Managing wealth in Islam is closely related to the Al-Falah concept. Learn the proper ways to managing your wealth to achieve Al-Falah.
Al-falah is an Arabic word for success.
While everyone strives to be successful in life, in Islamic wealth management, al-falah means success in this world and the Hereafter. To achieve al-falah, “Muslims must strive in Allah’s cause with his wealth and his self” (As-Saff:11).
Muslims are encouraged to seek ways to increase their wealth correctly. They have a duty to contribute to their families and community too. However, the process of Islamic wealth planning which involves acquiring wealth must adhere to Shariah-compliant principles and practices.
Generally, whatever is beneficial is permissible (halal). However, in Islamic wealth management, the following elements are prohibited (haram):
riba (interest/excess)
gharar (uncertainty)
maisir (gambling).
Also, investments that involve things or substances that the Quran says are wrong, like alcohol, gambling, or pork, are not allowed.
With that, here are seven tips for managing your wealth and striving for al-falah.
#1. Set or reset your financial goals
This is the first step, as it leads to the actions you will take to serve your ultimate purpose in this life. And to be balanced, you also need to consider other areas, such as goals for your family, career, and social life. All your goals are interrelated. Be specific when setting these goals so you can plan well and decide what to do first. For example, goals include wanting to retire comfortably by 55 years old and/or going on Hajj when you are 45 years old.
#2. Acknowledge your current wealth or resources
You would also need to assess your current financial situation. It means getting answers to these questions:
how much your income is
how much are your expenses
what are your assets
what are your debts.
If you are an employee, please clarify the benefits provided by the company so that you are clear on what you have at the current time.
#3. Review your existing spending
This is a reflection on the question: Where did you spend your wealth? (Hadith At Tirmidhi)
A review of your existing spending pattern is key. As an adult, you are responsible for the essentials like food, shelter and education for yourself and those under your care. However, to make the most of your life, you may want to spend on something that is not necessary but desired so that you can increase your quality of life, such as travelling, having more space with a bigger house or bigger car. To achieve al-falah, you should also consider the following:
Spend for the needy as a donation or sadaqah, or to charity for protecting animals or the environment;
Spend to acquire more knowledge or upskill that can make you a better person/ trustee
Pay your debts on time or as per the agreed method
Most importantly, you must spend prudently.
“So, when they bear fruit, eat some of it, paying what is due on the day of harvest, but do not be wasteful; God does not like wasteful people.” (Al-An’Am:141)
#4. Revisit current financial plans/ products
There are two primary objectives of doing this;
To ensure the current financial plan/ solutions meet your need and to cover your gap
To ensure the product /solutions that you have are shariah compliant instrument
It may sound a bit complicated here, as it requires some technical knowledge or expertise to assess. However, you may start with a simple action like shifting your bank accounts, credit cards or your EPF savings into a shariah-compliant alternatives.
Next, you may review your existing investment as there are plenty of options available that meet your financial objectives. In Malaysia, all regulated investment schemes will have an indication if it is a shariah compliant schemes/ products.
As for your wealth protection needs, you may want to reconfirm if your current policies are conventional products or takaful products which are shariah compliant. Wherever possible, you must opt for a takaful contract. However, you are highly encouraged to seek professional advice on this as there are many other factors that you need to consider before you change your existing policies.
#5. Restructure your debts
This tip is similar to tip #4 and only applies if you have one or more debts. Other than ensuring your current arrangement is under a Shariah-compliant contract, this step will provide you with a better alternative if the current financing charges can be optimised. This is because, over the years, more options have become available in the market, which makes the financing costs more competitive and can be to the advantage of consumers or borrowers.
You should also equip yourself with basic financial literacy, such as the different types of debt which have different effective financing charges, known as ‘bad debt’ or ‘good debt’.
#6. Check your tax & zakat obligation and payment
These two types of payments are mandatory for Muslims who meet a specific criteria.
Taxes are payable to the government, and you can be penalised if you fail to comply with its rules.
In Malaysia, zakat payments is voluntary for which you won’t be penalised under the existing legal system. On the other hand, zakat is a religious obligation and one of Islam’s 5 Pillars. You can find out how much zakat you need to pay by using the online zakat calculator at your respective the Pusat Zakat Negeri website.
#7. Ensure and revisit crisis management plan
This can be addressed by having some basic practices as follows:
List of your immediate family members
Make known of your alternative contact person(s) in the event of an emergency
Have a proper record of your assets and debts
Keep your financial documents properly and make sure your family members know where to locate it
Prepare a sufficient cash reserve of at least 6 months of living expenses
Update your nominee(s) so that the fund can be distributed faster (note: Nominee for Muslims is an executor, not receiver)
Hibah your takaful certificates as per your plan
Allocate sufficient allocation for estate administration costs
Additionally, consider Islamic estate planning instruments such as wasiyyah, waqj, and hibah in planning for your wealth distribution.
Conclusion
Life is full of uncertainties. But putting in your best effort through proper Islamic wealth planning and trying to get richer is a lifelong journey that Islam encourages. It is one of the means to achieve al-falah. With that, you are taking the best care of yourself and your loved ones, which will impact society directly or indirectly. Lastly, be humble and grateful for all the resources that you have in this life.
What is your approach to achieving Al-Falah in your finances?
About the Author
Helwa Sofni has more than a decade of experience as a Chartered Accountant and held many positions in the corporate sector before venturing herself as a Licensed Financial Planner with one of the top leading financial advisory in Malaysia, Wealth Vantage Advisory Sdn. Bhd. This mother of three who resides in Negeri Sembilan is also a certified Islamic Financial Planner. She truly believes that financial literacy is crucial for everyone in order to live life confidently and peacefully while pursuing one's dreams. She can be contacted at helwa@wealthvantage.com.my