Islamic Financial Planning

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Islamic Financial Planning: Guiding Principles
Financial Planning, as defined conventionally, is “a process which helps individuals set and achieve their long-term financial goals, through the proper management of your finances.” Financial planning normally covers the areas of investments, tax planning, asset allocation, risk management, retirement planning, and estate planning. In other words, financial planning can also be broadly divided into five areas or pillars of focus, which are wealth accumulation (retirement planning), wealth enhancement (investment planning), wealth maintenance (money & tax management planning), wealth protection (insurance planning) and wealth distribution (estate planning). It is not hard to envisage that Islamic financial planning by definition would read something like this: “A process which helps individuals set and achieve their long-term financial goals in accordance to the principles of Islam, through investments, tax planning, asset allocation, risk management, retirement planning, and estate planning which are syariah-compliant”. Other than using syariah-compliant products, the management of a Muslim’s wealth should be based on a fundamental principle in Islam, that is, wealth is held in trust for Allah swt. As such, everything within the chain of what a Muslim does in connection with his wealth – how he accumulates, distributes, enhances, protects or maintains it – must be in line with the role he undertakes as a trustee, and thus in accordance to the wishes of its true owner, Allah swt. What then are the conditions or guiding principles that govern a Muslim’s (the trustee) responsibility towards managing his or her wealth? In general, three are conditions serve to guide how a Muslim should administer his or her wealth as a trustee: (1)Wealth must be accumulated in an absolutely honest manner; (2)Wealth must be managed in a highly responsible manner to benefit not only its owners and family but the community as a whole; (3)Wealth does not in any way distract Muslims from their strong faith in Allah. The first condition is probably the most straightforward and easiest of all these three conditions to fulfill. In very simple terms, the question surrounds how one accumulates one’s wealth i.e. the source of one’s wealth must be halal or from a permissible source. Very clearly, wealth from sources like bribery, devouring the wealth of orphans, embezzlement, earnings from alcohol and gambling, prostitution and other immoral activities, and the hoarding, monopoly and black marketing of goods, are all haram. Underscoring the importance of this is the following hadith where the Prophet pbuh warned: “If a clothing which is bought from a forbidden source of income is used in prayer, therefore as long as the clothing is used, the prayers are not accepted by Allah.” (Shu’ab Al-Imran) Note that wealth does not only accumulate from its source (e.g. salary) but also from returns through investments such as property and stocks. Thus, the manner in which such investments are conducted needs to be halal. “Whoever accumulates money in a forbidden manner, then he donates the wealth, he will not get any blessings at all from Allah, but only sins.” (Ibn Khuzaimah, Ibn Hibban and Al-Hakim) It is this very area that syariah-compliant products have managed to serve very well, evidenced by the proliferation of syariah-complaint products in recent years as it meets the growing needs and affluence of the global Muslim population. The second guiding principle; wealth must be managed in a highly responsible manner to benefit not only its owners and family but the community as a whole; underscores the key responsibility of the trustee. The focus is on the individual’s responsibility not only to himself, but also to his family and the community at large when managing this wealth. And this in itself is a trial from Allah swt: “It is He who hath made you (His) agent, inheritors on earth. He hath raised you in...
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