Transcript
A Practical Guide to Debt and Personal Finance for Muslims
DebtFreeMuslims.com
Written by: Omar Usman & Adam Taufique Brought to you by Qalam Institute
Table of Contents
1. Intro 2. What Does Islam Say About Debt and Interest? 3. Nuts and Bolts - Tell Your Money Where to Go 4. Having an Emergency Fund 5. Getting Out of Debt 6. Before You Get Married 7. What About Credit Cards? 8. What About Student Loans? 9. Charity (Sadaqah) 10. What Now? About DebtFreeMuslims.com and a request for you to share your story with us.
Intro
Staying out of debt is easy. All you have to do is live on less than you make. Don’t buy something unless you have the cash for it. Save what you can, and increase the blessing in your wealth by donating regularly. Oh, and stay away from interest at all costs. That’s all there is to it. Why then do so many people struggle with debt? Why do financial issues break up so many marriages? This is not uniquely a Muslim problem. People incur debt for a variety of reasons - education, medical expenses, car purchases, and good ole consumer debt. In some cases debt is a direct result of some type of hardship, and in other cases it’s just a combination of mismanagement and irresponsible behavior with money. It is our goal here at DebtFreeMuslims.com to give people facing debt a way out. You can get out from under that mountain and be free. You just need to roll up your sleeves and have a plan. We want to help provide real advice for how to discuss money as a family and start changing the way we look at student loans. In short, we’re not concerned here with which mortgage companies are halal, which scholar said they’re okay, and which finance schemes they use. We’re concerned with whether you’re actually in a position to buy a house or not. Are you debt free? Do you have enough saved for a proper down payment? Do you know what your budget will look like to make sure you can actually afford a house payment? Have you anticipated the hidden costs of home ownership? Not only are these questions unanswered, but they’re not even being properly asked. It’s time to not just change our discourse and approach, but to start spreading the teachings of how to be successful with your money.
In this eBook we’re going to get right to it. We’re getting to the heart of the matter and giving you the nuts and bolts now of how to budget, get out of debt, and even some of the financial questions you need to ask before getting married.
What Does Islam say about Debt and Interest?
In simple terms, a debt is any money that you owe someone or an entity. Interest is any additional percentage charged on that borrowed money that you’re responsible for paying back. Simple enough? Thought so. A lot of Muslims are aware of how riba (interest) is spoken about in the Qur’an and the Prophetic narrations [i.e. that it’s explicitly mentioned that dealing with interest is like declaring war against Allah (swt)], however we’re not as well aware of what our religion says about debt itself – even if it’s a halal debt. After every prayer, the Prophet (saw) would seek refuge from two things: disbelief and being in debt1. It’s amazing enough that the Prophet (saw) would seek refuge from disbelief, but the fact that he would pair being in debt with it is shows how important it is to avoid debt altogether. Once the Prophet (saw) was sitting with his companions and then suddenly raised his head towards the sky, saying a strict issue had been revealed to him. The following morning, the companions were wondering what had happened the previous morning, and the Prophet (saw) said, “By the One Whose hand is my soul, if a man were killed in a battle and then brought back to life, and killed again and brought back to life again and then killed again while he owed a debt, he will not enter paradise until his debt was paid off.”2 This means that a person could perform the greatest deeds, but having a debt is something that will prevent you from entering Paradise.
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Tirmidhi Nasai
None of us know when we’re going to die. Having debt after you’ve passed away is a serious issue. The Prophet (saw) said, “the soul of a believer is suspended until his/her debts are paid off.”3 In one narration, the Prophet (saw) was about to offer funeral prayers for someone who had passed away until he refused to do so because the person owed 2 dinars. Abu Qutadah (ra) paid it off for him. The next day, the Prophet (saw) met Abu Qutadah and said, “he has been spared punishment.”4 Nowadays, the vast majority of debts have the added element of interest. It’s rare that someone is struggling heavily with a 0% debt. Cars, student loans, credit cards, and even your mattress purchase on a store card all include some type of interest in the equation. To put it another way, debts are bad, and interest is REALLY bad. So let’s stay away from them. Think about the feeling of getting your paycheck and actually owning 100% of it. None of it is being cut ahead of time for student loans, cars, credit card, and other installment payments tying you down. How much freedom would you have in your life? How much good could you do not just for yourself, but your family, and by way of helping others? So let’s jump into how you can be liberated by actually keeping the money you earn.
