Personal

OUTLINES
Financial
Planning

Concept of
IFP

Significant
of IFP

IFP
Products &
Services

Concept of
Wealth & • Debt Management
Debt in • Personal Credit Management
Islam
 PERSONAL FINANCIAL
PLANNING
What is personal financial planning?

Process of making both decisions that allow

us to get closer to our goals and sudden
decisions that allow us to stay on track, even
when things take an unexpected turn.

Process of planning and managing personal

financial activities such as income
generation, spending, saving, investing, and
protection.

Process of gaining an understanding of our

financial situation as to ensure we can
manage our assets and plan for the future

Involves creating a personal budget, planning

for taxes, setting up a savings account and
developing a debt management or recovery
plan.
Goals achievement
Effective budget management
Emergency fund in place
Effective income management
Retirement plan
Future visualization
Security
Risk management practices
Return on Investment matters
Assets & Liabilities management
Financial allocation estimation
Disciplines matters
What’s so important about Financial Planning?

Spending
It’s creating a
roadmap for Savings
handling
everything you
do with your Using credit
money
Investing
Needs
• the very
basic things
we must
have to
survive.

From the
items that
From your
you buy and
list, which are
save for,
Wants NEEDS and
some are
• the things which are
needs and
that make WANTS?
some are
wants: life more
interesting
and fun
(but you
could live
without
them if you
had to).
The Steps:

Tricks
Keep T :
rack o
f the
Plan
&
Maint
ain it
 The Financial Planning Process

Step 1: DETERMINE YOUR CURRENT

FINANCIAL SITUATION

• Determine current financial situation regarding

income, savings, living expenses, and debts
• Prepare a list of current asset and debt balances and
amount spent for various items
• Match financial goals to current income and
potential earning power

Step 2: DEVELOP YOUR

FINANCIAL GOALS
• Financial goals - specific objectives to be
accomplished through financial planning
• Identify feelings about money and the reasons for
those feelings
• Determine the source of your feelings about money
• Determine the effects of economy on your goals
and priorities
• Make sure that your goals are your own and are
specific to your situation
• Financial Goals should be SMART goals
 SMART Financial Goals

• State exactly what is to be

Specific
done with the money involved

Measurable • Write the exact amount

• Determine how it can be

reached, which is often
Attainable
determined by the individual’s
budget

• Do not set the goal for

Realistic something unattainable or
unrealistic

• Specifically state when the

Time Bound
goal needs to be reached
 The Financial Planning Process

Step 3: IDENTIFY ALTERNATIVE

COURSES OF ACTION

• Possible courses of action can be:

• Continue the same course of action
• Expand the current situation
• Change the current situation
• Take a new course of action
• Creativity in decision making is vital to effective
choices
• “Do nothing” can be a dangerous alternative

Step 4: EVALUATE YOUR

ALTERNATIVES

• Consider life situation, personal values and

economic factors in evaluating the alternatives
• The assessment of the alternatives are based on
the concept of Time Value of Money, choice
and risk.
 The Financial Planning Process

Evaluate Your
Alternatives
The concept of time value of money
•Time value of money is define as a Ringgit today is not equal to a
Ringgit tomorrow.
•Time value of money involves two concepts:
•Concept of compounding or also known as future value
•Concept of discounting or also known as present value

Consequences Of Choices
•Opportunity cost - What you give up
•when you make a choice
•The cost or trade-off of a decision cannot always be measured in
ringgit. Sometimes the cost is your time

Evaluating Risk
•Uncertainty is a part of every decision.
•Best way to analyze and minimize risk is to gather information
from financial planning sources.
 The Financial Planning Process

Step 5: CREATE & IMPLEMENT

YOUR FINANCIAL ACTION
PLAN

• Develop an action plan that identifies ways to

achieve financial goals
• Possible action plans can be increasing savings,
reducing spending, or making provisions for
taxes
• To implement action plans you may need
assistance from others

Step 6: REVIEW & REVISE YOUR

PLAN

• Financial planning decisions need to be

assessed regularly
• Complete review should be done at least once a
year
• Regular reviews of decision-making process
can help in making priority adjustments to
achieve financial goals
 What influences an individual’s
15
financial plan?
Many factors that can be expected or unexpected:

1. Values,
Goals, &
Personal
Choices

4. Life
Financial 2. Major
Cycle
Planning Life Events
Needs

3. Lifestyle
Conditions
What influences a person’s
financial plan?
The choices you make today
impact your future!
Choices and goals made in the
present may have a significant
impact on your future financial
plan.

