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8/4/2019 ADIB-Personal Finance Health check up
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LESSON 1: BACK TO BASICS: BUDGETING // 1
SMARTMONEsmartmoneyBrought to you by Abu Dhabi Islamic Bank - Banking as it should be
A step-by-step guide toa balanced fnancial lie
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Welcome
INTRODUCTIONSMART MONEY
Do you have a monthly fnancial plan? The answer should be ‘yes’
because planning your fnancial lie is important or your uture, yo
retirement and your amily. Although planning your fnances isn’t a
the easiest thing to do, it isn’t impossible. You can do it, and the ear
you start, the more money you will have or you and your amily.
Smart Money will show you how to save and grow your money orthe uture, as well as reduce your debt and pursue your fnancial dr
How? By giving you step-by-step guides to the ollowing:
Smart Money is your essential guide to all the fnancial matters in
your lie, and it oers easy-to-understand advice on saving, budget
fnancing and growing your money, with top tips on investment, Ta
insurance and fnances. Read on to fnd out more about how you ca
in complete control o your money.
SMART MONEY
TAKAFUL INSURANCE
FINANCE SAVINGS
BUDGET
“ONLY 25% OFUAE RESIDENTS
SAVE MONEY ONA REGULAR BASIS”Source: National Bonds PJSC
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LESSON 1: BUDGETINGSMART MONEY
Money MattersYour guide to budgeting
Does this sound amiliar?It’s the end o the month and Jassem only has AED100 in his bank
account. His bills are all due and he won’t be paid or another 10 days
Question: What can he do to avoid this situation? Answer: Bugdet!
What is a budget?A simple fnancial plan that helps you
track your expenses and income.
Why? Do you want to:
Increase your savings
Reduce your living expenses
Save or a major purchasesuch as a house
Retire early
Grow your money
I you answered ‘yes’ to one or
more o the above, then you need a
personal monthly budget to help you
increase your savings and manage
your expenses.
ChecklistTo make a personal monthly bu
you will need a list o your:
INCOME: Your total earnin
rom salaries and investm
EXPENSES: The amount omoney you spend every m
– everything rom bills and
home fnance payments to
holidays and git shopping
LONG, MEDIUM AND SHORT-TERM GOALS: wh
you want to save or now
in 5, 10 and 25 years time;
you want to save to do so
improvements on your ho
or your child’s university
education, or or your retire
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SMART MONEY
1. Follow this step-by-stepguide and fll in thebudgeting table on the
ar right
STEP 1: WHAT IS YOUR INCOME?
Work out how much you earnon a monthly basis, including:• Salary• Protsfrominvestment• Otherincomes
STEP 2: WHAT ARE
YOUR FIXED EXPENSES?
Add up what you spend on aregular monthly basis, including:• Rent• Savingscontributions
• Takafulhealthinsurance• Takafulcarinsurance• Takafullifeinsurance• Education• Childcare• Charitablecontributions
STEP 1
STEP 2
STEP 3
STEP 4
STEP 5
LESSON 1: BUDGETING
How to BudgetWork out how much money you are spending andhow much money you can save every month
STEP 3: WHAT ARE YOUR
NON-FIXED EXPENSES? Look at what else you arespending every month, including:• Electricitybill• Mobilephone/internetbills• Carrepairsandmaintenance• Houserepairsandmaintenance• Groceries• Self-care(hair,toiletries,etc.)• Clothingandfootwear• Prescriptionsandmedical
STEP 4: KNOW YOUR DEPT
Calculate your monthly payments or:• Islamiccards• Home/Carnance,Othernances
STEP 5: WHAT DO YOU SPEND
ON NON-ESSENTIAL ITEMS How much do you spend on:• Eatingout,Entertainment• Gymmembershipandsports• Vacations• Toys,booksandgifts
TOTAL EXPENSES:
AED60,000 AED25,000
AED20,000 AED12,000
AED6,000 AED6,000
AED20,000 AED7,000
AED4,000 AED10,000
AED50,000 AED35,000
POSITIVE I you have a positive number,
congratulations; you are
spending less than you earn.
