Three things you can do right now to reduce your debt

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Exhibit A: Guy with credit card debt

 

We’ve all been there and it’s no fun. Whether to pay a minimum on our credit card bill or pay back a friend, there’s a certain resistance that each of us feel when parting with our money. What’s worst though is the lack of feeling we have when spending it! Each of us have dreams and aspirations, but most of us are held back because we think our jobs and lives are limiting us. They’re not, but our debts and bad decisions are.

One of the things Prophet Muhammad would ask Gods protection from was the “yoke of debt.” Owing debt is like a yoke on your neck, a collar pulling you back and inhibiting your freedom. See Exhibit A.

Through better money management you can not only avoid parting with your cash and also avoid the hardship that comes with paying back more than necessary. A massive bill each month snowballing and hurdling towards your livelihood will wreck havoc on your future. It has to be slowed down first if not halted from the outset.

Here are three things you can do immediately to lower your debt and start on a path to financial freedom:

1- Cut the strings to (not actually) free money
If you have several credit cards right now, but aren’t using them, identify the ones that have the best rewards and will give you a better return on their use. Then cancel all your other cards. Once you’ve paid down your credit card debt, and you longer need that card, get rid of that one too.

If you still need a card for certain purchases, keep it at home with your bills and important papers, but don’t carry it with you. “Out of sight out of mind” is the key here. The less access you have to (not actually) free money, the less often you are going to use it.

2- Review your expenses and reallocate them to something better
Have a monthly subscription that you don’t really use? Maybe a reoccurring expense that’s not too essential (expensive as heck coffee comes to mind)? Don’t just cancel that subscription. You obviously did not miss that money too much. Instead of saying “Hey now I have an extra 50$ a month!” Take that extra cash and setup an automatic money transfer to your bill pay account.

Look at your daily expenses. If you drive to work and pay for parking, instead of paying 10$ a day for a garage right next to your job, pay 5$ for the lot down the street and walk a few blocks to work. 5$ of savings a day for 20 a month is 100$ a month!

Whether from coffee, subscriptions, or parking, apply that amount immediately to paying down your outstanding debts. You won’t miss it, and be better off for in health (less sugar, more exercise) and in wealth (less debt, more earning).

3- Be your own bank or Credit Card (actual free money)
Every six months, take 1% of your income and stick it in an emergency fund. Whether you take it out as cash and leave it in a safe at home, put it in an IRA, or place it in an online savings account that isn’t connected to your main bank account (remember “out of sight out of mind”) you’ll start to accumulate a surplus that you can use in lieu of your credit card when you need to make a major purchase.

Say your salary is 55k a year. Every six months put 1% away. That’s 550$, equaling 1100$ a year. That’s big enough to make a difference without making a dent in your wallet. By year end you’ll have 1100 dollars saved. Around 3$ a day (see coffee above). In three years that’s 3300k, enough to purchase new tires for both cars, buy a new home appliance, or take that anniversary trip you were planning. Its free money, because its yours to use freely without worrying about paying someone else back for it.

When do I start?
The best time to plant a tree was twenty years ago, the second best time is today. Read this prayer “Lord I seek your refuge from the yoke of debt and being controlled by others” and then crack open your books to see just how you can put that supplication into practice. Take a few minutes to put these steps into action and turn your prayers into practical steps and your dreams into reality.

20 Questions on Zakat: A quick and easy guide to understanding Zakat

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Want to learn more? Sign up for our Zakat seminar in June!

Featured in Sharia Portfolio‘s Newsletter, these are 20 Questions on Zakat which I wrote as a quick and easy guide to understanding Zakat.

Enjoy :)

 

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1. Who has to pay Zakat?
Zakat is due on the wealth of any Muslim, young or old, male or female, that is held in savings for one calendar year and is more than the Nisab.
Example: If both you and your children have separate savings of 1000 dollars or more for one year, you must pay the Zakat on both accounts, not just yours. $25 for your savings, and $25 for your childs.

2. What forms of wealth are liable for Zakat?
The following are liable for Zakat: Read more

Do I have to pay Zakat on my stocks and shares?

zakat on stocks

Do I have to pay Zakat on my stocks and shares?

Answer:

If you own stock in a company (or shares as they are called) then to determine their liability for Zakat you should look at the investment strategy you are using.

  • If you are using them for a long term investment (something you plan to hold for a year or more) then you will pay Zakat on the dividends distributed by those stocks (shares) when paid, if they are more than Nisab.
  • If you are an active trader, or have an active portfolio in a mutual fund, then you will pay Zakat yearly on the market value of the stock (share) or the portfolio, as well as the dividends.
  • If you sell these stocks (shares) during the year, you will add the amount received from sale to your liquid assets and pay Zakat according to general rules of Zakat.

This is the method prescribed the Fiqh Academy of the OIC and is generally prescribed by most scholars who are specialists in the field.

Don’t see what you’re looking for here? Try our Zakat page for more information.

Zakat on Pension and Retirement Plans

pension and retirement plansYou may not have a 401k plan or an IRA, but instead a more traditional pension. If this is the case, you are not alone, and like many other people are asking yourself:

Do I have to pay Zakat on my pension or retirement plans?

The answer:

Investopedia defines a pension plan as:

A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee’s future benefit. The pool of funds is then invested on the employee’s behalf, allowing the employee to receive benefits upon retirement. Read more

I only own the Nisab of gold and I have no other wealth, how will I pay my Zakat?

Question:

I only own the Nisab of gold and I have no other wealth, how will I pay my Zakat? If a woman only has gold the exact amount of the Nisab, and does not have any other wealth, what should she do? Is she obligated to sell her gold jewelry to pay her Zakat?

Answer:

In the highly improbable case that a woman only owns the exact amount of Nisab of Gold and no other wealth what so ever, then yes she is obligated to sell a part of her gold to pay her Zakat.This includes Gold and Silver jewelry.

If she chooses to pay from her gold itself, then she can pay 2.125 grams in Zakat. This would automatically reduce the gold she owns to below the Nisab, and it would then not be liable for Zakat the following year it is remains the same.

If a relative, friend, or 3rd party pay it for her, that is acceptable. If they loan her the money to, and she pays them back, that is acceptable as well.

If like most women she has some other form of wealth (cash or otherwise) she can valuate that form of wealth and pay the value of her Zakat from that other form of wealth.  For example, she can calculate her Zakat liability for the year, and start to pay off the Zakat early. So if the Nisab is 85 grams of gold and it equals $4838 USD this year, then 2.5% of that will be 120.95 USD, which she can pay off in 6 months by paying 20 dollars a month.

While some might say “But the gold has sentimental value” we should keep in mind that the pleasure of God is our utmost goal, and that this worldly life will fade away.

ما عِنْدَكُمْ يَنْفَدُ وَمَا عِنْدَ اللَّهِ بَاقٍ وَلَنَجْزِيَنَّ الَّذِينَ صَبَرُوا أَجْرَهُمْ بِأَحْسَنِ مَا كَانُوا يَعْمَلُونَ

What is with you will perish, and what is with God is eternal. We will reward those that were patient with the best of what they performed.

And Allah knows best.

Don’t see what you’re looking for here? Try <a title=”Zakat – Essential Information” href=”http://www.joebradford.net/zakat-essential-information/”>our Zakat page for more information</a>.