Life events that affect your financial

plan may be unexpected

1.Values,
Goals, &
Personal
Choices

Financial 2.Major
Life
Planning Events
What influences a person’s
financial plan?

What are examples of lifestyle conditions that may

affect a person’s financial plan?

Marital status
Age
Income
Number of Dependents
Education
Employment Status
Health Status
Economic Outlook

Financial
Planning

3.Lifestyle
Conditions
 What influences a
person’s financial
plan?

Life cycle - a series of

Typical financial life
stages through which
cycle pattern applies
an individual passes
to most people and
during his or her
affects a financial plan
lifetime

4.Life
Cycle
Financial
Needs Planning
 ISLAMIC FINANCIAL
PLANNING
What is Islamic financial planning?

The effort by
an individual/corporation

in managing their financial

affairs
in accordance with the
Shariah

to meet their life goals

Scope of Islamic Financial Planning

Cash flow
and liability
management
Estate Takaful
planning planning

Retirement Investment
planning planning

Zakat & Tax

planning

20
Objectives of Islamic Financial Planning

Bring
Provide Achieve Preparation
prosperity
financial financially for the
and blessed
stability independence Hereafter
life

21
 Objective 1 :
Bring Prosperity And Blessed Life

Concern Understand
about halal the concept
& haram of of tawakkal
earnings and redha

Concern
Spend on
about the
the right
barakah
priorities
concept

22
 Objective 2:
Provide Financial Stability

• Earnings=Consumpti • Net worth =

on Asset -
Liability
Identify Know
current about
financial financial
position status

Solution
Adopt
for
relevant
financial
life style
problems
• e.g. al-Rahn,, Debt • Lower
management, Tax income
planning • Intermediate
income
• High income

23
 Objective 3:
To Be Financially Independent

• e.g. Properties,
Shares, Bonds, Unit
trusts, etc.

Having Having
good takaful
investment protection

Having a
Having
retirement
alternative
planning
incomes
scheme • e.g.
• e.g. direct selling, pension,
online-business, EPF, life
takaful or UT agents annuity

24
 Objective 4 :
Preparation For Hereafter Life

Performing
Investing in
Hajj
knowledge
(Pilgrimage)

Paying Zakah
Preparing a and giving
Estate Sadaqah
planning (charity) or
Waqf

• e.g.Faraid, Wasiat (will),

Hibah (gift)
25
Maqasid al-Shariah:
Classification Of Human Needs
• Maqasid al-Shariah can be categorized into
descending order of importance
• Beginning with the essential (masâlih /daruriyyat),
followed by the complementary needs (hajiyyat),
and then the embellishment (tahsiniyyat).
• Embellishment is of the nature of
desirability in order to attain
refinement and perfection in the
customs and conduct of people at all
levels of achievement.

Hajiyyat
• Complementary needs of
the community for the
achievement of its
interest and the proper
Masâlih/
functioning of its affairs Daruriyyat
• Essentials that are
considered as vital for
the founding of
wellbeing in this world 26
and the Hereafter
 Classification Of Human Needs: Masālih
/Daruriyyat

• The essentials (masālih /daruriyyat) are

particulars that are required and considered
vital for the founding of wellbeing in this
world and the Hereafter.
• If society in some way neglects them, the
outcome will be anarchy together with a
disorder of the functionality of the society
which will result in total collapse
• The essential masālih/ daruriyyat are further
divided into five:
• Preservation of faith/religion (Din)
• Preservation of the life
• Preservation of lineage /Descendants /
procreation (lineage)
• Preservation of property (Mal)
• Preservation of intellect/reason (‘Aql)
• Shariah seeks to protect and promote these
values and validates their preservation and
advancement measures. 27
 Classification Of Human Needs:
Hajiyyat

• The needs (hajiyyat) serve as complementary to

the essentials.
• It consists of what is needed by the community
for the achievement of its interest and the
proper functioning of its affairs.
• If it is neglected, the social order will not actually
collapse but will not function well.
• Likewise, it is not on the level of what is
indispensable (daruriyyat).
• As soon as the scope within the essentials has
been fulfilled, the corporations may strive for the
second level, the complementary (hajiyyat)
which is deemed beneficial to remove
difficulties, even though it may not pose a threat
to the very survival of normal order 
• For example: (A needs maslahah can be elevated
to the rank of the essential maslahah when it
concerns the public at large).
28
 Classification Of Human Needs:
Tahsiniyyat