Nuts and Bolts - Tell your Money Where to Go
The Goal: Tell your money where to go before you get it. The Reality: Your money is all gone, and you’re trying to figure out where it went.
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Tirmidhi Ahmad
Budgeting is an intimidating word, especially if it’s not something you’ve grown up doing. Most people simply have a gauge of knowing when they’ve spent “too much” - that is, when they start to fear not being able to pay their credit card bill at the end of the month. They’ll rein it in for a few days, pay the bill, and then go back to normal. We want to give you the easiest way possible to budget. This process is something you need to do whether you’re single or a family, and whether you make $200 a month, or $200,000 a month. Before you get paid, write down the amount of money coming in. Let’s assume your household income is $4,000/month. Budgeting is very simple. Take out a sheet of paper and list all your expenses. For example: Sadaqah - $250 Savings - $300 Rent $1,000 Car payment - $300 Gas - $300 Insurance - $150 Utility Bills- $500 Cell phone/Internet - $200 Groceries - $400 Eating out - $200 Shopping - $200 Fun - $200 The key is sticking to your budget. The best way of doing this is to take out cash, and literally make envelopes. Make an envelope called grocery, and put your grocery money in there. This will force you to make your money last appropriately for the month. Also note that sadaqah (charity) and saving are listed first. This is not a coincidence. If you do not automatically take those out, it will never happen. Put your sadaqah on an automatic recurring payment, and make sure your savings is being automatically redirected to a separate account. If it’s not automatic, you will eventually use that money elsewhere.
If you are married, the husband and wife should sit down together at least once a month and come up with the budget together. Each has a say in how the household will be run. You will also need to adjust your budget accordingly. For example, if you are saving up for a new computer, add a budget category for computer where you set money aside each month until you hit the target. Another tip is to have a “his” and “her” fun account. This is an easy way to avoid arguments. If the husband and wife each get $200 of fun money each month, that is money they’re allowed to spend however they want. If that means a $200 pair of shoes, so be it. The idea is to be intentional about how your money is spent. You now know what you can and can’t afford. If there’s not enough money in your envelope, you can’t afford it. Start doing this from your next paycheck. The budget frees you up to have fun without feeling guilty because your expenses are all properly accounted for. If you haven't spent your eating out money and want to go out at the end of the month to a fancy dinner, you can now do so within reason. Relative to your overall financial picture, you are spending within your limits. More simply put - you are only spending money you already have. That’s it. If you want to buy a new computer, don’t go to the store and get a 0% card for 6 months. Set money aside for 6 months, then walk in and buy it on cash. As you start to get control of your budget, you can be in a position to anticipate expenses. Create an envelope for car repairs and home repairs. You can also start setting aside money for things like retirement and your children’s education [assuming you’re first out of debt].
Having an Emergency Fund
While getting out of debt, having an emergency fund is one of the most essential items during the process.
An emergency (or rainy day) fund is cash that is set aside and is only to be used for emergencies. It gives you breathing space and keeps your credit card from becoming your emergency fund. It’s the most essential step to getting ahead on your finances. Why is it important to set aside money for an emergency fund? There is no doubt that the unexpected will happen. Things will break. You will need new tires on your car. Therefore, instead of dealing with emergencies by swiping a credit card, have the cash in your account already so you can deal with it. There are only two situations when you’ll dip into your emergency fund and actually use it: 1. An actual emergency happens. For example, you had a major health issue and there’s a $400 expense associated with it. That’s an emergency. 2. You’ve miscalculated on an essential budget item (food, rent, utilities, gas). For example, you electricity and water was $100 over the normal average. Keep your utilities on. The moment you use the money in your emergency fund, replenish it immediately. You should keep your emergency fund liquid (i.e. it’s cash you can access, not tied up in investments). The easiest thing to do is just have a second checking account that functions as your emergency savings.
Getting Out of Debt
There is no feeling in the world like that of being burdened by debt. It is literally soul crushing. It doesn’t even matter what type of debt it is - cars, student loans, credit cards, personal, or just random purchases. There is an emotional and spiritual devastation that occurs when you know that every time you get paid, the money you make is already going to someone else before you can even put your hands on it.