From our example, Jassem has
AED10,000 to save or invest.
Jassem Mariam You
3. Now…work out how much money youhave let to save and spend every month
TOTAL INCOME
minus(-)
TOTAL EXPENSES
YOUR TOTAL RESULTS
AED60,000 AED25,000
minus(-) minus(-)
AED50,000 AED35,000
+ AED10,000 - AED10,000
Jassem Mariam You
2. Complete this Personal Budget Table
NEGATIVE I you have a negative number
you need to reduce your spend
Mariam has to reduce her spen
by AED10,000 to avoid getting
fnancial problems.
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LESSON 1: BUDGETINGSMART MONEY
Managing yourMoneyYour easy-to-ollow guide toliving within
your means
You should spend less o your
income on entertainmentand non-essential items i you:• Plantohavechildren• Haveanexpensivehobby,
like travel
• Haveavariedincome
NON-ESSENTIAL EXPENSES Holidays, gits
ESSENTIAL EXPENSES Food and transport, housing
healthcare, educationHow to spend your incomeYour biggest expense should be
your house. You should be spending
roughly 25% o your income on
home fnance payments or rentand homeowners takaul insurance.
The chart on the ar right shows
how you should be spending
your income…
Source: MSN Money and Oprah’s D
Housing: Home fnance, rent, takaul insurance, bills: 25%
Transport: Car payments, uel, takaul insurance, repairs:
Savings: 12%
Living expenses: Groceries, ood, education, etc: 10%
Personal fnance payments: 8%
Clothing, eating out, vacations, gits, entertainment: 3
15%
12%10%
8%
30%
25%
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SMART MONEY LESSON 2: FINANCE
The Good & the BadWhen is it okay to get fnance?
When you buy something that has
no potential to increase in value,
that’s bad fnance. Good fnance is
an investment that creates value.
The Dept CycleThis diagram above illustrates how you can get into serious fnancial
difculties i you do not fnance responsibly and budget correctly.
Three productive and valueadded purposes or fnancing:
Home fnanceBecause homes usually increase in
value, getting fnance or a house is
usually a sound investment.
Education fnanceStudent fnance acilities to pay or
college or university tuition are good,
because a degree will usually result
in you earning more money over the
course o your lietime.
Business fnanceUsing fnance to start a proftable
business is a wise thing to do,
because when you start making
money, you can make the payment.
You’ll then be ree o fnancial
obligations and the proft you make
will be yours to keep.
Non-productivepurposes or fnancing:You should aord to pay these
expenses by your own income
not by a fnancing scheme
Go on vacation, buy a designer
purse, shoes, etc., Pay o other
nance(unlessyou’reundergoing fnance consolidation with
betterterms),Buygifts.
The reason you should not fnance
any o the above items is because
none o these increase in value.Instead o using fnance, save up
your money and pay cash.
Other unavoidable expenses that
may need fnancing; marriage, car,
urniture, medical treatment.
GET FINA
THE DEPTCYCLE
SPENDS MONTHLY INCOME
CAN’T AFFINAN
PAYMEN
TAKES OUT MORE FINANCE
TO PAY OFF LIABILITIES
OWES MONEY ON MISSED
FINANCE PAYMENTS
STUCK IN A DEBT CYCLE
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Remember this, and you will not
get into serious debt:
•Spendinglessthanyouearnisthe keytoallaffordablepersonalnance•Onlygetnancewhenyouaresure youcanaffordthenancepayment
Dept-to-income percentageYourtotalpersonalnancialobligations(theamountthatyouoweinfull)shouldbeaboutathirdofyourtotalannualincome.
Thistotalgureincludeshousing,education,carnanceandcardnance.Example:JassemearnsAED480,000ayear,sohisnancialobligationsshouldnotbemorethanAED160,000.
SMARTMONEY LESSON 2: FINANCE
KnowtheRisksThinkcarefullybeforeyoutakeoutnance
Checklist
Beforeyougetnance,answerthefollowingquestions…
CanI affordthemonthly payments?
Whatwouldhappenif Ilostmyjob?
