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.

Gifts, Not Money, For Charity

Sadaqah (charity), like zakat (alms),  is something we must hasten and the fastest way to give charity after a paycheck is by giving it in a form of money. There's nothing wrong with giving money as charity, but I'm trying to avoid it under certain circumstances. So, here's a couple of reasons why I'm not giving money as charity.

1. Giving money directly to a person is a big no-no. Money is a piece of paper that has no value than what is declared by the government to be accepted as a form of payment or simply a medium of exchange. If we give money to a person as charity then what are we exactly exchanging it for? Someone comes and ask for help, don't give money, give something that is tangible and needed.

If money is given, then the person will make decisions with that money that might not help them and might seek more money to repeat those poor decisions (i.e. getting wasted).

And do not give the weak-minded your property, which Allah has made a means of sustenance for you, but provide for them with it and clothe them and speak to them words of appropriate kindness. 4. Surat An-Nisa (Women; 5)

2. Charitable organizations need money to operate, so they would take percentages of money given to them to cover wages or any operating costs. If we give money as charity to organizations, its distribution shouldn't be a portion, but whole. Every time I'm asked whether I would like to give my change to charity, I'm suspicious, how much of my change will actually go towards the cause?

A charitable organization needs a for-profit business backing. It should be a Corporate Social Responsibility (CSR) wing, where volunteers are employees of its company(ies) and those working on that wing are paid by the company. Any other arrangements are unsustainable and unecessarily robbing from the people's charity.

And test the orphans [in their abilities] until they reach marriageable age. Then if you perceive in them sound judgement, release their property to them. And do not consume it excessively and quickly, [anticipating] that they will grow up. And whoever, [when acting as guardian], is self-sufficient should refrain [from taking a fee]; and whoever is poor - let him take according to what is acceptable. Then when you release their property to them, bring witnesses upon them. And sufficient is Allah as Accountant. 4. Surat An-Nisa (Women; 6)

This article was inspired by an ayat that I currently can't find....


but here's a sample of my doubt: http://m.csmonitor.com/Business/2015/0519/Cancer-charities-defrauded-donors-of-187-million-feds-say-video

One For Me and Two For You

As a parent, when I allow one child to purchase a toy, the other must be allowed as well. It is both equality and justice. My children haven't really gave thought to the equality of how much each toy costs, but they stand up to the balance of justice in having the permission to choose a toy based on my approval. When they grow up and understand money, equality of how much they're allowed to spend might play a role on upholding justice. I've realized that equality and justice as important lessons for my children to understand, so I've gathered some notes on the inevitable inequality that I need my children to understand.

1. Inequality of money spent

The amount spent on each will never be equal, but I hope they understand that inequality is inevitable due to inflation, wage increase, and their own wants and efforts. Their education costs will be different. I will be able to afford more if earning more, what majors they choose, and where they are able to attend.

I've set some lines of justice such as paying for all my children's college education, God willing. If one chooses not to attend a higher education, they cannot seek equality nor justice by asking the amount of money I've spent on their siblings for their college education. Reason being that education helps equality to some extent. What they should focus more is on patience and endurance to strive for the best.

...Indeed, I have rewarded them this Day for their patient endurance - that they are the attainers [of success]." 23. Surat Al-Mu'minun (The Believers;111)

2. Inequality of legacy
So far, I have one girl and two boys. Between my daughter and my boys, they will receive different amounts.

Allah instructs you concerning your children: for the male, what is equal to the share of two females. But if there are [only] daughters, two or more, for them is two thirds of one's estate. And if there is only one, for her is half. And for one's parents, to each one of them is a sixth of his estate if he left children. But if he had no children and the parents [alone] inherit from him, then for his mother is one third. And if he had brothers [or sisters], for his mother is a sixth, after any bequest he [may have] made or debt. Your parents or your children - you know not which of them are nearest to you in benefit. [These shares are] an obligation [imposed] by Allah . Indeed, Allah is ever Knowing and Wise. 4. Surat An-Nisa (The Women; 11)

The amount set is ordinance from Allah and they should accept and not transgress, which continues to my next point..

