Effective money management is absolutely crucial in the modern lives in which we lead today. Taking control of your finances and getting your financial life in order, sooner rather than later, is of utmost importance. I strongly and sincerely believe that if you have good finances in place you can give more charity, contribute to the ummah more and also lead a good life.
As Muslims we should all endeavour to have a good quality of life and aim for the best in everything we do. It is of course all about having a balance but we need to recognise that many esteemed companions were financially stable and were thus able to help the ummah. The ummah needs to have business people, capable entrepreneurs and people who have a good grounding in finance.
Therefore by having good financial skills and being good with money will allow us to have control over our life, enable us to have options and to also live a life of contribution. However managing your money like anything takes time to understand and to improve on.
Here are 10 fundamental steps to help you manage your money the right way:
1. Think before you spend
The money that we have is an Amanah from Allah and therefore don’t spend it unnecessarily. Be wise with your money and of course spend on your family as there is barakah in this. However when you’re faced with a spending decision, especially a large purchase decision, don’t just assume you can afford something. Confirm that you can actually afford it and that you haven’t already committed those funds to another expense. That means using your budget and the balance in your checking and savings accounts to decide whether you can afford a purchase. Remember that just because the money is there doesn’t mean you can make the purchase. You have to also consider all your bills and expenses you’ll have to pay before your next payday. It is vital that you think before you spend!
2. Track your spending and expenditure
Small purchases here and there add up quickly and before you know it, you’ve overspent your budget. Start tracking your spending to discover places where you may be unknowingly overspending. Save your receipts and write your purchases in a spending journal, categorising them so you can identify areas where you have a hard time keeping your spending in check. There are many apps out there that can help you track your spending.
3. Have a good budget in place
Many people don’t budget because they don’t want to go through what they think will be a boring process of listing out expenses, adding up numbers, and making sure everything lines up. But if you’re bad with money, you really don’t have room for excuses with budgeting. If all it takes to get your spending on track is a few hours working a budget each month, why wouldn’t you do it? Instead of focussing on the process of creating a budget, focus on the value that budgeting will bring to your life.
4. Contribute to your savings regularly
Depositing money into a savings account each month can help you build healthy financial habits. You can even set it up so the money is automatically transferred from your checking account to your savings account. That way, you don’t have to remember to make the transfer. Being good with money takes practice. In the beginning, you may not be used to planning ahead and putting off purchases until you can afford them. The more you make these habits part of your daily life, the easier it is to manage your money and the better off your finances will be. Start off with small contributions and before you know it, it will make a big difference!
5. Save up for any big purchases
The ability to delay gratification will go a long way in helping you be better with money. When you put off large purchases, rather than sacrificing more important essentials or putting the purchase on a credit card, you give yourself time to evaluate whether the purchase is necessary and even more time to compare prices. Therefore do everything in your will power to save for big purchases as you’ll find that you will then appreciate it more.
6. Set a savings goal / target
Some people find it hard to get motivated about saving, but it’s often much easier if you set a goal.
Your first step should be to have some emergency savings (this is non-negotiable) – you must have money to fall back on if you have an emergency, such as a boiler breakdown or if you can’t work for a while. Try to get three months’ worth of expenses in an easy or instant access account. Don’t worry if you can’t save this straight away, but keep it as a target to aim for. The best way to save money is to pay some money into a savings account every month. Once you’ve set aside your emergency fund, possible savings goals to consider might include: buying a car without taking out a loan, going on Hajj, taking a family holiday without having to worry about the bills when you get back or even having some extra money to draw on while you’re on maternity or paternity leave. Whatever you do, always have some savings for a rainy day!
7. Get professional help if your debt problems become serious
If you’ve already missed credit card or loan payments or if you’re behind with so-called ‘priority debts’ such as your rent, mortgage, energy bills, Council tax or other then please take advice from a debt advice charity straight away. If you do not take prompt action then things can escalate and the situation can easily explode and make things much worse. I know far too many people who are in major debt and this could have been easily avoided if they sought advice and support.
8. Learn to prioritise your finances
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals as it’s important that planning for retirement doesn’t take a back seat to shorter-term needs. Learn how to prioritise your savings goals so you have a clear idea of where to start saving. For example, if you know you’re going to need to replace your car in the near future, you could start putting money away for one now. Whatever you do learn to live within your means!
9. Invest your savings if you can!
If your savings start to grow, you can actually invest some of your capital. It’s a great way to make sure you’ll be able to live more comfortably later in life. You can also make an investment plan based on your goals and timeframes. There are halal options available nowadays such as Wahed Invest which is a unique halal investment platform.
10. Consolidate your debt and try to get rid of it ASAP!
If you have debt then the first thing to do is to get it all under control and work on getting rid of it. If you have credit card debts, student loans, and other debts; look to consolidate them as soon as you can. Again, it’s all about taking the proper steps to control your money. There are of course options out there that allow you to combine several unsecured debts such as credit cards, personal loans, and payday loans, into one bill rather than pay them individually. If you only have a single credit card debt and are on a tight budget, try paying at least the minimum amount as soon as you get the credit card bill. Then, if your finances permit it, and you come across some more money, try to make the same payment a few weeks later. Try keeping this payment cycle going until your debt is fully paid off. If possible at all, then make a plan to get rid of your debt. As Muslims we should be financially strong and we need to be able to manage our finances effectively!
I pray that our Lord enables us all to have good financial health and that we are able to become successful in all our endeavours.
Wassalamu’alaykum – May peace be with you all.
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