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LESSON 1: BACK TO BASICS: BUDGETING // 1

SMARTMONEsmartmoneyBrought to you by Abu Dhabi Islamic Bank - Banking as it should be

A step-by-step guide toa balanced fnancial lie



Welcome

INTRODUCTIONSMART MONEY

Do you have a monthly fnancial plan? The answer should be ‘yes’

because planning your fnancial lie is important or your uture, yo

retirement and your amily. Although planning your fnances isn’t a

the easiest thing to do, it isn’t impossible. You can do it, and the ear

you start, the more money you will have or you and your amily.

Smart Money will show you how to save and grow your money orthe uture, as well as reduce your debt and pursue your fnancial dr

How? By giving you step-by-step guides to the ollowing:

Smart Money is your essential guide to all the fnancial matters in

your lie, and it oers easy-to-understand advice on saving, budget

fnancing and growing your money, with top tips on investment, Ta

insurance and fnances. Read on to fnd out more about how you ca

in complete control o your money.

SMART MONEY

TAKAFUL INSURANCE

FINANCE SAVINGS

BUDGET

“ONLY 25% OFUAE RESIDENTS

SAVE MONEY ONA REGULAR BASIS”Source: National Bonds PJSC



LESSON 1: BUDGETINGSMART MONEY

Money MattersYour guide to budgeting

Does this sound amiliar?It’s the end o the month and Jassem only has AED100 in his bank

account. His bills are all due and he won’t be paid or another 10 days

Question: What can he do to avoid this situation? Answer: Bugdet!

What is a budget?A simple fnancial plan that helps you

track your expenses and income.

Why? Do you want to:

Increase your savings

Reduce your living expenses

Save or a major purchasesuch as a house

Retire early

Grow your money

I you answered ‘yes’ to one or

more o the above, then you need a

personal monthly budget to help you

increase your savings and manage

your expenses.

ChecklistTo make a personal monthly bu

you will need a list o your:

INCOME: Your total earnin

rom salaries and investm

EXPENSES: The amount omoney you spend every m

– everything rom bills and

home fnance payments to

holidays and git shopping

LONG, MEDIUM AND SHORT-TERM GOALS: wh

you want to save or now

in 5, 10 and 25 years time;

you want to save to do so

improvements on your ho

or your child’s university

education, or or your retire



SMART MONEY

1. Follow this step-by-stepguide and fll in thebudgeting table on the

ar right

STEP 1: WHAT IS YOUR INCOME?

Work out how much you earnon a monthly basis, including:• Salary• Protsfrominvestment• Otherincomes

STEP 2: WHAT ARE

YOUR FIXED EXPENSES?

Add up what you spend on aregular monthly basis, including:• Rent• Savingscontributions

• Takafulhealthinsurance• Takafulcarinsurance• Takafullifeinsurance• Education• Childcare• Charitablecontributions

STEP 1

STEP 2

STEP 3

STEP 4

STEP 5

LESSON 1: BUDGETING

How to BudgetWork out how much money you are spending andhow much money you can save every month

STEP 3: WHAT ARE YOUR

NON-FIXED EXPENSES? Look at what else you arespending every month, including:• Electricitybill• Mobilephone/internetbills• Carrepairsandmaintenance• Houserepairsandmaintenance• Groceries• Self-care(hair,toiletries,etc.)• Clothingandfootwear• Prescriptionsandmedical

STEP 4: KNOW YOUR DEPT

Calculate your monthly payments or:• Islamiccards• Home/Carnance,Othernances

STEP 5: WHAT DO YOU SPEND

ON NON-ESSENTIAL ITEMS How much do you spend on:• Eatingout,Entertainment• Gymmembershipandsports• Vacations• Toys,booksandgifts

TOTAL EXPENSES:

AED60,000 AED25,000

AED20,000 AED12,000

AED6,000 AED6,000

AED20,000 AED7,000

AED4,000 AED10,000

AED50,000 AED35,000

POSITIVE I you have a positive number,

congratulations; you are

spending less than you earn.

From our example, Jassem has

AED10,000 to save or invest.