Howlongwillittakemeto paythenance?
AmIbeingchargedhigh ratesonnance?
Hereareafewreasonshowyoucouldbeunabletomakeyournancepayments.Ifthishappens,themoney
thatyouowewillincreaseonamonthlybasisandyoucouldendupinseriousdebt.• Seriousillnessorunforeseenevents• Redundancyorlossofincome• Newbabyormovinghouse
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SMART MONEY LESSON 2: FINANCE
DOTry and consolidate all your
fnances into one fnance scheme
Check all the ees charged by
the bank beore you take out
any fnance
Try to balance your fnance to
reduce the monthly payments
Try to pay the ull balance
every month on your card or
prepay the card with your unds
(coveredcard)
DON’T
Use your card to buy goods you can’t aord
Use your card overseas beore
checking the currency conversion
ees and prices charged
Miss a payment on your card
Finance Payment PlanThe longer you take the fnance, the more it will cost you, so you should t
get the shortest fnance and get out o the fnance scheme as ast as poss
through early settlement.
Stay in ControlYour quick guide tomanaging fnances
4. Add this amount to yourpayment or Finance 1. My newpayment amount or Finance 1
Do you have a fnance acility?
Are you struggling to make your
payments? I you are, here are some
tips to help you clear your fnances
as quickly as possible.
When Finance 1 is paid o, add the payment amount to your payment o
Finance 2. When that is paid o, add the amount to Finance 3, and so on.
2. Now list your fnances in order o highest to lowest proft rate
1. List your fnances
Name o fnance How much you owe Monthly repayment
Finance 1 AED11,000 AED450
Finance 2 AED97,000 AED1,450
Finance3 AED36,000 AED720
Finance 2 AED1,450 Bank Proft Rate: 6.5%
Finance 1 AED450 Bank Proft Rate: 5.7%
Finance 3 AED720 Bank Proft Rate: 4.5%
You should try to fnd money in your budget to pay the fnance that has the highest proft ra
3. Look at your budget and see i you can fnd some extra moneyeach month or fnance payment.Note that amount here:
Save AED405 extra per month New total to spend on fnance 1 is A
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Spend ater you save, don’t save
ater your spend. It’s simple – savings
should be your priority, so don’t just
say that you’ll save whatever is let
over at the end o the month.
As a general rule you should aim to
save at least 12% o your monthly
income; i you can aord to – and
you do not have fnance payments
– you should save 20% o your
monthly income.
How to save as muchmoney as possible
Savings Plan
SMART MONEY LESSON 3: SAVE AND GROW YOUR MONEY
Goal Timeline Cost Monthly savings Priority required
Buyhouse 2years AED100,000 AED4,166 (1) (downpayment)
HolidayinEurope 6months AED30,000 AED5,000 (2)
Retirement 30years AED750,000 AED2,083 (3)
What are you saving money or?Complete the table below to work out your personal fnancial goals.
We’ve completed a couple o examples or you to help you on your way…
LONG-TERM (OVER 10 YEARS)Retirement
Children’s educationBusiness opportunity
SHORT-TERM (0-5 YEARS)Emergencies
Vacation
MEDIUM-TERM (5-10 YEARS)Saving or a house
New carMarriage
Why saveMoney?
P y r a m i d o f n e e d s f o r t h e f u
t u r e
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SMART MONEY LESSON 3: SAVE AND GROW YOUR MONEY
Super SaverHow to save more money
SUKUK
• ThisisaShari’aapprovedsavinscheme. When you buy a suku
a bank or government, your m
is invested in a project. Once t
project is completed and maki
revenue, you receive your mon
back and your share o the pro
•IfyoubuyasukukforAED1,00today, in fve years’ time you m
collect your AED1,000 plus AE
in proft.
The bank is liable or a loss in the co misconduct, negligence or breaco contract
EMERGENCY SAVINGS ACCO
• Openaninstantaccessbankaccount where you can acces
your money within 24 hours
pay or unexpected emergen
• Keepthreemonths’salaryinaccount to cover emergencie
Money Saving OptionsI you want to access your money easily
and you want to invest in a sae way
then you should save your money in
one the ollowing ways:
SHARI’A COMPLIANT SAVINGS ACCOUNT • KeepyourmoneyinaShari’a
compliant savings account where
you can access your money any
time and you may beneft rom
good generated proft.