Every month that statement sheet comes in. Every month it displays a negative number that you owe. You are indebted. You are enslaved to someone else. Why? Because of your own irresponsible financial decisions. Forget having an emergency fund. Forget even living paycheck to paycheck. Some people are 30 days behind on credit cards - meaning they don’t even have money in the bank. They’re so far behind that they have to rely on credit cards just to get by day to day. Imagine being in charge of a household and having to support your family on credit cards. Every single purchase of milk, water, bread, eggs, and basic food is tainted by interest. Something that should be clean and virtuous is now muddied by one of the devastating sins you can possibly commit. Kind of puts into perspective the whole “I’m so smart because I get a $25 gift card to Banana Republic every year because I know how to use credit card points” in perspective doesn’t it? Ask someone in debt how valuable those points are? Better yet, ask someone who went into debt because they started using their credit card more because they were trying to get points and couldn’t manage it properly. Unfortunately when it comes to getting out of debt, the Muslim ummah in the West has struggled to find solutions. The presupposed experts in the field are too busy discussing mortgages to be bothered with trivial things like living without debt and interest. Even those who understand and sympathize with the situation can offer little more past telling you that interest is haram and that you should absolve yourself of it as quickly as possible. Important Principle: Debt is a behavioral issue. If it were a mathematical issue, no one would ever spend more money than they had, and no one would be in debt. It is a behavioral problem akin to an addiction or something else that a person has trouble controlling. You have to remind yourself that you’re now dealing with interest. It’s time to act like getting out of it is actually the top priority and necessity in your life. How do you actually get out of debt though?
Here’s a step by step plan to conquer your debts [Taken from Dave Ramsey’s Baby Steps]. Step 1: List All Your Debts Obvious as it sounds, this is the most difficult step for some people. The emotional trauma of seeing negative monthly statements over and over causes people to simply go into denial. They can’t bear to know what they owe so they choose to ignore it. Get out all your bills and make a list of every single debt with the following information: 1. How much is owed in total 2. The interest rate 3. The minimum monthly payment Don’t get fancy here. Don’t get bogged down with trying to make a spreadsheet, and finding a form and all that nonsense. Just get out a piece of paper, a pen, and WRITE IT DOWN. Oh yeah - and part of step 1 is to CUT UP ALL YOUR CREDIT CARDS. YOU CANNOT GET OUT OF DEBT IF YOU KEEP DIGGING YOURSELF FURTHER INTO IT. Stop using your cards. And as soon as they’re paid off, cancel them. Step 2: Arrange Your Debts from Smallest to Largest Yes, from the smallest overall amount to the largest overall amount. It doesn’t matter if your smallest debt is $25 with a 0% interest rate and your largest debt is $80,000 with a 26% interest rate. List them from smallest to largest. This is the order you will pay them off in. Step 3: Trim Your Budget to Create a Debt Snowball Look at the budget above, see how every dollar has a job before you get it? If you are in debt, you need a new category called “debt snowball.” This should be all the money that’s leftover after meeting your basic expenses. In the example budget
we used earlier, you might cut your fun money to $50, and use the savings money toward your snowball amount. So now your ‘snowball’ is going to be $350. It’s also important here to trim out big expenses, like cable TV. If you’re in debt, you’re not allowed to have cable. Get rid of all the excess and free up as much money in your monthly budget as physically possible. Focus on big wins as much as possible. Cutting cable can save you $500-$1,000 a year. Cutting your family gym membership can save around $1,000 a year. Things like couponing and being super frugal are nice, but for the majority of people they aren’t sustainable. Trimming $20/month by spending 3 hours a week couponing isn’t the same as the payoff of saving $1,000 with a simple phone call. Stop contributing to any non-essential items. This includes your retirement accounts and any other investing you are doing. If you have debt (especially with interest), every single penny needs to go into paying it off. You’ll never be ahead on your investments as long as you are behind the ball with debts. For now, if you are paying $100 a month on a credit card, and your minimum payment is $25, then change your budget to put 25/month to that card, and add $75 to your snowball amount. So let’s assume that your debts look like this: Before Visa - $10,000 owed, 26% interest, $25 minimum payment [currently paying $100] ● MasterCard - $5,000 owed, 15% interest, $25 minimum [currently paying $50] ● Car - $20,000 owed, 6% interest, $450 payment [currently paying $500]
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After Visa - $10,000 owed, 26% interest, $25 minimum payment [pay $25] ● Mastercard - $5,000 owed, 15% interest, $25 minimum [pay $25] ● Car - $20,000 owed, 6% interest, $450 payment [currently paying $450] ● Debt snowball monthly amount: $150