• The embellishments (tahsiniyyat) relate

to matters which bestow enhancement in
the society and a guide to improved life.
• This class is of the nature of desirability as
they seek to attain refinement and
perfection in the customs and conduct of
people at all levels of achievement.
• Involving in charity or giving donations to
the poor and needy; providing
scholarships to the less fortunate
students and providing sufficient, correct
and clear information or advertisement
regarding products offered to customers
are some of the examples of Corporate
Social Responsibility (CSR) commitment
with respect to achieving the
embellishments for society 29
 SIGNIFICANCE OF ISLAMIC FINANCIAL
PLANNING

Why financial planning? Islamic views

• Islam as a comprehensive religion – emphasizes worldly life and
the hereafter.
• The concept of Allah’s bounty – is very important in Islam as a
good Muslim is required to have a proper balance between the
fulfillment of his spiritual and worldly obligations.
• Muslims are encouraged to plan their life and put effort to
achieve the goal set before proceeding to “tawakkal”.
• A Muslim still has to commit to financial planning because either
he would leave debt or children to the trusted one.
• The additional activities/areas not found in conventional
• Obligation of zakat
• Takaful planning and
• Assets 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, and
• The financing (in conventional is called borrowing) aspect must
be in line with the shariah principles, one of which and the most
important is, no element of Riba (interest-free).
• In Islam, Muslims are discouraged to be in debt.
• The greatest sin is to die in a state of debt and have no assets to
pay it off.
• Therefore in Islam, financial planning can be used as a tool for
managing one’s wealth.
• In this perspective, financial planning is, therefore, a must and is
not only for the high-income earner and rich but applies to all
Islamic Financial Planning in Al-Quran and Hadith

Al-Quran
• " The time! Verily, Man is in loss, except those who
believe (in Islam) and do the righteous good deed and
recommend one another to the truth and recommend
one another to patience”. (Surah Al Asr: 103, 1-3)
• Importance of time and thus implies that we need
to set our goals in life
• "And render to the kindred their due rights, as (also) to
those in want, and to the wayfarer. But squander not
(your wealth) in the manner of spendrift. Verily
spendrift are brothers of the evil ones and the evil one
is to his Lord ungrateful" (Surah Al Isra : 26)
• Importance of where and how to spend our wealth
• "Whoever works righteousness, man or woman, and
has faith, verily, to him will We give a new life, and life
that is good and pure, and We will bestow on such their
reward according to the best of their actions ” (Surah
Al Nahl: 96)
• We learned how to work, how to live and the
benefits that we will get

31
Islamic Financial Planning in Al-Quran and Hadith

Hadith

• There is a Hadith of Prophet (SAW) in

which He is advising a man while saying:
“Take advantage of five matters before
five other matters: your youth, before
you become old; and your health, before
you fall sick; and your richness, before
you become poor; and your free time
before you become busy; and your life,
before your death.” (Tirmidhi)
• The Prophet stated “A Muslim should
prepare himself for the next world as if
he is going to die tomorrow, but at the
same time work hard to improve all his
worldly comforts as if he is going to live
forever” (narrated by Al-Dailani) 32
 ISLAMIC FINANCIAL PLANNING
PRODUCTS & SERVICES

Accumulation
Protection & Distribution Purification
Preservation

Family
Takaful; Takaful Plans Others
Takaful Plans Regulatory
Agencies Agencies
for

Medical Family Shares

needs Takaful State
Shariah Court Religious
Investment Council
Motor Hajj & Umrah Account
Vehicle Amanah Raya
Berhad Zakat Centre

Education Gold & Silver

Fire Wealth
Management Waqf Centre
Firm
Financing / Investment- Property
Mortgage Linked
plan

33
 CONCEPT OF WEALTH & DEBT IN ISLAM

Wealth Management

Definitio Features
n of of
wealth wealth
Abundance of
valuable material
possessions or
resources

All property that

has a money value Accumulation of
or an income over a
exchangeable period of time
value

An income beyond
the daily and basic
requirements of a
family' or ‘surplus
income

34
Perspective of Wealth from Al-
Quran

Al-Baqarah (2:212)
• “The life of this world is
alluring to those who rejects
faith, and they scoff at those
who believe. But the
righteous will be above them
on the day of Resurrection;
for Allah bestows His
abundance without measure
on whom He will”.

