; 41)

There are many doors to take on the way to prosperity. All containing different strategies. The truth is, any strategy will do. The often heard "spending less than earnings" (or earning more than you spend, if you prefer to spin it that way) is the foundation of all types of strategies. You can start change now, without having to go through 30 steps to financial literacy, as long as you know how to spend and accumulate wealth, you'd be perfectly fine.

The key is really in the commitment. Are you committed? If you say you will save 20% of every paycheck, are you committed to it? You will not spend more than X amount on groceries per month, are you committed?

If we go through stories of Prophets, their life requires much patience and commitment. Prophet Nuh (alayhi-salaam) goes through one of the most grueling task in building a ship that would have enough room for pairs of animals and his followers. How many hundreds of years did it took to build it, since he lived around 950 years?

Prophet Nuh (alayhi-salaam) probably prepared himself for something terrible that would occur, but he didn't know exactly when. Prophet Yusuf (alayhi-salaam) had it better with the dream interpretation of seven productive years then seven difficult. That's something you can plan. Even after the construction of the ship was finished, and all animals collected, there is probability that the flood did not occur immediately. Though, that story, any many stories of our Prophets are lessons of holding onto a commitment.

We must have the commitment to go through our plan for a prosper future, saving for a terrible unknown, because once it occurs, only our laden savings account will carry us through it.

Preparing For Retirement And The Hereafter

Conrad Hotel - Maldives Rangali Island

 When the word "retirement" is heard or read, what images pop-up in your mind? I have a cliche set of images such as the beach, a resort surrounded by beautiful landscape and water. It might have been a result of subliminal programming on my mind that we should all travel the world, hop on a cruise, and check-in to a resort during retirement. This might be because of the pain vs pleasure principle that marketers use to sell retirement products by selling the idea that by purchasing a certain retirement product, you can gain a certain pleasure and financial security or avoid poverty. Thus, we are then pushed products that may not be in accordance with the guidance of our religion.

Satan threatens you with poverty and orders you to immorality, while Allah promises you forgiveness from Him and bounty. And Allah is all-Encompassing and Knowing.

2. Surat Al-Baqarah (The Cow; 268)

Is everything before retirement then considered living in terrible pain? Remember the question that Allah poses in the Quran 31 times;

So which of the favors of your Lord would you deny?

55. Surat Ar-Raĥmān (The Beneficent; 13, 16, 18, 21, 23, 25, 28, 30, 32, 34, 36, 38, 40, 42, 45, 47, 49, 51, 53, 55, 57, 59, 61, 63, 65, 67, 69, 71, 73, 75, 77)

The image associations I have and many people have today would greatly differ to people in the past. But, every individual of past or present reach a certain age when their bodies start to weaken and sooner or later cause inability to work. So, I am curious when did the word "retirement" actually came about, and whether people in past civilizations prepared for retirement or more so toward death and the Hereafter?

But those who have feared their Lord - for them are chambers, above them chambers built high, beneath which rivers flow. [This is] the promise of Allah . Allah does not fail in [His] promise.

39. Surat Az-Zumar (The Troops;20)

Planning and action are required before retirement and akhirat. Retirement is temporary. Akhirat is eternal. The only action we need to take on both is to spend. Spend 15-20% monthly from our paycheck to put into a savings/retirement account, spend in the way of Allah, and spend wisely. Spending wisely is essential to success.

Indeed, the wasteful are brothers of the devils, and ever has Satan been to his Lord ungrateful.

17. Surat Al-'Isrā' (The Night Journey; 27)

Step 15 on retirement is such a big topic and requires extensive planning, to which you can seek from Islamic financial planners (IFP) or a certified financial planners (CFP). The only one I can find on Google is Azzad Asset Management and most IFP's are based in Malaysia. InshaAllah, there will be more posts on retirement in the future. 

Building A Foundation Of Righteousness

Image credit: wikimedia

When we read stories of Prophet Nuh, Yousuf, Musa (alayhi-salaam) and many more, we are not given a timeline of how long the events occurred. How long did it take Prophet Nuh (alayhi-salaam) to build the Ark and collect animals in pairs? How long did Prophet Yousuf (alayhi-salaam) stay in the well or imprisoned? How long did Prophet Musa (alayhi-salaam) struggle against the pharaoh?

And Fir'aun (Pharaoh) said: "O Haman! Build me a tower that I may arrive at the ways, | the ways of the heavens, and I may look upon the Ilah (God) of Musa but verily, I think him to be a liar." Thus it was made fair-seeming, in Fir'aun's eyes, the evil of his deeds, and he was hindered from the (Right) Path, and the plot of Fir'aun led to nothing but loss and destruction (for him).

