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4 Ways to Level up Your Finances

by in Culture & Lifestyle on 20th January, 2022

As Muslims, we understand the importance of intentionality and this extends to our finances too. The best thing you can do for your provision is to become more intentional about your money; intentional in your earning, spending, saving, and donating. This will help you focus on how you want to sustain, grow and use your wealth.

But even for the most financially-savvy among us, there’s a lot of guesswork involved when it comes to personal financial planning but it’s never too late to start afresh and the new year presents a great opportunity to establish new habits and a chance to do things differently. Getting a grip on your finances and starting with good habits early on can put you in an entirely different, and more positive financial position.

Money is one of those things that affects our life, regardless of whether we actively think about it or not. It can be easy to want to bury your head in the sand, or question if you will ever get it right. To help you put your best foot forward this year, Amaliah has partnered with Lloyds Bank to bring you a series of articles and information to help you feel better equipped for the big and small financial decisions in life. From how to level up your 2022 finances, to planning that boujie wedding on a budget, as well as breaking down the top do’s and don’ts when saving for motherhood, a car, a deposit on a new home or even Hajj…this series has you covered!

A planned out approach not only contributes to being on track with our financial goals but also invites peace of mind and gives us mental clarity. That’s why, in partnership with Lloyds Bank, Amaliah has prepared a checklist to help you get in control of your finances and to make progress towards your financial goals in 2022 and beyond.

1. Be more intentional about your spending 

Due to inflation, things will be more expensive this year. Inflation describes the process by which our money loses real value as the price of things around us increase generally. It can affect the cost of many things in your life, from how much your paycheck is worth to the things you buy regularly and your utilities and bills.

Inflation is calculated as the average increase in price of a basket of goods and services within an economy. The Bank of England has forecast that inflation will top 5% in 2022. What that means for you and me is that the £30 Eid money from 2019 sitting in an envelope has reduced in its real terms value, meaning you would get less for your money today compared to three years ago. Don’t be fooled by the 5% figure, we have already seen prices increase significantly above this amount by the end of 2021. According to recent reports, energy bills are set to rise by as much as 50% in 2022.

This increased inflation rate we are seeing is significant; an increase of 5-10% on each of your transactions over the course of a year can seriously add up and derail you from achieving your financial targets. Unless you receive a pay rise above 5.1%, you will essentially be experiencing a real term pay cut, as your income has less purchasing power than previous years. The impact on your finances will seem subtle unless you scrutinise your finances more closely, as over the course of a year, increased inflation can add up across each transaction.

This is why it’s so important, now more than ever, to be much more intentional about your spending. We know it sounds a bit grim, but this doesn’t mean you should pinch every single penny, but rather you should consider when spending your money whether it’s a beneficial, productive or an impulse purchase – rather than spending mindlessly. Being more intentional also means setting the right intentions, and embodying the spirit of Tawakkul in our plans. Tawakkul means relying on Allah and believing that He will provide for us, all we have to do is plan and place our trust in Him

“And He (Allah) will provide him from (sources) he never could imagine. And whosoever puts his trust in Allah, then He will suffice him. Verily, Allah will accomplish his purpose. Indeed Allah has set a measure for all things.” (Qur’an 65:2-3)

It’s worth doing a quick check on your finances using the Lloyds Bank’s 60 second Money Health Check here which will give you a good overview of your financial situation and provide some great tips on how to start improving it.

2.  Be your own accountant

Setting goals is a great way to help motivate you to reach your targets in life, and this applies to your financial and savings goals too! After all, it’s much easier to stay on track when you know what destination you’re heading towards. But what about those days when your motivation dries up? A sure-fire way to help us stay consistent is to have a system of accountability in place that measures our behaviour against the goals we want to achieve. A healthy system of accountability when it comes to your finances often begins with taking the lead and making the decision to really take a look at your incomings and outgoings, and drawing up a monthly spending budget for yourself. This will help you understand your spending behaviours and habits which is the key to drawing up a sustainable financial plan for the year ahead. 

At the end of each month essentially you want to become your own accountant by reverting to your budget and seeing how you did. 

How to create a budget

  • Start simple: break your budget down into 4 streams: income, essential spending, saving and then fun money! 
  • Write down your income – how much money you have coming in. This will usually be your primary source of income, but also include any money you expect to receive from other sources (side hustles, birthdays, Eid, flexible contract work, selling used items etc.)
  • Then you want to take account of your monthly fixed outgoings, this list is likely to be much longer e.g. your rent/mortgage, travel, phone, internet, utility bills and savings. A good idea would be to list all of your current direct debits and count these as your fixed outgoings. 
  • You may also want to try and aim for the amount you save to be a fixed monthly amount! 
  • Then work out how much you’d like to give yourself for your variable expenses, these are things that change, this includes things like groceries, takeaways, social spending and fun money.
  • Now deduct this from your previous incoming balance and make sure you don’t spend more than you earn. 

A brilliant tool to get you started and that will help you take the guesswork out of budgeting is the free Lloyds Bank budget calculator which can help you build your very own budgeting plan, either for yourself or for your household.