PENSION PLAN • Startearlyandsaveforyour
retirement as soon as possible to
make sure you have enough saved.
• MakemonthlypaymentsintoaShari’a compliant pension plan.
Tips or successul saving1. Set realistic savings goals
2. Open a separate savings account
to keep your savings away rom
your everyday money
3. Set up an automatic payment so
the money goes into your savings
account on pay day
4. Start small – i you save regularly,
even the smallest amount can
soon add up
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LESSON 3: SAVE AND GROW YOUR MONEY
Why you need togrow your money?Although budgeting and saving
your money will help you to build
personal wealth in the short-term,
you will need to invest your money
to help meet your long-term goals –
which are more expensive – such as
paying or your child’s education or
your retirement.What you are investing or and
when you are going to want your
money will determine how you will
invest. For example, saving to buy
a car in two years’ time requires a
completely dierent investment
strategy than saving or retirement
in 20 years. To save or a car you
would invest in a savings account,
but to save or your retirement you
would be better o investing in
Shari’a compliant shares or property.
Where can yougrow your money?• Sukuk• Shari’acompliantstocks• RealEstate• Shari’acompliantcommoditi
Work out how much risk you ar
prepared to take with your mon
The more risk you take, the mo
money you are likely to make; b
remember that you also run the
o potentially losing more mon
You need to select an asset allo
strategy that is right or you: do you risk investing all your mone
in one place to make more mon
or do you take the saer option
placing smaller amounts in a va
o investments?
GrowingYour WealthHow to multiply your money
Sukuk
Shari’a
compliant
stocks
Shari’a
compliant
commodities
Real Estate
SMART MONEY
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The next time you apply or home
or personal fnance, you may be
asked i you want to get Takaul
credit insurance – just one o several
insurance options available to
protect you and your amily rom
alling into debt.
Takaul is a Shari’a-compliant, Islamic
insurance policy which can be taken
out or covered cards and cash cover.
This insurance cover will:• Payoffyournanceifyoudie
• Payamonthlysumofmoney to the bank that is equal to
the fnance’s minimum monthly
payment i you become disabled
or involuntarily unemployed
Takaul will give you peace o mind
that your amily will always be
fnancially secure, whatever happens.
Do I have to take outTakaul insurance whenI get fnance?It is usually optional, and beore
deciding to get Takaul, you
should ask:
How much will it cost?
Will the insurance cover the ull
length o your fnance and the ull
fnance amount?
What are the limits and exclusions
on payment o benefts?
Can I cancel the insurance?
On the Sae SideHow to protect you and your amilyfnancially with Takaul insurance
SMART MONEY LESSON 4: INSURANCE
Reasons why you may beunable to make paymentson your fnance:
What will it cost me?You will be asked to make mon
takaul contributions, which are
usually based on things such as
amount o the fnance and you
DISABILIT Y OR
SICK NESS
UNEMP LOY MENT
DEAT H
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LESSON 4: INSURANCE SMART MONEY
Stay ProtectedWhat other Takaulinsurance options
are available? Takaul Lie InsuranceA Shari’a compliant lie insurance
policy will protect your amily
fnancially in the event o accidental
or natural loss o lie. This means that
your fnances will be paid o by the
insurance company rom the takaul
account and your amily will receive
monthly or a one-o payment/s to
cover their living expenses.
Coverage can include:• Deathduetoanycause• Accidentaldeath• PermanentTotalDisability(PTD)
due to accident or sickness• PermanentPartialDisability(PPD)due to accident or sickness
• TemporaryTotalDisability(TTD)due to accident or sickness
Takaul versus Conventional insurance?
