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In the rapidly evolving world of finance, managing money effectively is a skill that everyone needs to master. This becomes even more significant when viewed through the lens of Islamic Personal Finance, a system that aligns financial practices with Islamic principles. This article will delve deeper into mastering money management using the Islamic Personal Finance concepts practiced in the UAE.
The scope of Islamic Personal Finance
The UAE has seen a surge in the popularity of Islamic Personal Finance. Banks such as First Abu Dhabi Bank and Emirates NBD have been at the forefront of this trend, offering a range of Shariah-compliant financial products. These products, which include home finance, auto finance, and personal finance, come with flexible payment terms, fast approvals, and hassle-free documentation.
Understanding Islamic Personal Finance
Islamic Personal Finance operates on principles like risk-sharing, prohibition of interest, and ethical investing. It offers a unique approach to managing money through the Murabaha system where the bank buys the assets and sells it to the customer at a profit. The sale amount is repaid over an agreed-upon time. As this form of transaction is backed by real, tangible assets, it aligns with the Islamic prohibition against speculation or gambling.
A good example is the Murabaha offered by the FAB bank. The Islamic Sukuk certificates by the National Bonds Corporation are sold in the Sukuk Murabaha product. While in the Commodities Murabaha, assets are bought and sold as commodities on the London Metal Exchange (LME).
Money Management Tips
In a time when the cost of goods and services is rising, people need good money management practices. Here are a few pointers to get you started:
Financial Priorities
Align your money goals with your money habits. Your largest spending categories should reflect what matters most to you. This could be saving for a home, investing in your children’s education, or planning for retirement.
Budgeting
To get a full picture of your spending habits, do some financial forensics. Keep track of every dirham spent over a month, and categorize your expenses as needs, wants, or savings/debt. This shows where your money is going, and where you may need to make adjustments.
Emergency Fund
Eight in ten residents want an emergency fund as it provides a financial safety net for unexpected expenses. This could be anything from a sudden medical expense, a car repair, or even a job loss.
Debt Management
Getting a loan is easy, but repaying the loan is hard. Debt consolidation loans from banks like Mashreq Bank may be the solution as all your debt comes under one repayment scheme. Additionally, these usually have a lower profit rate, increasing your chance of paying off the loans earlier than anticipated.
Final Words:
Islamic Personal Finance has several halal methods to manage and make your money grow. The key is to understand your goals and your spending pitfalls. It is also prudent you keep your debt low, which not only helps with your credit score but widens your choices in credit cards and personal loans.