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So taking the 150 we freed up by making only minimum payments on our debts, and cutting down the savings and other expenses, we have a total of $500/month as our snowball amount. Step 4: Use the Snowball for a Starter Emergency Fund Begin by putting your debt snowball amount into your savings. You need $1,000 to $1,500 in the bank as a starter emergency fund. This is to cover unexpected expenses while you’re getting out of debt. This is the alternative to relying on your credit card. So when your car tires go out, and you need $300, you can no longer justify using that credit card. First of all it’s cut up so you don’t have it, and secondly you have an emergency fund now to cover those expenses. Anytime you have to dip into your emergency fund, immediately replenish it. Remember though that this is only for emergencies. Upgrading your iPhone is not an emergency. Paying $100 for an Islamic class is not an emergency. Emergencies are only things that affect your basic functions of life (shelter, utilities, transportation, and healthcare). If you have more than $1,000 in savings and you have debt, then you need to use your extra savings to pay down your debt. This starter fund is only while you’re quickly climbing out of debt. Once you are debt free (the only exception being your house), then you will make it your top priority to start saving toward a 3-6 month emergency fund. Step 5: Pay Down Your Debts from Smallest to Largest You’ve got 1k in the bank from using the snowball to establish your starter emergency fund. Now that $5,000 MasterCard is staring at you. You’re going to take your snowball amount + the minimum payment. In our example, you’re now paying $525/month to MasterCard until it is paid off. Once it’s paid off, your snowball rolls to the next debt.
You’ll then start to attack the Visa with $550/month, and then eventually your car with $1,000/month. There are a few important things to note here. First, yes, this sounds Islamically counter-intuitive. We should pay down the highest interest rate first right? Well, let’s be realistic. As we mentioned this is a behavioral issue. And if you already have 5 figures of debt, your track record shows that you don’t have the discipline to actually pay off such a high debt from the get go. Chip and Dan Heath briefly discuss the psychology of this approach in Switch: Being a certified nerd, I always used to start with making the math work. I have learned that the math does need to work, but sometimes motivation is more important than math. This is one of those times…. Face it, if you go on a diet and lose weight the first week, you will stay on that diet. If you go on a diet and gain weight or go six weeks with no visible progress, you will quit. ... When you start the Debt Snowball and in the first few days pay off a couple of little debts, trust me, it lights your fire. I don’t care if you have a master’s degree in psychology; you need quick wins to get fired up. And getting fired up is super-important. Paying off debt sounds daunting. Paying off a small debt is something you can focus on, and start to see hope. It’s important to get some small wins and build momentum. Get some motivation and get more fired up to pay the debts down. You need an actionable game plan, something where you can see a small victory, and more importantly the emotional hope to see a way out. Here’s the thing - if you did the math in our example, it’s going to take a couple of years to pay off the 2 credit cards and the car. But once you get fired up? You’ll start trimming more expenses to increase your snowball, you will get a second job, and you might even sell or downgrade your car. Momentum is funny like that. As soon as you see progress, you will go full force. The hope of breaking the shackles of debt, of freeing yourself from one of the most major sins in Islam, and the prospect of freedom will be enough to get you going and pay it off in closer to half the time.
And once you pay off a credit card, make sure to cancel it. Once you’ve been in credit card debt, you’re no longer allowed to use credit cards. Debit cards only. If you go back to using a credit card, consider it like a relapse to a crippling addiction. Canceling the card will give you closure, get the bills out of your life, and lift an immense burden off your back. Step 6: Breathe Alhamdulillah, you’ve made it. Whether you paid off $500 or $300,000, you made it. You freed yourself. This is the type of relief you feel only after finally coming out of an intense hardship: So truly where there is hardship there is also ease; truly where there is hardship there is also ease [94:5-6] Now make sure you never, ever, do it again. Work on building up an emergency fund of 6 months worth of expenses and increase your charitable giving.
Before You Get Married
You've no doubt attended a wedding where the invitation read "no boxed gifts" in fact, you may have even held such a wedding yourself. The idea is that money is the greatest gift you can give to a new couple. They can use it for whatever they need most. With so many couples starting off on the “right foot” with savings in the bank, why is it that financial issues are the leading cause of divorce in the US? When it comes to marriage, our communities focus on the traditional questions. What are the duties of the husband and wife to each other? Who’s really supposed to do the housework? How much cooking is the husband supposed to do? Will the wife work outside the house, and how will they take care of their kids?