Jassem Mariam You

3. Now…work out how much money youhave let to save and spend every month

TOTAL INCOME

minus(-)

TOTAL EXPENSES

YOUR TOTAL RESULTS

AED60,000 AED25,000

minus(-) minus(-)

AED50,000 AED35,000

+ AED10,000 - AED10,000

Jassem Mariam You

2. Complete this Personal Budget Table

NEGATIVE I you have a negative number

you need to reduce your spend

Mariam has to reduce her spen

by AED10,000 to avoid getting

fnancial problems.



LESSON 1: BUDGETINGSMART MONEY

Managing yourMoneyYour easy-to-ollow guide toliving within

your means

You should spend less o your

income on entertainmentand non-essential items i you:• Plantohavechildren• Haveanexpensivehobby,

like travel

• Haveavariedincome

NON-ESSENTIAL EXPENSES Holidays, gits

ESSENTIAL EXPENSES Food and transport, housing

healthcare, educationHow to spend your incomeYour biggest expense should be

your house. You should be spending

roughly 25% o your income on

home fnance payments or rentand homeowners takaul insurance.

The chart on the ar right shows

how you should be spending

your income…

Source: MSN Money and Oprah’s D

Housing: Home fnance, rent, takaul insurance, bills: 25%

Transport: Car payments, uel, takaul insurance, repairs:

Savings: 12%

Living expenses: Groceries, ood, education, etc: 10%

Personal fnance payments: 8%

Clothing, eating out, vacations, gits, entertainment: 3

15%

12%10%

8%

30%

25%



SMART MONEY LESSON 2: FINANCE

The Good & the BadWhen is it okay to get fnance?

When you buy something that has

no potential to increase in value,

that’s bad fnance. Good fnance is

an investment that creates value.

The Dept CycleThis diagram above illustrates how you can get into serious fnancial

difculties i you do not fnance responsibly and budget correctly.

Three productive and valueadded purposes or fnancing:

Home fnanceBecause homes usually increase in

value, getting fnance or a house is

usually a sound investment.

Education fnanceStudent fnance acilities to pay or

college or university tuition are good,

because a degree will usually result

in you earning more money over the

course o your lietime.

Business fnanceUsing fnance to start a proftable

business is a wise thing to do,

because when you start making

money, you can make the payment.

You’ll then be ree o fnancial

obligations and the proft you make

will be yours to keep.

Non-productivepurposes or fnancing:You should aord to pay these

expenses by your own income

not by a fnancing scheme

Go on vacation, buy a designer

purse, shoes, etc., Pay o other

nance(unlessyou’reundergoing fnance consolidation with

betterterms),Buygifts.

The reason you should not fnance

any o the above items is because

none o these increase in value.Instead o using fnance, save up

your money and pay cash.

Other unavoidable expenses that

may need fnancing; marriage, car,

urniture, medical treatment.

GET FINA

THE DEPTCYCLE

SPENDS MONTHLY INCOME

CAN’T AFFINAN

PAYMEN

TAKES OUT MORE FINANCE

TO PAY OFF LIABILITIES

OWES MONEY ON MISSED

FINANCE PAYMENTS

STUCK IN A DEBT CYCLE



Remember this, and you will not

get into serious debt:

•Spendinglessthanyouearnisthe keytoallaffordablepersonalnance•Onlygetnancewhenyouaresure youcanaffordthenancepayment

Dept-to-income percentageYourtotalpersonalnancialobligations(theamountthatyouoweinfull)shouldbeaboutathirdofyourtotalannualincome.

Thistotalgureincludeshousing,education,carnanceandcardnance.Example:JassemearnsAED480,000ayear,sohisnancialobligationsshouldnotbemorethanAED160,000.

SMARTMONEY LESSON 2: FINANCE

KnowtheRisksThinkcarefullybeforeyoutakeoutnance

Checklist

Beforeyougetnance,answerthefollowingquestions…

CanI affordthemonthly payments?

Whatwouldhappenif Ilostmyjob?

Howlongwillittakemeto paythenance?