2. Inequality of fate
The outcomes in their life will be different based on their efforts, God's will, and many other things. Praise Allah for what is received. Ask Allah for the best in dunya and akhirat. Work together to achieve the highest attainment.

These are the limits [set by] Allah , and whoever obeys Allah and His Messenger will be admitted by Him to gardens [in Paradise] under which rivers flow, abiding eternally therein; and that is the great attainment.
4. Surat An-Nisa (The Women; 13)

The Rise Of The Robo-Advisor

Come with me if you want to be financially well-off says Robo Advisor

When I was young, I had an affinity with zodiacs. It faded as I grew up, but upon entering college, I found psychology very interesting. I think zodiacs and psychology have something in common because both act as a gateway to understanding myself as a person. Early in life, I needed zodiacs to tell me I was a certain kind of person. Later in life, I still didn't know who I was and was looking to comfort myself and I thought maybe psychology would give me the ability to understand myself.

For many aspects of life, we might need to understand ourselves and hence gain a sense of control.With technological advancements though, some may be eliminated such as the case for driving with the advancements in the self-driving cars. Giving up control is hard, but under certain circumstances, everyone can learn to let go and it helps when a computer does the driving for you.

With money, there are certain things that can be automated because we have too many weaknesses that makes us go against our very own interest. We are our own enemy. That's where robo-advisors come in. The robo-advisors will advise (and some act) in our own best interest. Take it a step further by also acting like a robot through automating actions to stay on track toward goals.

And Allah wants to lighten for you [your difficulties]; and mankind was created weak.

4. Surat An-Nisā' (The Women; 28)

 
Some of the awesome technological advance in money management are Simple Bank, Personal Capital, and Riskalyze. There are plenty and things will be much more easier for future generations. The future is bright...

Money Lessons for Children

It's been around a year since I've given my children an allowance of $10/month and they've saved up a lot. But, they wouldn't have been able to save as much if I had not given them simple rules of spending. Spend $20 after they've saved up $100. I'm planning to increase their income to give/contribute and grow/invest to enrich their experience with money.

I've had many conversations with them, and they have learnt to cherish their savings. So much that every time I joke if they should contribute for purchase of theme park tickets, they would choose to save for purchases they would like to buy. Toys. 

They are learning about opportunity costs from their monthly allowances. But the problem is, I want to take them to the theme park! Well... maybe I want it more than they do, but I'd like them to spend on experiences rather than toys that only give temporary satisfaction rather than memories. (memories they might forget at their age of 8 and 5)

I'd like them to contribute to the family. Eating out and entertainment costs money. Maybe they didn't ask for it, but they should chip in. The outcomes I hope to have through their lessons in contribution is a feeling of responsibility. I hope when my kids grow up, and they borrow money from me or whomever, I want them to have the integrity to return the money owed. It's a 20 years lesson that I need to keep building on.

Lastly, besides saving and spending, I'd like them to consistently give and grow their wealth.

And establish prayer and give zakah, and whatever good you put forward for yourselves - you will find it with Allah. Indeed, Allah of what you do, is Seeing.

2.Surat Al-Baqarah (the cow; 110)

The example of those who spend their wealth in the way of Allah is like a seed [of grain] which grows seven spikes; in each spike is a hundred grains. And Allah multiplies [His reward] for whom He wills. And Allah is all-Encompassing and Knowing.

2.Surat Al-Baqarah (the cow; 261) 

A Step Into The World of Investing

I've decided to start investing this year. Small amounts, monthly, put away early. I'll be placing my investments in an Islamic index fund (Indonesia). To my knowledge, there aren't any Islamic index fund in the U.S. but Islamicity.com lists Islamic mutual funds available for Muslims in the U.S. and also the IMAN Fund.

When I compare other funds to the index fund, it doesn't look attractive enough since other's are performing above the index. But, my intention is to start something bigger. I have two kids, one on the way. They're 8 and 5 years old. My hope is to implant habits for them to invest throughout their lifetime as I did not have parents that encourage me to invest early on. InshaAllah, they have many years ahead of them. Who knows what fruits it may bear in 30 years...

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.

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?

