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.
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.
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
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].