40. Surat Ghāfir (The Forgiver; 36-37)

If Haman had built Pharaoh a pyramid, it may have took 10-30 years to built. That would have been a long-term goal to disprove Prophet Musa (alayhi-salaam), stop his campaign, and maintain the status of god. But, clearly Pharaoh had short-term goals to meet his long-term goal. He ordered a kill on Prophet Moses (alayhi-salaam). Short-term goals are the foundation to meet the medium-term goals and reach long-term goals and success.

Then is one who laid the foundation of his building on righteousness [with fear] from Allah and [seeking] His approval better or one who laid the foundation of his building on the edge of a bank about to collapse, so it collapsed with him into the fire of Hell? And Allah does not guide the wrongdoing people.

9. Surat At-Tawbah (The Repentance; 109)

Those before them had already plotted, but Allah came at their building from the foundations, so the roof fell upon them from above them, and the punishment came to them from where they did not perceive.

16. Surat An-Naĥl (The Bee; 26)

We all know how well the Pharaoh fared. What we can learn from the story of Pharaoh and the ayats above are; if we build a weak foundation, everything will collapse.We must act on righteousness.

When we look back at our priorities (from step 10), we should put forward those that may erode our foundation toward prosperity. Based on the Priority Pyramid, we put our focus on creating a positive cash flow, paying off of consumer debts, and freeing ourselves from riba as short-term goals.

Image source MoneySense

Step 12 discusses setting up short-term, medium-term, and long-term goals. This refers to time required to achieve the goal and they must be SMART goals. But, all goals can be broken down in shorter time fragments of achievements. A short-term goal in repaying a debt of $1200 is broken down to saving just $100 a month after receiving a paycheck. We are creating a monthly guidance and small wins  for ourselves, to move toward the big picture. Prosperity.

They are on guidance from their Lord, and it is these who will prosper (be successful).

2. Surat Al-Baqarah (The Cow; 5)

Image credit Internet Entrepreneur Connection

Off-topic fun for discussion: since pyramids are tombs, and the Pharaoh thinks that he is god, it would contradict Pharaoh's goal to create public perception that he is god. Therefore, it would not have been a pyramid that Haman built. Thus, we are back at where we started with the mysteriousness of time and events.

Achieving Goals Through Habits

Image source: topsecretwriters.com

Taking the next step, step 11, is to make SMART goals.

Goals need to be:
Specific: (for example) I'd like to save 20% of my monthly income
Measurable: by saving 20%, I'd have achieved the goal
Achievable: I make sure 20% of income is realistic
Rewarding: it gives a feeling of achievement or self-fulfillment
Trackable: tracking my spending on how I can improve my savings.

Before making SMART goals, more importantly, we need to know how we can make things a habit so any realistic goals made are achievable. James Clear calls it "identity-based habits". We start by planting an identity who we'd like to be, believe it, then truly become the person. For example, I create a new identity that I am a person who lives without debt whilst my current situation is being in debt with five credit cards. I must prove to myself that the new identity is who I am by creating "small wins". A person who lives without debt, surely has a savings account. So, I create a habit that after I receive a paycheck, I separate 2.5% for savings to create small wins. Raise it by 100% to 5% on next month's paycheck and so on. At the same time, I make it a habit to pay down my debt (and stop using the card), starting with the smallest outstanding balance until it is paid off. Shred the credit card. Win.

If you'd like to start with the highest interest and the highest balance, that's also fine. There are two ways to walk up a very steep and tall hill; walk with your head looking up at the highest point of the hill, or you can keep your head down. It is physically and mentally exhausting to look up and constantly saying to yourself that "you're almost there", where in truth you're still quite far. However, if you keep your head down and just keep walking, it might be a little bit easier. Don't focus on how much debt is left to be repaid, just keep focused on paying down the debt. Negotiate with the credit card company on freezing the card and interest because you've made a commitment to pay it off. You can also use services such as those provided by Islamic Debt Solutions.

The key is not in setting the goal, but in creating the healthy habits to actually become the person able to meet the goals made.

In The End, Those Guided Will Prosper

They are on guidance from their Lord, and it is these who will prosper (be successful).

2. Surat Al-Baqarah (The Cow; 5)

We are embarking on a new journey, but do we know exactly where the long and winding road leads to? Before we embark on this journey in Islamic Personal Finance, we need to know where we should be. Like Stephen R. Covey said, “begin with the end in mind”. It's a difficult question to answer, especially when it's about our financial future. Is 1 million dollar the magic number we all need to have upon retirement?

Your Money Ratios: 8 Simple Tools for Financial Security, a book which I highly recommend (read reviews by thesimpledollar.com and thewisdomjournal.com), serves as a good guide to finding the specific point on our prosperity based on our age and income. Example based on the calculator provided by the author here, a person at the age of 25 with an annual income of $30,000 should have a savings of at least $3,000 or $3,600 if saving 12% of income.

Now, we have a clear picture of where we are, should be, or would've been at this point in time.