Planning for the new year
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Author // Zuraida Rodhi Categories // Article, Wealth Management

Planning for the new year

Financial Planning During the year-end holidays, take time to take stock of your financial plan

December is a good month to review your financial plan. As it is a holiday month, we should take the opportunity to take stock of our financial affairs. When January comes, we will have a clear idea of our financial resolutions for 2014. Those without financial baggage can really enjoy the holiday season.

Reviewing a financial plan for a Muslim goes beyond looking at financial figures. It includes purifying your wealth and analysing investments and financing to ensure that they do not contain non-Syariah compliant components. Th e review process starts with a financial plan.

Composites of a financial plan

To construct a financial plan encompassing the major aspects of life is a daunting task. First, it requires technical know-how about the major aspects of financial planning: cash fl ow and liability management, risk management, investment, tax, retirement, and estate planning.

A comprehensive financial plan is integrated, made up of many different needs and objectives. Th e task itself can be scary because it is, aft er all, a report card of one’s financial health.

Yet, those who have a financial plan find that their financial goals are clearer, and thus easier to achieve. Th e plan also provides them with a direction for wealth preservation and creation.

Completion of a financial plan reveals the following:

  • Our net worth: Whether we have more assets or more liabilities.
  • Our cash fl ow: For some, it is a question of how big the deficit is.
  • Whether we have enough takaful (insurance) coverage for the family in the event of our premature death.
  • Whether our investments are generating the returns that we had hoped for, and making sure that they are all Syariah-compliant.
  • Zakat and tax dues and whether we will get a refund or have to pay more upon fi ling our taxes in April the next year.
  • Whether we will accumulate enough cash to retire at age 55, or have to continue working.
  • The value of our estate and the amount that our heirs would be getting upon our demise.

Doing a comprehensive financial plan is very similar to doing a full medical check-up. It is frightening but much needed. And, most people would need help from a qualified financial planner. Muslims certainly need an Islamic financial planner to advise them on the Syariah components within the financial plan.

A client of mine could not estimate the amount he needed to save for his children’s education and his own retirement. Aft er doing a financial plan, he realised that his retirement could be covered by his assets and EPF monies. His focus is now to build funds to finance his children’s education.

Reviewing a financial plan

Th e first financial plan is the most difficult to make. Subsequent reviews of this plan are easier, unless your first plan was done more than fi ve years ago.

Events that require a review include:

  1. Change in income: perhaps you were promoted, changed jobs or took voluntary separation scheme.
  2. Increase in liabilities: You have a new baby or bought a new car.
  3. Change in marital status: You got married or divorced.

The best practice is to review your financial plan on a yearly basis. You can do it yourself if you have the proficiency and time, or go with your financial planner. An Islamic financial planner can strengthen your Islamic financial plan by emphasising the importance of wasiat, maximising zakat benefits and increasing the opportunity to make waqaf contributions. This gives Muslims a more holistic financial plan that allows them to fulfil their duties when alive.

About the Author

Zuraida Rodhi

Zuraida Rodhi

Zuraida Rodhi is a certified Islamic Financial Planner (IFP) and unit trust consultant. She holds an accounting degree from Massey University, New Zealand.

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