Al-Baqarah (2:29)
• “It is He Who has created for
you all things that are on
earth” 35
• Wealth is a form of trial by Allah

• Accumulation or acquisition of wealth

is allowed in fact in some
circumstances becomes mandatory.
• It should not abused or misused.
• "And know that your properties and
your children are but a trial; and that
it is Allah with whom lies your highest
reward” (Surah Al-Anfal (8:28))
• "This is by the Grace of my Lord to test
me whether I am grateful or
ungrateful. And whoever is ungrateful,
truly his gratitude is for (the good of)
his own self, and whoever is
ungrateful, (he is ungrateful only for
the loss of his own self). Certainly My
lord is Rich and Bountiful” (Surah An-
Naml (27:40))
36
• Wealth is a trust (Amanah)

• “Wealth and children are the

adornment of the life of the world. But
the good righteous deeds that lasts,
are better with your Lord for rewards
and better in respect of hope" (Surah
Al-Kahfi (18:46))
• “And spend of that whereof He has
made you trustees" (Surah Al-Hadiid
(57:7))

37
• Wealth as Means to Achieve
Al-falah

• Wealth as means to achieve al-falah -

to be successful in this world and in
the Hereafter.
• “ O ye who believe! Shall I show you a
commerce that will save you from the
painful doom? Ye should believe in
Allah and his messenger, and should
strive for the cause of Allah with your
wealth and your lives. That is better
for you, if ye did but know. He will
forgive you your sins and bring you
into Gardens underneath which rivers
flow, and pleasant dwellings in
Gardens of Eden. That is the supreme
triumph” (Surah Al-Shaff (61:10-12))

38
Conditions to Acquire Wealth

Accumulated in an honest manner

Managed in a responsible manner

benefiting not only its owner and
family but also the community as a
whole

Managed in a responsible manner.

Does not distract Muslims from their

strong faith in Allah

39
 CONCEPT OF WEALTH & DEBT IN ISLAM

Debt Management

Concept of Debt in Islam

• Debt is essential in life - able to enhance
income and provide leverage.
• Debt - from institutions or from an
individual.
• Islam encourages helping each other (debt);
Prophet said “the upper hand is better than
the lower hand”.
• Islam commanded us to give and take debt
that is free from interest or based on qard
Hasan.
• Debt must be put in writing - a liability in this
world and hereafter.
• Debt must be paid back – the debtor’s soul is
hanging in the hereafter and not accepted
by Allah.

40
Conditions of Debt in Islam

Debt must be free from interest

or based on qard Hasan.

Debt must be in written

form.

Debt must be paid back by

the borrower.

Fulfilling the requirements of a

debt transaction.

41
 Validity of Debt

• A debt transaction is valid or complete when

the following requirements are met:
• Utterance of the aqad (spoken offer and
acceptance between the two parties) - an
agreement.
• The writer of the debt who is fair and just
- trusted by both parties and to follow the
instruction of both parties.
• Witness to the debt transaction -
minimum of two parties to the debt
transaction - borrower and lender,
profiles of each are mentioned clearly in
the agreement and not force the writer to
amend any material information in the
agreement such as the amount.
• Stated amount or wealth borrowed -
details of transaction such as amount
borrowed must be clearly stated in the
agreement.

42
Personal Credit Management

• Personal financing is a form of

financial aid to a individual to meet
his/her personal use.
• Examples of personal needs are
purchase furniture, buying expensive
equipment, marriage, vacation,
business start-up and many others.
• Whatever the reason for the personal
financing, one has to have a discipline
to keep to the principles of good
credit management:
• Make sure for necessary items only
• Plan repayment - settle more than
the borrowed amount and/or settle
early

43
 Credit Concept in Islam

It is compulsory to
have written
Islam does not Islam has proposed agreement
prohibit it followers a clear guide how between both
to borrow to deal with the parties
debt between
Neither to borrower and Must be witnessed
encourage them. lender. by at least two
mans (Surah al
Baqarah, 2:282)

Once they are in debt, it is their responsibility to pay when the

time is due.
“If someone is in debt and he passed away, his soul can’t go44 to
heaven until the debt is cleared (by his family)”.
 Borrower and Lender
responsibility:

Lender’s
Borrower’s
responsibilitie
responsibility
s

Do not charge an usury

Pay back as the debt as
on the borrowed
promised.
amount.

Do not force the

Write a will that stated borrower to pay early
about the debt. than the agreed
period.