By building the habit of monitoring your cash flow in this way, you can make realistic savings targets, pay down any debts and track your financial progress or go on that luxury holiday you’ve been dreaming of. 

Lloyds Bank’s Top Tips for Budgeting

  • Consider splitting your money between different accounts, one for everyday spending that you have budgeted for, and the other for bills and fixed expenses.
  • Build your budget by looking at your existing spending habits. Sometimes we underestimate our own level of spending, for example, you may budget for one takeaway a month, when in reality, your average is closer to three! The more accurate the budget the more likely you will be to stay within it.
  • A savings hack to ensure you’re consistently saving, is to list your monthly savings goal as a fixed outgoing in your budget. This will help you build a save-first mentality, prioritising your savings goals over your discretionary spends.
  • The key to sticking to a budget is reviewing it often. Life changes and our spending habits and needs will also change throughout the year, so don’t make a one-time budget in January and keep it tucked away, review it at the beginning of each month to see if anything in it needs to be tweaked.
  • If you are shocked at how much money you spend on non-essential items, start with a small goal of reducing that spending by 10% each month, rather than going cold turkey and cutting all your spending. Remember, the goal here is to be sustainable and consistent, and that can only happen if your plan is realistic.
  • Have a buffer, your budget is a guide but in some months you may have other expenses, life happens! 

3. Plan ahead for your short-term savings and annual commitments like Zakat

An important part of making a financial plan work for you is to factor short-term savings into your annual calculations. One example of this is Zakat, an obligatory payment on wealth that Allah has decreed as a purification for Muslims, so long as we have sufficient wealth to distribute from (above the nisab amount). Zakat can be described as a social welfare system unique to Islam as the funds are meant specifically for those in need. It is mentioned a number of times in the Qu’ran…

“And establish prayer and give Zakat, and whatever good you put forward for yourselves – you will find it with Allah.” [Qur’an 2:110]

Zakat is calculated at 2.5% of your annual net wealth, this is your assets (including your cash, savings and any investments) minus your liabilities (so any debts that you owe). Let’s say your net wealth is £10,000 next year – at 2.5% you would have to pay £250 in Zakat. If you were to save £1 a day next year you would have saved £365 by the end of the year, covering your Zakat and leaving a healthy surplus for Sadaqah all year round. Factoring this amount into your annual calculations will not only help you stick to your budget, but will also add a lot of barakah to your finances.

Putting money aside from the outset for charitable giving is a perfect example of being intentional with your money. We are taught that this is a means for us to purify our wealth, so building this habit into your financial behaviour next year will have a compounding effect on your personal and spiritual outcomes. Consider routinely redirecting small sums into an account that you have set aside as your cash for charitable purposes.

4. Build up your rainy day savings

According to a recent survey conducted by Opinium, one in five adults have less than £100 in savings and one in seven people have no savings at all and more than a quarter have less than £500 put away. A rainy day savings fund is the bedrock of a secure financial future for everyone and it’s something that should always be maintained.

Building up your rainy day savings gives you personal security and peace of mind against having to take on expensive debt when faced with an unplanned expense. Unfortunately, we can’t predict when the boiler breaks down, our car gives way or when we might suffer a sudden loss of earnings. Your rainy day savings are reserved for absolute needs, they shouldn’t be dipped into for discretionary spending but built over time to give you increased security against those unplanned, but seemingly inevitable expenses we have throughout the course of the year. Each person’s rainy day savings will be different depending on their needs and circumstances. If you’re not sure how much you should be saving, Lloyds Bank’s savings calculator is a great way to help you set a savings target to build your very own rainy day fund. 

A good rule of thumb is to prioritise saving £100 initially, then continue adding to this pot – aim to save one month’s worth of your expenses, and then three months once you are able to do so. Saving doesn’t have to feel like a drag, it can also be fun! Why not try out a savings challenge? Or creative ways like gift swaps to help you reach your saving goal? Even things like loyalty schemes and cashback offers can help you save as you spend! If you’re feeling daunted, start small and build your way up, because as the Prophet ﷺ said:

“…the best deeds are those done regularly even if they are few.” [Sunan Ibn Majah 4240]

Your rainy day savings are a cash fund; you don’t need this money to be working for you. Consider holding this money in a separate account from your current account which you have allocated specifically as your rainy day fund. If you have little leeway in your budget then a small amount each month still makes all the difference in an emergency. 

Read more

How you can build your rainy day savings fund

Looking ahead

The advent of a new year presents an opportunity to do things differently. Building intentionality into our daily habits will have a significant impact on our financial and spiritual outcomes for the year. Being intentional with your money will mean that you consider how and where you choose to spend your money, identify your current financial situation and allow you to plan for the future. This measured approach to handling your money will help you feel more in control of your finances, and will give you the confidence to achieve your financial goals for the upcoming year! If you need a helping hand then it can be useful to speak to your bank for some support and advice – it doesn’t have to be a lonely journey, wherever you may be on that journey!

* This article has been created in partnership with Lloyds Bank. Every now and then we partner with companies to bring you sponsored content. We always strive to ensure we maintain the same editorial integrity that keeps you engaged in our non-sponsored content. We thank you for your support.

Amaliah Team

Amaliah Team

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