Spend Less And Earn More, You Should. Yes.

Luke Skywalker and Yoda. Star Wars

Eid Mubarak everyone. I have been gone for too long, but I have not forgotten! My new job is a little too crazy for me and during the holidays I had to catch up with a new book that I'm really excited to be working on (though it turns out to be a really big project) with some editing on Du'a, A Definitive Guide to Supplications from Al-Quran.

Anyways! Let's get things started again with step 25, revisiting your finances and documenting your desired spending. We talked about taking control of our own finances mean being the Chief Financial Officer of our money. It's a weird position to be in since we're also occupying position of manager, accountant, producer (of income) etc. The gist of a CFO in personal finance is either to cut spending or raise income. Ideally you'd like to do both, but both never occur on a continuous basis. You don't get a wage increase every month or year. So, the only option is to look at spending. Once your income increase, you either can keep costs the same (more money left!) or costs increase by spending on higher priced needs or wants. It all depends on your goals and time frame to reach it. You are cutting spending on certain things because you have a reason to cut it, to achieve a goal by the end of the week, month, months, year, and 5 years.

Whilst browsing, I found an interesting CFO mentoring website that got me wondering if there are a personal finance mentor program. There probably is, but at cost. The next best thing to a mentor might be a family member who might not mentor, but can tell it like it is. Another potential, is the local Islamic center to have more discussions about money and build a support program that meets weekly, bi-weekly or monthly.

Just Right

Goldilocks and the Three Bears

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)

I believe that moderation is different for everyone. Take the story of Goldilocks and the Three Bears, we know that Goldilocks likes the things that are just right. For her. What's right for Goldilocks, apparently is right for the little bear. Maybe because they're the same age or height and so on. With money, we need to consider a few more things. For example, person A & B both makes $60,000/year but one lives in an expensive city and the other in a suburb with a lower cost of living. What's right for each of them will be very different.

Reducing spending in step 22 and saving money on groceries in step 23 is trying to find that sweet spot with our spending. We cut the things that we can actually live without for a while (or forever). It can be anything, we just have to pay attention to the things we spend on. With food, the main purpose of food is just to keep us alive. If we strip things down to the core of only needs, we will probably only need to fulfill our basic nutritious needs and stop eating Doritos (I can't!). We don't have to go to the extremes. Find what we really need, and budget in what your wants are, moderately.

Like Goldilocks, it's all about in finding what's just right.

It's too small, it's too big, it's just right?

The Dream About The Skinny Cow

Skinny Cow brand

[He said], "Joseph, O man of truth, explain to us about seven fat cows eaten by seven [that were] lean, and seven green spikes [of grain] and others [that were] dry - that I may return to the people; perhaps they will know [about you]." | [Joseph] said, "You will plant for seven years consecutively; and what you harvest leave in its spikes, except a little from which you will eat. | Then will come after that seven difficult [years] which will consume what you saved for them, except a little from which you will store. | Then will come after that a year in which the people will be given rain and in which they will press [olives and grapes]."

12. Surat Yusuf (46-49)

We all need an emergency savings. Just how much is often the difficult question to answer. It might be a number that helps you sleep at night. For example: If things are a mess, but you have $10,000 in the bank, you wouldn't lose any sleep about how you will pay your bills, buy food, and so on. However, different circumstances affect the monies required. So, I think Surat Yusuf provides a good guide on answering the question of how much is needed under extreme situation when a seven year drought happens.

Notice in the ayats that during the seven years of normalcy, you will have to save money, squeeze the spending and save. During the seven difficult years, you will consume from what you save and even have the ability to save from the income you receive. We can apply this to a hypothetical case on how much needed to face seven difficult years in which you will consume your savings. For example, you are unemployed but you have a temp job (which have nothing to do with your educational background, or specialty) that barely covers your lifestyle. So, every month you dip your hands in your savings for seven years, whilst also saving from income you receive at the temp job. How much do you need? In this scenario, you would have to be honest with yourself on what kind of lifestyle you would be undertaking under very difficult circumstances, the job you would be willing to take while unemployed (for seven years!), and how much that job would pay. Do it for seven years and you have your number.

A much easier way is to visit the calculator and you have your required drought savings and when you will be able to achieve the goal. That's it for step 14!

OFF TOPIC: I apologize that scheduling of articles posted are slipping a bit. I am in transition for a new job at a government institution. My job will focus on consumer education and protection in the financial industry.   So, maybe in future articles I will be tying Islamic personal finance with my findings at work.

In Every Debt That Must Be Repaid...