Managing Expectations; Personal Quarterly Earning Reports

Managing Expectations, Calvin's Way.

Life is much easier when the pressure is off your shoulders. You hear it in sport commentaries when the underdog will have a go since they don't have the must-win expectation tagged to the favorites. So, what's best when you set your budget? Under-promise. Over-deliver.

There are two personal financial statements in the quarterly personal finance report :
1. Balance Sheet which will show your net worth, whether you're increasing in wealth or becoming poorer;
2. Income Statement which is your realized monthly budget.

Companies have quarterly financial reports to release, and we should too. Our earnings announcements should be in the months of March, June, September and December where we take a picture of our financial condition for the quarter and reassess our goals. After every release comes expectation of how the company (you) position itself for the next quarter. Personal finance is pretty predictable in normal circumstances; we will get your income bi-weekly or monthly. If we set our annual goals and break it down quarterly, we should at least quarterly fulfill what is expected of ourselves. But, take a step further by outperforming on a quarterly basis in cutting our cost/expenses and constantly increasing our net worth. We should have high expectations of ourselves to perform better if things are going well economically.

Can we meet our own target performance? If we can, then it was expected. If we under-perform, investor (your) confidence lessens. If we over-deliver, it's good. Management (you) get a bonus of becoming richer due to good performance.

The awesome thing is, this can be a family event like how companies have conference calls. We can hold an earnings announcement and conference calls as a family. Children should very much know whether their parents are in debt, since debt is passed down to children.

Are you an able manager to push yourself and your family to prosperity? Of course you are, if not then who else? I guess the one expectation that you can't manage is your own. Personal finance is a must-win game.

Training Your Wealth Accumulation Muscle

Image from abqjournal.com

Spend less than earned. Accumulating wealth is easier said than done. Accumulating snow and turning it into a snowman however, never felt that difficult. We start with a handful then roll it on the ground until it gets really big. It turns out that the method to building a snowman, called the snowball method, is the most effective way to pay off debt. I am proposing that it can also be an effective way to build our wealth accumulation muscle.

The snowball method can be similarly applied to how we build wealth. We start with small wins that gets us immediately hooked to the challenge to better the previous win. It keeps going and rolling until we reach the big win.

Let's play a game!

You'd like to save $2000, that is your created imaginary debt. Split your debt unequally in amounts that you need to pay off and prepare envelopes for payments to the debt. The maximum split is 5, but let's say you have split it up into 4 different debts of $100, $400, $700 and $800 totaling to $2000. Search "average credit card interest rate" on Google, you'll have an average number for all those debts, in this article's case it's 15.6 percent.  

Now, you might be asking why maximum split of 5? Because we'll be using Bankrate's minimum payment calculator and it gives the maximum of 5. The rule is you need to pay all the cards monthly, so if you're focusing on one card with the lowest balance, you'll need to pay the other cards at minimum. Enter the debt amount, interest rate and minimum payment percentage to get your minimum amount. 

Can we fix our finances? Yes!

Can we pay off our debt? Yes!

Can we build wealth? Yes, we can!

Riba Closer To Home

The hour is truly near. Riba draws ever closer to home. There are businesses that lets you lend your money to other people and gain interest from it. Muslims, please stay away from Lendingclub, Prosper and others like it. Do not see it as an investment. Do you truly want to wage war against God?

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.| 

Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.| 

Indeed, those who believe and do righteous deeds and establish prayer and give zakah will have their reward with their Lord, and there will be no fear concerning them, nor will they grieve.| 

O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.| 

And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.|  

And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew.| 

And fear a Day when you will be returned to Allah . Then every soul will be compensated for what it earned, and they will not be treated unjustly.

2.Surat Al-Baqarah (The Cow) 275-281

Why We Can't Save

Blindly spending - Image from Wired.com

Based on my own experience, the one reason why I don't routinely save is because I didn't plan to save. Once I planned, I started saving though it's not a significant amount but it's still saving. Some people might feel that saving is only for people who are in a privileged position to do so, but that's very far from the truth. Everyone must save. Everyday I pass by beggars and I wonder how they they eat for the day. They save for it. And they probably budget too. They know how much they need to live for the day, and save the money they have for tomorrow.