Finance is the neglected detail that makes all these things work. Just from the above examples, how will a couple actually be able to afford Islamic school tuition? If they do decide that the wife wants to stay home after having children, how do they transition the household from two incomes to just one? No matter how much two people love each other, money is the one thing that can tear them apart. Do your financial homework before you get married. Knowing the financial picture ahead of time makes for a smoother marriage - it also gives you a good look into the personality of a person as well. Here are a few questions to go over while talking to a potential spouse. If you’re already married but never discussed these issues, it might not be a bad idea to visit some of these topics as a starting point. How much debt do you have? Don’t underestimate this question; it might be the most important question you can ask. Total up all your credit cards, student loans, and outstanding car balance(s). If you bought a new laptop on 0% for 6 months on a store credit card and still have 2 months left, include that too. If you still owe a friend $50, that counts as well. All your debts must be included. I heard of a situation at one masjid where a wedding was being delayed multiple times due to the bride to be carrying $50,000 (and counting) of student loan debts. The groom to be was debt free and hesitant about taking this debt on his shoulders. What do you think would have been the impact of dealing with this after getting married? Once you’re married, you share everything. That includes your debts. A marriage can put you from having $10,000 in savings to being $40,000 in the red. This is not to say that you should only marry someone who is debt free.
The important point here is to have all the cards out on the table. The husband and wife must both be clear as to precisely what they’re entering into. If they have debts, they need to make sure they are on the same page about paying them off and what type of lifestyle they will lead. Surprising someone with debt, or having different expectations about the necessity of paying it off can be a recipe for disaster. What are your spending habits? This is as simple as it sounds. What types of things do you spend on? How frugal are you? How much do you pay attention to price while shopping? When you go grocery shopping for the first time as newlyweds, you should not yell at your spouse dumbfounded at him or her spending triple the amount for a gallon of milk to get organic. It’s not that one is right or wrong, but it’s about understanding the other person's preferences and habits. If you have a habit of spending a lot on shoes, or tech gadgets - make your spouse aware of it ahead of time. Part of your budgeting process is going to be adapting to each other’s habits and learning to compromise with each other with finances. The point here is not for you to turn into something you’re not. It is making sure the husband and wife have a proper, mutual, decision-making process by which they can spend money accordingly. How do you feel about being on a budget? Yes, this sounds completely and utterly boring. But it might save your marriage. See, financial issues are rarely mathematical [if it was just math, no one would have problems to begin with]. In a marriage, financial issues aren’t even often financial. They’re actually more indicative of communication issues. The good news is that there is no right or wrong way to actually set your budget. The beauty of budgeting is that it forces the husband and wife to actually communicate with each other openly and come to an agreement on where the money goes. Each party gets a vote.
What is a good discretionary spending amount? Do you and your spouse need to notify each other for every single 99 cent app purchase? What about a $10 book? What about a $100 purchase? You don’t need to discuss every single purchase made, but there is a certain point where a purchase needs input from both parties. This will vary based on your spending habits and income. As with everything else, the key is to try to discuss it ahead of time so there aren’t any surprises. What are your financial goals? Is it to make hajj within 5 years? Is it to make ‘umrah every year? Is it to be able to travel to visit relatives regularly? Do you dream about buying a new car every 3 years? Maybe you have a family member that you want to help sponsor education costs for? Perhaps it’s a charitable project? It might even be just wanting to go to the mall a few times a year and buying whatever you want without thinking about it. Once you share your hopes, fears, and dreams with your spouse, you can then work on a game plan to make it happen. People don’t just magically come up with the money to do something like go on hajj. It comes after making it a goal and then planning how to set aside the money to do it. Use this as an opportunity to discuss what you want and work with your spouse on how to make it happen. You can help each other achieve the goals and start learning how to make sacrifices for one another. It’s actually much more romantic than it sounds. The easiest way for problems to arise is when one person takes hold of the purse strings and then dictates which goals are most important and where sacrifices need to be made.
What about Credit Cards?