Borrower is
Do not publicly
encouraged to pay
announce about the
more than the
debt.
borrowed amount.
45
 Measuring Individual Credit
Capacity

GENERAL RULES OF CREDIT CAPACITY

Debt Payments-to-Income Ratio

Monthly payments*
Gross income

Consumer credit payments should not exceed a max of 30%

of your net income

*Not including house payment which is a long-term liability

46
Measuring Individual Credit
Capacity

GENERAL RULES OF CREDIT CAPACITY

Debt To Equity Ratio

Total liabilities
= Should be < 1
Net worth*

*Excluding home value

47
 Applying For Credit
• Before applying for any credit the bank will
check the history of the borrower from a
system call Central Credit Reference
Information System (CCRIS) and Credit Tip-Off
Service (CTOS)
• CCRIS
• CCRIS collects credit information on
borrowers from lending institutions and
furnishes the credit information collected
back to the institutions in the form of credit
report
• CTOS
• CTOS report provide information on
bankruptcy, summons of any individual in
Malaysia. Due to this, it is important for
anyone to ensure their CTOS report is clear
in order to apply for credit.
• CTOS is essentially an electronic ‘archive’ of
information collated from gazettes,
newspapers, court notices, and searches at
the relevant statutory bodies. A 'credit lead'
information system. 48
 Applying For Credit Character -
Do you pay
bills on
time?
Capacity -
Can you
repay the
loan?
Capital -
What are
your assets
and net
What worth?
Creditors
Look For
5 Cs Collateral -
What
property do
you have to
pledge that
the lender
can
repossess if
you default
on the loan?
Conditions -
What
economic
conditions
could affect
your ability
to repay49 the
loan?
 Advantages of Credit

Current use of Convenient Can take

goods and when advantage of
services shopping float
time/grace
period
Permits
Easier to
purchase even
return May get
when funds
merchandise rebates, airline
are low
miles, or other
bonuses
A cushion for
Advance
financial
notice of sales Indicates
emergencies
financial
stability

50
 Disadvantages of Credit

Temptation to
overspend

Failure to repay loan

may lead to loss of
income
It does not increase
total purchasing power

Credit costs money

51
 Types of Credit
• It is a fixed term loan which require you
to liquidate the loan or an instalment
basis
• It is call amortization, meaning that we
Consumer paying up the principal and the interest
Loan over stated number of periods or
(Instalment instalments
Credit) • Home financing
• Personal financing
• Hire purchase
• Education loan

• It is a line of credit where you can pay

up and re-borrow
Open • The banks may require a certain
Accounts minimum payments over a specified
Credit term but banks allow the credit to
(Revolving revolve
Credit)
• Card facilities
• Overdraft

Alternatives
modes of • Al-Rahn
Credit 52
 Card Facilities/ Services

• The key element in card services is

purchasing something without
involving any cash.
• Certain card facilities allow for a
deferred repayment deferred,
withdrawals and some other purchase
conveniences.
• These selected individuals are given
credit limits as a form of advance by
the banks for any purchases made.
• The limits are given based on the
financial background of the
individuals.

53
 Card Facilities/ Services
• To use the card for any purchases, the
card will be handed to the retail
outlet.
• The outlet will then ‘swipe’ it on to a
readable card machine to identify card
holder details and to confirm the
authenticity.
• The payment is considered done if the
purchases amount is within the limit.
• Later the outlet will claim payment
(reimburse) from the card issuing
bank.
• There are 3 type of card services
offered by banks:
• Credit card
• Charge card
• Debit card
54
• Credit Cards

• Given out to individuals with a credit

limit.
• It offered to individual by banks and
credit card companies such as VISA
and MASTER.
• It allows us to make purchase without
immediate cash payments
• It does not require cardholders to pay
the bill in full each month
• Minimum payment is 5% out of the
outstanding bill.

55
Management of Credit Cards
Usage
Pay as much as
possible.

Limit the usage

to important
things only.
Ways to
minimize Pay in cash until
the credit
the balance is fully
outstanding settled.
balance
Plan to settle the
balance in a
specific period.

Use soft loan

from relatives.

56
• Charge Cards
• This charged card is suitable for
customers who want to make payment
of goods and services on credit.
• It can also be seen as a form of delayed
cash payment.
• Examples of charged cards are American
Express and Diners Club International.
• Facilities given to customers without any
specified credit limit.
• The other main feature is that the card
holder must pay the amount
outstanding in full as indicated in the
statement given out to customers every
month.
• If the outstanding amount is not paid or
not paid in full, a higher interest charges
will have to be born by customers and
non-payment for two months in a row
can lead to suspension of facilities. 57
• Debit Cards
• Form of payment facility whereby the card
holder account is debited immediately
once it is used at the participating outlet.
• It is another form of conveniences
available to customers for making
payment for goods and services.
• Thing to remember for the card holder is
before making any payment : to ensure
the amount available in the savings or
current account is sufficient.
• If account is insufficient the transaction
will not ‘go through’ or in other words no
payment is made and therefore the
purchase is not done.
• Credit cards have limits given to card
holders but for debit card the ‘limit’ is
actually the amount that he has in the
account.
• It is suitable for customers who do not
want to be bothered by debt. 58