So, if we feel like we can't save, there's probably an amount that we can save but seems too insignificant. In the end we choose not to save. Or, we actually lack the knowledge of how much we can actually save because, like I did for the past 10+ years I didn't plan to. Budgeting or planning is a duty implicitly mentioned in the Quran.

They ask you about wine and gambling. Say, "In them is great sin and [yet, some] benefit for people. But their sin is greater than their benefit." And they ask you what they should spend. Say, "The excess [beyond needs]." Thus Allah makes clear to you the verses [of revelation] that you might give thought.

2. Surat Al-Baqarah (The Cow; 219)

When people are asking how much they should spend on charity, the answer was "the excess". How much is excess? We wont know if we don't write it out on a piece of paper and break down our spending. Not planning is intentionally blindfolding yourself from your money. And if you blindfold yourself from your money, you are risking of going in circles doing what you've always done with your money. Which was not an ideal situation for me.

Let's Talk Money

Anything For Money

 Money, good or bad, moves people. When I was young, I did not want to spend my time studying. But when there's money involved, boy did I work hard to push my grades up to Bs and As. One thing for sure though, it's a rather unsustainable motivator. It didn't build any positive habits in the process (for me at least) and a burden for parents to pay up.

 It's a relationship that I don't want to build with my kids, though my wife had promised my daughter a toy of her choice if she can read the Quran and she's almost there. I haven't offered my daughter, seven years old, anything in return for any achievement.  I want her to discover her emotions of being proud of herself and any other positive outcomes from her experiences.

 The relationship that I do want to build on, and what I think every Muslims should, is to talk about money rather bluntly with their kids depending on their level of understanding. A survey done by Visa found that families in Brazil and Mexico (38 and 42 days respectively) spends most time talking about money, Asians are best savers, young people aren't learning about money but Brazilians get an early start at the age of nine. These are very key things that as a parent should do, talk and teach about money and how to save.

“God commands you as regards your children’s (inheritance): to the male, a portion equal to that of two females; if (there are) only daughters, two or more, their share is two-thirds of the inheritance; if only one, her share is a half.  For parents, a sixth share of inheritance to each if the deceased left children; if no children, and the parents are the (only) heirs, the mother has a third; if the deceased left brothers (or sisters), the mother has a sixth.  (The distribution in all cases is) after the payment of legacies he may have bequeathed or debts.  You know not which of them, whether your parents or your children, are nearest to you in benefit; (these fixed shares) are ordained by God.  And God is Ever All-Knower, All-Wise.” 4. Surat An-Nisa (Women; 11)

 The ayat focuses mainly on the distribution of wealth. But underneath, I think highlights an importance in communication of wealth. Most people will find it appalling, offensive or taboo to talk about distribution of wealth after death while still alive, but I think it's a must. Especially since debt can be passed down. Money becomes a family affair. If you choose to take on debt, know that your family might take on it as well if you die in debt.

And, DEBT!

A Personalized Cash Based System

Forgot password?

I don't like to keep track of my expenses. I don't want to put on an app what I ate and how much I spent. Expense tracking is very tedious for me. I'm a very impulsive person, and I don't think I can change immediately to the ideals of how to manage money properly.

So, I've hacked a cash-based system to fit my personality. I spend very early in the month on any bills that I have to pay. Even money that I commit to save, I "spend" it by separating it quickly. The rest, is money that keeps me alive. My lunch money. I can do what I want with it. I have a baseline on how much I should spend everyday. Any day I overspend, I know that I will compensate on other days by spending less, or none.

It's worked well so far. I don't go to the ATM to pull out cash because I pulled all of it early. This month, I forgot my ATM PIN, entered the wrong PIN 3x and had my card blocked. Luckily, it was only for 2 days.

Moving Without Transgressing

Transgressor!

Believe in Allah and His Messenger, and spend of that whereof He has made you trustees. And such of you as believe and spend (in Allah's Way), theirs will be a great reward. 

57. Al-Hadid (The Iron; 7)

And We said, "O Adam, dwell, you and your wife, in Paradise and eat therefrom in [ease and] abundance from wherever you will. But do not approach this tree, lest you be among the wrongdoers."