Image source http://www.starpulse.com/
Mary Poppins © Disney. All Rights Reserved

There once was a beautiful lady that floats down from the clouds with an umbrella to answer the call of people who are in a financial mess. She help their households by being firm and lay the ground rules for them to succeed financially. But, she doesn't forget that in all of us, their lies a child who yearns of play. She reminds us that  "in every debt that must be repaid, there is an element of fun. You find the fun, and -SNAP- repayment's a game!"

I wish such lady or at least a reality show called financial literacy nanny exists. Would it be possible to find the fun in repaying debt? Sure! In order for it to be a game, you must divert your attention from it being a burden to being an activity that is a challenge waiting to be conquered.

Let's call the game "ZERO!" The race to zero debt.

The Rules of ZERO! :

1. To win, players must have zero debt.
2. Players start with a certain amount of debt. Players must know the outstanding balance, interest rate and minimum monthly payments required.
3. Players must assign a person as witness/supporter making sure that you play the game until it's finished.

Strategy I recommend on winning the game :

• Make niyyah to win the game!
• Don't accumulate new debt.

• Repay from debt with highest interest, but put an effort into negotiating a reduction on your interest rate. You can spice up the game by assigning a number to each of your card, and your spouse or friend acting as a witness and supporter rolls the dice to see which card you get to repay first.
• Know what is required of you in terms of monthly payments.
• Stick with the plan!

Regardless whether you prefer in repaying debt with smaller outstanding balance or based on the highest interest rate, the most important thing is to stick to whatever strategy chosen to win the game. The focus should be on the necessary steps needed to be taken. Taking the thirteenth step is about the step to be free of debt, especially consumer debt. Remember, it's all a game. A game you can win.

And the worldly life is not but amusement and diversion; but the home of the Hereafter is best for those who fear Allah , so will you not reason?

6. Surat Al-'An`ām (The Cattle; 32)

The Things We All Need

I need this. Really! Image from green.autoblog.com

If you have kids and gone for a stroll with them at the supermarket, you'd notice how they use the words want and need. I think, in their brains, they know the impact of each word. Saying "I need this" vs "I want this" has its own weight. So, "need" will come up more often than "want". I barely can resist their puppy eyes and mellow voice as they longingly look at the toy that has been strategically placed eye-level with seated shopping carts.

Maslow's Hierarchy of Needs

Maslow's hierarchy of needs breaks down needs into three parts; basic needs, psychological needs, and self-fulfillment needs. Basic needs are the foundation of the triangle, consisting of physiological and safety needs. Physiological consists of food and water. Safety needs, like shelter. The psychological needs are love/belonging like friendships and esteem for feelings of accomplishment. The last part is self-actualization, fulfilling one's potential.

Maslow's hierarchy is a perfect formula for marketing purposes. For example; A commercial showing a boy waiting in hunger as he licks his lips while he watches his Mom make a peanut butter sandwich for breakfast. The boy finishes his breakfast then heads off to school for a test, A+! The boy returns home to see his Mom very proud of her son's achievement, giving him a great big hug. Meaning, advertisers/marketers try to make the item attractive physiologically (hunger, then leave for school feeling full from the peanut butter sandwich), a feeling of love, safety (mom's hug), self-esteem, and sense of self-fulfillment. So, within these needs, companies are trying to categorize or push their products as the I-need-to-haves. I need to have all (physiological, safety, love, esteem, self-actualization) that, just from a jar of peanut butter.

Step 10, is all about identifying needs, wants, and prioritizing. What are our financial needs and wants? Using Maslow's hierarchy of needs, we start from the foundation; our basic needs, the need to eat, drink, sleep safely in a home and so on. We should start tackling down things that might harm our basic needs, debt. We should prioritize to repay any debt on time, because it may harm the very foundation and basic needs. A mortgage, car loan, consumer debt. If we don't have a home, save for a down-payment.

The second is psychological, the need for happiness. Plan for a refreshing trip to the beach, watch a good movie, buy a book that you will enjoy reading accompanied with hot cocoa on a rainy day, and things that will give you positive experiences. Also spend on others, giving out to charities so that you will become much happier. Being happier will help you in avoiding foolish money decisions. Those who withhold from giving (productively) are only withholding themselves from happiness.

"Here you are - those invited to spend (what Allah has provided) in the cause of Allah - but among you are those who withhold [out of greed]. And whoever withholds only withholds [benefit] from himself; and Allah is the Free of need, while you are the needy. And if you turn away, He will replace you with another people; then they will not be the likes of you." 

Surat Muĥammad 47:38

The final part, self-actualization, is supported by our actions from the foundation. We believe in our abilities and will fulfill our potential to make the right financial decisions and goals.

We will continue next week for step 11 in setting SMART financial goals.