AmIbeingchargedhigh ratesonnance?

Hereareafewreasonshowyoucouldbeunabletomakeyournancepayments.Ifthishappens,themoney

thatyouowewillincreaseonamonthlybasisandyoucouldendupinseriousdebt.• Seriousillnessorunforeseenevents• Redundancyorlossofincome• Newbabyormovinghouse



SMART MONEY LESSON 2: FINANCE

DOTry and consolidate all your

fnances into one fnance scheme

Check all the ees charged by

the bank beore you take out

any fnance

Try to balance your fnance to

reduce the monthly payments

Try to pay the ull balance

every month on your card or

prepay the card with your unds

(coveredcard)

DON’T

Use your card to buy goods you can’t aord

Use your card overseas beore

checking the currency conversion

ees and prices charged

Miss a payment on your card

Finance Payment PlanThe longer you take the fnance, the more it will cost you, so you should t

get the shortest fnance and get out o the fnance scheme as ast as poss

through early settlement.

Stay in ControlYour quick guide tomanaging fnances

4. Add this amount to yourpayment or Finance 1. My newpayment amount or Finance 1

Do you have a fnance acility?

Are you struggling to make your

payments? I you are, here are some

tips to help you clear your fnances

as quickly as possible.

When Finance 1 is paid o, add the payment amount to your payment o

Finance 2. When that is paid o, add the amount to Finance 3, and so on.

2. Now list your fnances in order o highest to lowest proft rate

1. List your fnances

Name o fnance How much you owe Monthly repayment

Finance 1 AED11,000 AED450

Finance 2 AED97,000 AED1,450

Finance3 AED36,000 AED720

Finance 2 AED1,450 Bank Proft Rate: 6.5%

Finance 1 AED450 Bank Proft Rate: 5.7%

Finance 3 AED720 Bank Proft Rate: 4.5%

You should try to fnd money in your budget to pay the fnance that has the highest proft ra

3. Look at your budget and see i you can fnd some extra moneyeach month or fnance payment.Note that amount here:

Save AED405 extra per month New total to spend on fnance 1 is A



Spend ater you save, don’t save

ater your spend. It’s simple – savings

should be your priority, so don’t just

say that you’ll save whatever is let

over at the end o the month.

As a general rule you should aim to

save at least 12% o your monthly

income; i you can aord to – and

you do not have fnance payments

– you should save 20% o your

monthly income.

How to save as muchmoney as possible

Savings Plan

SMART MONEY LESSON 3: SAVE AND GROW YOUR MONEY

Goal Timeline Cost Monthly savings Priority required

Buyhouse 2years AED100,000 AED4,166 (1) (downpayment)

HolidayinEurope 6months AED30,000 AED5,000 (2)

Retirement 30years AED750,000 AED2,083 (3)

What are you saving money or?Complete the table below to work out your personal fnancial goals.

We’ve completed a couple o examples or you to help you on your way…

LONG-TERM (OVER 10 YEARS)Retirement

Children’s educationBusiness opportunity

SHORT-TERM (0-5 YEARS)Emergencies

Vacation

MEDIUM-TERM (5-10 YEARS)Saving or a house

New carMarriage

Why saveMoney?

P y r a m i d o f n e e d s f o r t h e f u

t u r e



SMART MONEY LESSON 3: SAVE AND GROW YOUR MONEY

Super SaverHow to save more money

SUKUK

• ThisisaShari’aapprovedsavinscheme. When you buy a suku

a bank or government, your m

is invested in a project. Once t

project is completed and maki

revenue, you receive your mon

back and your share o the pro

•IfyoubuyasukukforAED1,00today, in fve years’ time you m

collect your AED1,000 plus AE

in proft.

The bank is liable or a loss in the co misconduct, negligence or breaco contract

EMERGENCY SAVINGS ACCO

• Openaninstantaccessbankaccount where you can acces

your money within 24 hours

pay or unexpected emergen

• Keepthreemonths’salaryinaccount to cover emergencie

Money Saving OptionsI you want to access your money easily

and you want to invest in a sae way

then you should save your money in

one the ollowing ways:

SHARI’A COMPLIANT SAVINGS ACCOUNT • KeepyourmoneyinaShari’a

compliant savings account where

you can access your money any

time and you may beneft rom

good generated proft.