2. Surat Al-Baqarah (The Cow; 35)

Since the beginning, we have been given limits that we could not cross. Like a board game, those limits become rules in which we must abide to, it is still possible to come out a winner. However, board games like Monopoly doesn't really teach the complexity of how money is spent monthly.  It doesn't have charity or monthly expenses. The sole purpose of the game is to spend all the money we have, as quickly as possible, to win.

The game of life (not the board game) has its limits. The limits within personal finance is our income. If we spend our money on a cash basis, it would be impossible to step over the limits. The only way to step over is to use debt instruments, like credit cards, then falling into debt.

O you who have believed, do not prohibit the good things which Allah has made lawful to you and do not transgress. Indeed, Allah does not like transgressors.

5. Surat Al-Mā'idah (The Table Spread; 87)

I have to underline that debt itself is not forbidden (credit cards, however, is a wider discussion which needs to be saved for a later time). It is possible to have debt but not transgress. From my previous post, by dividing our budget into present, future and past needs, we can set either the future or the past as our limits to debt.

We can also switch our focus to our limitation, income. It is possible to raise the limit by having a bigger income. Find a job that pays higher or negotiate it. And that is probably the only way we can move within the limits, with Allah's blessings (getting an increase in income or a job with one).

The Vehicle You Deserve To Have

I have a 20 (+/-) year old car and I've been thinking of purchasing a new one. It's time, maybe. The car is running fine with no issues, but the air conditioner and that it's a gas guzzler (Nissan Pathfinder). I've always been a firm believer that the car I need is the car that will get me from point A to B and fits my budget. The problem, I don't really know which car exactly fits my finances. Until I was given a recommendation to an article by the financial samurai about the 1/10 rule for car buying. It's simple, the vehicle you buy should be 1/10 of your gross annual income. If you make 50,000/year, you deserve a 5,000 vehicle.

And so, now I know that I am currently deserving a combination of public transportation and walking or a scooter.

The Golden Rectangle Budget

1.618 The Golden Ratio

One of the reason why many stories and parables in the Quran are perfect when it comes to personal finance is because it is a reminder. Reminder that includes three aspects; the past, present and future. So, I have been thinking how we can put all three aspects in our money management since they play a part in our budget. Example, the past plays a part in things we consume now and pay later, things like credit or utility bills. The present is the food we eat. The future are for things like retirement, investments and emergency savings.

This goes back to our previous topic, budget percentages, what is an aesthetically pleasing distribution for those three aspects? I looked to the golden ratio to guide me since it seems to be a magical number. I came up with this:

We have a choice of making the last proportion as charity or the past. Should we choose to have charity rather than the past, the things we consume now and pay later like rent, electricity, water, trash, sewer bills, can be bundled in the present. If we have a mortgage, it should fall under the future, since it is an asset that fluctuates like an investment. A car loan however would only decrease in price, it should fall into the present.
In truth, charity actually falls under the future because it is our investment for both dunya and akhirat. It is your choice to make.

So, how should we distribute our income in percentages?

Present 62% (food, transportation-gas, rent)
Future 24% (investments, savings, mortgage, charity)
Charity or Past 14% (utility bill, car loan)

If we would like to have the past and charity as separate categories, it would result in:

Present 62%
Future 24%
Past 9%
Charity  5%

It still looks like an ideal budget. In this scenario, what should be categorized into the past would either be utilities or a car loan, as one or the other will fall into the present. Simple and aesthetically pleasing, right?

Budget Percentages

Where Did The Money Go?

There are many advice on how we should spend a percentage of our income and budget accordingly. I've been trying to fit my budget on these guides, but I've never been able to fit the profile. I've realized that budget percentages only serve as a guide on what's normal for us to spend. Each of us have different lifestyle, conditions, needs and wants. It's almost impossible to fit in perfectly unless we live according to the ideal of the budget.

For example, most parents who live in the USA send their children to public school. So, it's natural that most parents don't have a budget for their children's education. But for parents who send their kids to private schools, or who live in countries where schools aren't free, will have their children's education on their budget.