Let’s take you back to college while you living on Ramen Noodles. Maybe you’re there now, or about to be in the near future. You’re heading to class and you see a booth that’s outside of the student center offering a free t-shirt for just filling out a credit card application form. It’s a no brainer, you get a free T-shirt. What’s the harm? You’re not going to use it anyways. A week later a credit card shows up in your mail. You vow not to use it but you stick it in your wallet anyways “just in case.” A few minutes later, your friends call you up to go and grab a bite to eat. You agree, since you’re hungry and haven’t eaten anything since yesterday afternoon. When at the restaurant, you realize that you only have a few bucks in your bank account, so you opt to use that shiny new credit card you received today. Then, it suddenly hits you, this credit card thing is amazing. You can use it without having money taken out of your account. Over the next month, you swipe like crazy. Food? Check. New clothes? Check. A new case for your phone? Check. The purchasing power is amazing and you’re on cloud nine until the credit card statement comes in the mail: you’ve racked up over $1000 in purchases. You don’t even remember spending more than $20 on a single item, but it somehow added up real fast. How are you possibly going to pay this working 20 hours a week at $8.25/hr at the school computer lab? Aren’t credit cards a necessity? A lot of people give a number of arguments about having credit cards: it increases your credit score, thus giving you the ability to borrow more money in the future to more easily buy things you can’t afford. You get points, and extra protection. These all make it worth it. While all these are true about credit cards, the issue of using it comes down to one thing: behavior. When you use a credit card, you’re essentially saying that you either don’t have the money OR you just don’t want to fork out the money now.
While it’s true some people have the discipline to use credit cards and not fall behind, many do not. The average American household carries over $8,000 in just credit card debt. If you’re going to use a credit card, make sure you: ● Have the money in your account BEFORE making that purchase ● Schedule your credit card payment to automatically come out of your account every month In fact, you might even log online every week and pay off your purchases before the bill comes in. But if the sheer thought of putting your credit card on a monthly auto-pay from your bank account frightens you – then it’s a red flag that you shouldn’t be using one. And remember, if you have credit card debt, you are not allowed to have one. Debit card only. Using a credit card while being in debt is like giving a drunk a drink. Just don’t do it.
What About Student Loans?
There is no easy way of putting it, this is one of the toughest issues facing Muslims in America. Going through college without incurring any interest based student loans is difficult for many. Before you resign yourself to the necessity of the situation though, make sure you have exhausted all other options. Please, don’t mortgage your entire future. Don’t become one of those people who is still paying off their student loans all the way until your own kids are ready to start college. The mantra for student loans should be to challenge everything you hear. Your life will not end if: ● You don’t graduate within 4 years of high school ● You go to a public university instead of a private one ● You go to community college for 2 years ● You don’t go to medical school ● You work full time and go to school part time
You dedicate 20+ hours a week to finding and applying to as many scholarships as possible ● You get a job after your bachelors and then work on your graduate degree part time while your employer pays your tuition ● Stay home to save on living expenses instead of going to an out of town school.
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There are plenty of people who did the above things and still lead happy, successful, and productive lives. The world at the age of 18 is drastically different from the world one sees at the age of 25 or 30. Things that looked like major life altering events (deciding between 2 schools) almost seem like an afterthought later in life. You have to lift yourself off the ground and look at the big picture of where you want to be 5 or 10 years down the road. Talk to people who are in the field you want to work in. Chances are, they will tell you that aside from some intangible benefits for a few months after graduation, which college you went to is never a factor in their career path. It should be your goal to avoid taking out any loans to go to school. Does this mean you might end up with a 4 year business degree instead of going to medical school? Possibly. But if you can’t actually afford medical school, should you really be going? I might know of a $1.5 million house on the market that’s in foreclosure for $300,000. After consulting with real estate experts, I know that I could purchase the house for $300,000 and sell it for over a million dollars in profit if I wait 4 years for the market to recover. The problem is that I don’t have $300,000. Is it okay to go into debt and borrow this money? It’s a sure thing, I’ll make a profit, and besides, ‘business’ is the “sunnah” so it’s a great idea. Right? What if I’m going to spend the million dollars on taking care of orphans - now it’s a necessity, right? The deeper issue as it relates to student loans is the entitlement factor. Everyone has a dream house, a dream car, a dream investment that they want to make that they cannot afford. Our resources limit us to staying within our means. We must be extra cautious of allowing an entitlement mentality to shape our educational
decisions, especially when there may be a number of alternatives we are ignoring because we are too headstrong about our “dreams and passions.” Look at education as an investment both of time and money. Is the education you are paying for going to have the proper pay off? For example, can you justify spending $150,000 to get a bachelor’s and master's degree from a private university if you’re going to become a school-teacher earning $35,000? This is a noble profession, and we need more teachers, but objectively looking at the income potential versus the cost is not a justifiable decision. If you can accomplish the same goal (becoming a teacher) by getting your education at the local public university for $30,000, then wouldn’t that make more sense? The above example of course is assuming you are paying for the education. If it was your money in hand, how would you spend it? Now let’s say that you follow an opinion that says student loans are halal because of necessity. Can you justify a student loan to the private university in this instance as necessity? Particularly when another viable option exists? Also, is your loan actually for education, or is it for the college lifestyle and living expenses? An article in the Huffington Post recently made this case in regards to attending law school: If there's one thing you can't argue with, it's that lawyers make a lot of money, right? …. Perhaps the most important thing for you to understand, there are NOT an unlimited number of jobs out there that start at $140,000/year. … You are not guaranteed a job out of any law school, much less a job that pays six figures. ….
