What Is And Why Islamic Financial Planning?

Financial planning is creating a plan to help you achieve your financial goals. It involves:

1. Assessing your current financial situation

2. Identifying your goals and objectives

3. Develop a plan to help you reach those goals.

Financial planning can be comprehensive or can be focused on one or more of the following aspects:

1. Retirement planning: Calculate your expenses during retirement, how much you need to save starting now to cover these future expenses, what investment strategy would help achieve that goal, and subject the strategy to stress tests to see if it is still viable.

2. Estate planning: This comprehensive aspect of Islamic financial planning offers a secure future. It involves creating a power of attorney in case of incapacity, creating medical advance directives, funeral instructions, instruction to pay your debt, instruction to pay charity and other individuals, creating the legal structure to ensure Islamic distribution of your assets after your death, minimizing estate taxes, and ensuring that your spouse and children have all the protection they need.

3. Tax planning: Creating a plan to minimize your tax liability, taking advantage of retirement accounts, tax deductions, and credits, and optimizing your investments for tax efficiency.

4. Investment planning: Create a plan to invest your money in an Islamic and performing way that aligns with your goals, time horizon, and risk tolerance. Diversify your portfolio between investment types and within the same type, especially stocks, and monitor your investments.

5. Insurance planning: Calculating your insurance needs, what policies would protect you, and other strategies to protect yourself and your assets.

6. Cash flow planning: involves managing income and expenses, paying off debt, and having an adequate emergency fund.

7. Charitable planning: involves maximizing the tax benefits of charitable donations through appreciated assets, trusts, donor-advised funds, and private foundations.

8. Benefit planning involves choosing the right Medicare plan and age to start Social Security and spousal Social Security issues.

Why Muslims Need More Financial Planning

Muslims need more financial planning than the general public. Unfortunately, they are less likely to have a professional plan. Some of the reasons are:

1. Immigrants: Financial planning is not important where most immigrants come from

2. Younger: The Muslim community's average age in the US is much younger than that of the general public. Hence, they do not feel the urgency of retirement and estate planning.

3. Shortage: there are not enough planners within the Muslim community to serve them. In addition, some community members may not like to disclose private information to the people they know.

However, Muslims need financial planning even more than the general public for the following reasons:

1. No extended family in the US: This can create problems with funeral arrangements, children's guardianship, spouse and child support after death, and international inheritance issues.

2. Different ways of inheritance distribution: This requires a lot of legal work to be done correctly and often cannot be solved with a simple will.

3. Traditional family structure: stay-at-home mothers need certain protections in case of their father's death.

4. Islamic financial values: Halal earning and spending, moderation, no interest, insurance restrictions, and zakat obligations.

All the above prompted us at Zaki Financial to encourage Muslims to plan for a sound, legal, and Islamic financial future for themselves and their families.