Dave Ramsey Budget Percentages

Charitable Gifts 10-15%
Savings 5-10%
Housing 25-35%
Utilities 5-10%
Transportation 10-15%
Food 5-15%
Clothing 2-7%
Medical/Health 5-10%
Personal 5-10%
Recreation 5-10%
Debt 5-10%

What we can do is determine which budget percentages we can use as a guide to determine if we are overspending. Dave Ramsey's Budget Percentages is a good start. We can use parts of it as a guide. For example, spending 25%-35% of our income on housing. If we make $4,000/mth, then we can spend $1,400 on housing. If we'd like to save, we can budget housing and utilities together so that housing and utilities is budgeted $1,400/mth. That is an ideal situation. People that make $2,000/mth will have to find a place that rents $700/mth.

The rest, we have to list what we spend on monthly and see how much it takes up from our income. Next, we will cover a topic on determining which cars are affordable according to our income...

The Gadget Purchase Rule

What's Next For YOU To Buy!

I'm an avid gadget-news follower, but I don't really buy them. I've mastered the skill of waiting. The wonderful thing about gadgets is if you know what's coming next, and the one after, you'll be able to delay gratification. I've wanted an Apple computer for a long time. Maybe since 5 years ago. Every year I've successfully waited for the next Intel chip, and the one after it. However, since all those years, I've not saved up any money for my purchase. Which is a terrible waste of time and money I could have saved.

I've created "The Gadget Purchase Rule" for people who, like me, love gadgets and would love to purchase them. The rule determines which gadget is affordable within your means.

It's a very simple rule;

price of gadget/20% = amount needed to save

After succeeding to save the amount, you will be able to take 20% of amount saved as a reward to purchase the gadget. Also an additional rule, if the gadget is updated yearly and you plan to update yearly, you'd have to save that amount yearly.

Example, An unlocked contract free iPhone, $649/20% = Save $3,245. You'll have a savings of around $2,596 and an iPhone as your reward. If you'd like to upgrade yearly to a new iPhone, you need to save $3,245 every year. If you can't do that, then it is not a phone within your means.

Another example, I'd like to purchase a Mac Mini. $799/20% = Save $3,995. I plan on using it for a good 3-5 years before upgrading. I'd need to save $3,995 in at least 3-5 years and finally deserve to have it.

It might sound too extreme at first, but really that is the challenge to not only delay gratification but also build up savings. Because we should treat our savings like trees, plant when there's too few, but when in abundance, it does not mean we can cut and use it all.

Has It Been That Long?

The People of the Cave

I've not written on this blog for a while, and I realized my last post was in November. It's March. I've finally awaken and realize it's been 5 months since I posted. Passing the new year, I didn't make any resolutions. I did, however, use the personal finance apps for my budgeting needs. Many things happened during the time that I gave the apps a run for their money. I'll give a short say on each of them with a very important conclusion.

Toshl Finance was coming close to a winner during my experience. It's the most easiest to use and understand out of the whole bunch, but functionality have changed during the start of my test. It's almost unusable now. So, you'd have to decide if it would fit you to continuously use it. For $19.99/year, it's a small amount if it can motivate you to get your finances together.

YNAB made the most sense. You set your budget (spending goals), you track your expense (spending), and you can see whether you made your goals accordingly. It's for those who loves looking at numbers. It's $60 for the license to use the software.

MoneyWise and Pocket Budget are excellent free-to-use-apps, mainly as an expense tracker.

There's one problem, all these software doesn't really fit me. I really hate tracking my expenses, it gets tedious after a while. I've built the habit of spending without really planning nor tracking for such a long time, that all these software would fail to be a part of my financial activities. The one closest to succeeding was YNAB since I love numbers. So, I chose to use a spreadsheet software as part of my financial activities. I really dug deep to create a system that works for ME. A combination of a cash based spending system and NOT registering any of it.

My advice?

Don't read any personal finance apps review.

Don't spend money on software and justifying that purchase by telling yourself that you will use it and magic will happen to your finances.

The best thing you can do is to get down to business and quickly figure out a system that works for YOU.