PENSION PLAN • Startearlyandsaveforyour

retirement as soon as possible to

make sure you have enough saved.

• MakemonthlypaymentsintoaShari’a compliant pension plan.

Tips or successul saving1. Set realistic savings goals

2. Open a separate savings account

to keep your savings away rom

your everyday money

3. Set up an automatic payment so

the money goes into your savings

account on pay day

4. Start small – i you save regularly,

even the smallest amount can

soon add up



LESSON 3: SAVE AND GROW YOUR MONEY

Why you need togrow your money?Although budgeting and saving

your money will help you to build

personal wealth in the short-term,

you will need to invest your money

to help meet your long-term goals –

which are more expensive – such as

paying or your child’s education or

your retirement.What you are investing or and

when you are going to want your

money will determine how you will

invest. For example, saving to buy

a car in two years’ time requires a

completely dierent investment

strategy than saving or retirement

in 20 years. To save or a car you

would invest in a savings account,

but to save or your retirement you

would be better o investing in

Shari’a compliant shares or property.

Where can yougrow your money?• Sukuk• Shari’acompliantstocks• RealEstate• Shari’acompliantcommoditi

Work out how much risk you ar

prepared to take with your mon

The more risk you take, the mo

money you are likely to make; b

remember that you also run the

o potentially losing more mon

You need to select an asset allo

strategy that is right or you: do you risk investing all your mone

in one place to make more mon

or do you take the saer option

placing smaller amounts in a va

o investments?

GrowingYour WealthHow to multiply your money

Sukuk

Shari’a

compliant

stocks

Shari’a

compliant

commodities

Real Estate

SMART MONEY



The next time you apply or home

or personal fnance, you may be

asked i you want to get Takaul

credit insurance – just one o several

insurance options available to

protect you and your amily rom

alling into debt.

Takaul is a Shari’a-compliant, Islamic

insurance policy which can be taken

out or covered cards and cash cover.

This insurance cover will:• Payoffyournanceifyoudie

• Payamonthlysumofmoney to the bank that is equal to

the fnance’s minimum monthly

payment i you become disabled

or involuntarily unemployed

Takaul will give you peace o mind

that your amily will always be

fnancially secure, whatever happens.

Do I have to take outTakaul insurance whenI get fnance?It is usually optional, and beore

deciding to get Takaul, you

should ask:

How much will it cost?

Will the insurance cover the ull

length o your fnance and the ull

fnance amount?

What are the limits and exclusions

on payment o benefts?

Can I cancel the insurance?

On the Sae SideHow to protect you and your amilyfnancially with Takaul insurance

SMART MONEY LESSON 4: INSURANCE

Reasons why you may beunable to make paymentson your fnance:

What will it cost me?You will be asked to make mon

takaul contributions, which are

usually based on things such as

amount o the fnance and you

DISABILIT Y OR

SICK NESS

UNEMP LOY MENT

DEAT H



LESSON 4: INSURANCE SMART MONEY

Stay ProtectedWhat other Takaulinsurance options

are available? Takaul Lie InsuranceA Shari’a compliant lie insurance

policy will protect your amily

fnancially in the event o accidental

or natural loss o lie. This means that

your fnances will be paid o by the

insurance company rom the takaul

account and your amily will receive

monthly or a one-o payment/s to

cover their living expenses.

Coverage can include:• Deathduetoanycause• Accidentaldeath• PermanentTotalDisability(PTD)

due to accident or sickness• PermanentPartialDisability(PPD)due to accident or sickness

• TemporaryTotalDisability(TTD)due to accident or sickness

Takaul versus Conventional insurance?

