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INTRODUCTION OF ISLAMIC FINANCIAL PLANNING (Scope of financial planning,…
INTRODUCTION OF ISLAMIC FINANCIAL PLANNING
Scope of financial planning
Cash flow and liability management
Insurance planning
Investment planning
Tax planning
Retirement planning
estate planning
Differentiate Islamic and conventional financial planning
The additional activities that not found in conventional
Planning for Haj
Payment of Zakat
Takaful planning
Asset distribution according to shariah
The prime concern for Muslim investors in investment planning (wealth accumulation) is to ensure that all investment activities are shariah compliant
The financing ( in conventional is called borrowing) aspect must be line with the shariah principles, one which and the most important is no element of riba it means must be interest free
Wealth
Definition - Abundance of valuable material possessions or resources
Any property or asset that has a money value or an exchangeable value
An income beyond the daily and basic requirement of a family
Categories of wealth
1.Immovable properties examples building, house, land, apartment factory
Movable properties examples outomobile,machinery,equipment
Financial asset/commercial papers examples stock,unit trust,bonds,money market intruments
Valuable minerals( substance taken from the earthz0 example gold
Valuable gems (valuable and precious stones) example diamonds
energy sources example oil
7.Object of arts example antique items, arts
Livestock/animals examples cow,goats
9 Adornments- any valuable adorable items
Conditions to acquire wealth in Islam
Acquired through legal and halal means 2. Wealth acquired to be spent in the way of Allah
Accumulated in honest manner
Managed in responsible manner
Maintaining faith in Allah
The necessity of wealth in Islam
To have a peace of mind to remember Allah
To increase knowledge and skills with wealth leads to ability to spend increasing knowledge on Islam and improving skills on how to acquires more wealth
To help other needy brother- wealth allows a muslim to help the poor Muslims.
To avoid being poor- There is a tendency that poverty leads exploitation by the wealthier. When there is exploitation, the poor was not be able to have the opportunity to create more wealth and remain poor
To strengthen faith- Poverty may lead a person to question his fate and thus weaken his faith in Allah.
Necessity of wealth ( for nation)
Protect country from exploitation
Be able to spread Islam and diffuse misconception
Leads to surplus production
Lead to charitable society
Importance of debt
Debt allows a person to enhance his profits,thus it becomes a good form of leverage
Besides giving charity, Islam strongly encouraged to give loan as Prophet has said " the upper hand is better than the lower hand"
Condition of dent in Islam
Debt must be free from interest or based on qard hassan - The concept of qard hassan is a debt that allows for the flexibility to borrower to repay in specific time frame without any addition amount
Debt must be in written from -All term and conditions must be put in writing in the form of an agreement to ensure both the provider of fund and the borrower know the responsibility
Debt must be paid paid back to the borrower
Debt transaction to be valid by fulfilling specific requirements
1.The utterance of the aqad (spoken offer and acceptance between two parties)
The writer of the debt who is fair and just
3.Witness to debt transaction
Parties to the debt transaction (borrower and lender)
Stated amount or wealth borrowed
Benefit of Islamic Financial Planning
Improve standard of living
Minimize financial disaster
Ability to invest optimally
Accumulate sufficient wealth over time
Personal Financial Planning Process
Asses current financial resources/status
Listing assets and liabilities
Construct financial statements balance sheet and income statements to determine the Net worth and Net savings
2.
Define financial goals
-Setting the goals by these factors
Needs - The needs are the necessities for one to survive such as foods, clothes and shelter and others
Wants - the extra requirement or desire to feel more comfortable
Personality - Difference in personality may lead to different goals to be attained like an extrovert person may have higher needs and want that lead to higher goals.
Attitudes - Refers to the mind set/ approaches
Values - Naturally people have different in principles and standards.
Guide to setting goals
1.Long term and short term goals
2.Realistic (Must be achievable)
Specific and quantifiable
( goal must not to be general)
Set dates
Priorities
3.
Develop systematic financial plans
- relate to the scope of financial planning
4.Implement financial plan
To take action/ to execute the plan: example save 10% from salary
To maintain discipline
5.Monitor results and review plans/goals
- Monitor closely progress , take corrective action if needed, Revise goals( if financial conditions change drastically and make goals become unrealistic)