CONVENTIONAL INSURANCE MODELRisk transerred to insurance company itsel against the insurance premiu
TAKAFUL – WAKALA MODELRisk shared between participants on donation basis and the premium is p
to the takaul account owned by the participants, not the company
VERSUS
TAKAFULACCOUNT
(POOL)
Wakala eeto be paid
TakaulCompany
Investment contributShari’a compliant inve
Takaul participants
Contributionsto be paid
Surplus will bedistributed to the
policy holders
Claims to bepaid to Takaulparticipants
INSURANCE COMPANY
Insurance cominvests premivarious invest
unds
Surplus or proft retainsurance company
paid as claims
Policyholder/pay premiums
Premium
Claims to
be paid to coverpolicy holders
You can also protect yoursel and
your amily with a variety o other
takaul insurance policies that cover
Lie, Car, Home, Finance and Health.
What are the advantageso insurance?• Peaceofmind• Itisavailabletoeveryone,
regardless o their ‘ insurability’
• Ifyourunintodebt,youcan get fnancial help with making
your payments
What are the disadvantageso insurance?• Monthlypayment(takaful contributions)canbehigh
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SMART MONEY ISLAMIC BANKING GLOSSARY
in a project, during which the Bank
enters in particular arrangements with
the customer to sell him its share in
this partnership until he becomes the
sole owner o it. Profts are distributed
according to the mutual agreement
o the parties as stipulated in the
contract; however, losses are borne
according to the exact shares in the
Musharaka capital on a pro-rata basis.
MudarabaA contract between the Bank and a
customer, whereby one party provides
the unds and the other party invests
the unds in a project and any
generated profts are distributed
between the parties according to
the proft shares in the contract.
The Mudarib is responsible o all
losses caused by his misconduct,
negligence or violation o the terms
and conditions o the Mudaraba;
otherwise, losses are borne by
RabAlMal(owner).
WakalaA contract between the Bank and a
customer whereby one party appoints
the other party to invest certain unds
according to the terms and conditions
Jargon BusterIslamic bankingmade simpleIslamic Banking
A banking system that is based on
theprinciplesofIslamiclaw(alsoknownasShari’a)andguidedby Islamic economics. Two basic
principles behind Islamic banking are
the sharing o proft and loss and,
the prohibition o the collection and
payment o interest.
MurabahaA sale contract, in which the Bank
sells to a customer a physical asset
at a selling price that consists o the
purchasing cost plus a mark-up proft.
Istisna’aA sale contract, in which the Bank
sells an asset to be developed using
its own materials to a customer at
a specifc price and to be deliveredon a specifc date. This developed
asset can be either developed
directly by the Bank or through a
subcontractor and then it is handed
over to the customer.
IjaraA lease contract whereby the Bank
leases to a customer a service orrented physical asset either exists
currently or to be constructed in
uture or a specifc period o time
at specifc rental installments. The
lease contract could be ended by
transerring the ownership o a leased
physical asset through an independent
mode to the lessee.
Qard HasanA non-proft bearing loan enables
the borrower to use the borrowed
amounts or a specifc period o
time, at the end o which the same
borrowed amounts would be repaidree o any charges or profts.
MusharakaA contract between the Bank and a
customer to enter into a partnership
o the Wakala or a fxed ee in
addition to any proft exceeding
expected proft as an incentive
Wakil or the good perormance
losses as a result o the miscond
negligence or violation o the te
and conditions o the Wakala ar
borne by the Wakil; otherwise, th
are borne by the principal.
SukukCertifcates which are equal in v
and represent common shares in
the ownership o a specifc phys
asset or in the ownership o cash
receivables o selling an existing
owned asset, or in the ownershi
o goods receivables, or in the
ownership o the assets o Muda
or Partnership companies. In all
cases, the Sukuk holders shall be
owners o their common shares
o the above.
Zakah
Zakah is the third pillar o Islam.is necessary to calculate and pay
part o managing one’s money,
calculated on a yearly basis o 2
subject to the various condition
the Shari’a pertaining to Zakah.
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SMART MONEY
Quote, UnquoteSmart Comments About Money
“You have not lived a perect day,even though you have earned your money,
unless you have done something or someone
who will never be able to repay you.”
“Never spend your money
beore you have it.“
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