CONVENTIONAL INSURANCE MODELRisk transerred to insurance company itsel against the insurance premiu

TAKAFUL – WAKALA MODELRisk shared between participants on donation basis and the premium is p

to the takaul account owned by the participants, not the company

VERSUS

TAKAFULACCOUNT

(POOL)

Wakala eeto be paid

TakaulCompany

Investment contributShari’a compliant inve

Takaul participants

Contributionsto be paid

Surplus will bedistributed to the

policy holders

Claims to bepaid to Takaulparticipants

INSURANCE COMPANY

Insurance cominvests premivarious invest

unds

Surplus or proft retainsurance company

paid as claims

Policyholder/pay premiums

Premium

Claims to

be paid to coverpolicy holders

You can also protect yoursel and

your amily with a variety o other

takaul insurance policies that cover

Lie, Car, Home, Finance and Health.

What are the advantageso insurance?• Peaceofmind• Itisavailabletoeveryone,

regardless o their ‘ insurability’

• Ifyourunintodebt,youcan get fnancial help with making

your payments

What are the disadvantageso insurance?• Monthlypayment(takaful contributions)canbehigh



SMART MONEY ISLAMIC BANKING GLOSSARY

in a project, during which the Bank

enters in particular arrangements with

the customer to sell him its share in

this partnership until he becomes the

sole owner o it. Profts are distributed

according to the mutual agreement

o the parties as stipulated in the

contract; however, losses are borne

according to the exact shares in the

Musharaka capital on a pro-rata basis.

MudarabaA contract between the Bank and a

customer, whereby one party provides

the unds and the other party invests

the unds in a project and any

generated profts are distributed

between the parties according to

the proft shares in the contract.

The Mudarib is responsible o all

losses caused by his misconduct,

negligence or violation o the terms

and conditions o the Mudaraba;

otherwise, losses are borne by

RabAlMal(owner).

WakalaA contract between the Bank and a

customer whereby one party appoints

the other party to invest certain unds

according to the terms and conditions

Jargon BusterIslamic bankingmade simpleIslamic Banking

A banking system that is based on

theprinciplesofIslamiclaw(alsoknownasShari’a)andguidedby Islamic economics. Two basic

principles behind Islamic banking are

the sharing o proft and loss and,

the prohibition o the collection and

payment o interest.

MurabahaA sale contract, in which the Bank

sells to a customer a physical asset

at a selling price that consists o the

purchasing cost plus a mark-up proft.

Istisna’aA sale contract, in which the Bank

sells an asset to be developed using

its own materials to a customer at

a specifc price and to be deliveredon a specifc date. This developed

asset can be either developed

directly by the Bank or through a

subcontractor and then it is handed

over to the customer.

IjaraA lease contract whereby the Bank

leases to a customer a service orrented physical asset either exists

currently or to be constructed in

uture or a specifc period o time

at specifc rental installments. The

lease contract could be ended by

transerring the ownership o a leased

physical asset through an independent

mode to the lessee.

Qard HasanA non-proft bearing loan enables

the borrower to use the borrowed

amounts or a specifc period o

time, at the end o which the same

borrowed amounts would be repaidree o any charges or profts.

MusharakaA contract between the Bank and a

customer to enter into a partnership

o the Wakala or a fxed ee in

addition to any proft exceeding

expected proft as an incentive

Wakil or the good perormance

losses as a result o the miscond

negligence or violation o the te

and conditions o the Wakala ar

borne by the Wakil; otherwise, th

are borne by the principal.

SukukCertifcates which are equal in v

and represent common shares in

the ownership o a specifc phys

asset or in the ownership o cash

receivables o selling an existing

owned asset, or in the ownershi

o goods receivables, or in the

ownership o the assets o Muda

or Partnership companies. In all

cases, the Sukuk holders shall be

owners o their common shares

o the above.

Zakah

Zakah is the third pillar o Islam.is necessary to calculate and pay

part o managing one’s money,

calculated on a yearly basis o 2

subject to the various condition

the Shari’a pertaining to Zakah.



SMART MONEY

Quote, UnquoteSmart Comments About Money

“You have not lived a perect day,even though you have earned your money,

unless you have done something or someone

who will never be able to repay you.”

“Never spend your money

beore you have it.“

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