Debt is the elephant in the room that law schools never tell you about, but ends up dominating your life… If you go to an average law school and don't get any tuition help or scholarships, you are going to spend ~$150,000 all-in, at least. … This means you are going to start your law job already 150k in the hole -- and that's not counting any undergrad debt
you may be carrying. This means you are going be making a $1,700/month payment for about a decade. On just your grad school debt. And make no mistake about it: Once you are in debt, they own you. In a straight-forward approximation, a starting salary of $140,000/year would put our intrepid new lawyer in the 28 percent tax bracket. Loan payments will take another 14.57 percent of his per-unit-time income. To a first-degree approximation then, it is accurate to say 42.5 percent of our INL's income dissipates before being touched by him/her. It'd be funny if it wasn't so sad. Even if you started off law school with the best of non-profit save-theworld intentions, when you are staring a $1,700 per MONTH payment in the face, you WILL end up scurrying to work for a white collar sweatshop. And you will hate it, like everyone does, and you WILL want to leave, like everyone does, but you won't be able to -- like everyone else can't -because you will have too much debt to pay off. So you're going to spend a decade toiling 12 hours a day for what? To pay off the debt you incurred to get that job!? HOW CRAZY IS THAT!?! That’s what it means when people say debt takes away your freedom and starting your career with student loan debt can crush you. It’s not always just financial, but mentally as well. Get creative about your education costs. There are numerous scholarships that go unclaimed. There are numerous grants. Do your utmost to make it a goal to get your education without accruing debt - even if it means changing your major or graduating later than you expected. Do your homework, talk to people who are already doing what you want to do and get their feedback before making such a huge commitment of time and money. Some people do truly face hardships in getting even a basic college education. There are certainly extenuating circumstances. But those do not justify a general rule of making it ok.
When there’s a will there’s a way. There’s nothing wrong with going to medical school or law school, but like any other financial decision – make sure you can afford it. We’ve personally come across numerous examples of people who weren’t able to afford things like medical school yet still made it without incurring interest-based debt. Some were able to get multiple scholarships, and some were even able to get members of their community to give them interestfree loans to get their education. Some have parents who worked multiple jobs and extra hours to save the tuition. It comes down to you to make a decision to intentionally avoid interest at all costs.
Charity (sadaqah)
Many of us have associated donating money with stuffy fundraising dinners and bad Friday khutbahs that borderline on spiritual blackmail. We’re tired of walking into multi-million dollar masjids for juma, only to walk out to people berating us to donate “just $20 to keep the water running.” Seriously? It’s time to make charity a focus outside the context of specific projects or events. It needs to be a way of life. Your budget is the key to making a regular and consistent good deed – and the best way of putting the secret ingredient of barakah (blessings) into your wealth. Sadaqah Challenge Here’s our challenge to you. Every month as you sit down to do your budget, increase your amount of charity every time. Don’t make it something drastic, but even a dollar or 2 dollars every month can go a long way. In 5 years time, you will have given at least $100 more than you intended by just adopting this one little strategy. “The best of deeds are those that are done consistently, even if they are small” – hadith of the Prophet Muhammad (saw).
What Now?
Keep an eye on DebtFreeMuslims.com as we’ve got a lot more coming on the subject of personal finance for Muslims. Most importantly, we need to hear YOUR stories. Are you currently in debt? How much and how did you get there? How has debt affected your life? Have you been in debt and successfully gotten out of it? Use the contact page on our website to send us your stories. Lastly, we’d also appreciate any feedback you had on this book. Let us know what you found useful, how it impacted you, and what else you’d like to see covered.
*** If you’d like to share your story with us, please do so at: http://www.debtfreemuslims.com/contact-us/