We, human beings, have one characteristic the acts as a motor that generates energy in our daily lives and that is greed. Greed is not that bad if we nurture it properly so that it does not become our main course in life.
Up to certain extent, greed is needed to power the wealth generation in any civilisation. Yet it cannot be left uncontrolled since it can damage the society. Greed can sometimes make us forget another important factor in wealth management, which is wealth protection.
The earlier article in the August- September issue of the Money Compass touched on the world view on Islamic wealth management (IWM). I believe we are now ready to look into Islamic wealth protection before we proceed to Islamic wealth accumulation.
An important part of IWM is firstly, the wealth must be protected. I use the word “must be protected” because it is simply not against the norm. If we do not protect what we have, how can we ensure that during our pursuit of accumulating wealth, the existing one is safe?
This is reflected in the Malay proverb, “Yang dikejar tak dapat, yang dikendong keciciran” which means “losing what we chase for together with what we have”.
Muhammad SAW once asked a Bedouin to tie the camel before leaving it. The Bedouin replied, “I put my trust in God as I believe God will ensure that I will never lose my camel.” In response, Muhammad SAW said, “Tie your camel first, then only you leave it to God.”
This example shows us that we must protect what we have. It is our responsibility to protect the wealth in our possession since it is our responsibility to ensure that it is being spent as God wishes.
Daily in our lives, we plant into our mindset that today must be better than yesterday and tomorrow must be better than today. This applies to every aspect of our lives, including relationship building, wealth pursuit and most important of all knowledge seeking activities.
In this article, we will focus on managing our wealth whereby we want our wealth to be more than yesterday and tomorrow’s wealth must be more than today’s. In view of that, we will seek opportunities to find the best ways to work out so that our wealth will increase through time.
In any investment decision that you undertake, you are answerable and will be questioned for it in the afterlife. Thus, Maqasid of Shariah must be upheld in the process of making those decisions.
Every opportunity we pursue in the purpose of acquiring more wealth, we will at the same time put our existing wealth at risk. How does that happen? To acquire more wealth, we will need to invest something into the opportunity arises. Among the investments to be made, they can be in the form of our time where we will put our time spent into the activity to generate an income from the time invested.
By investing our time into a particular activity, we are actually losing an opportunity to involve in other activities that may actually bring in better return via the time invested. At the same time, we will need to spend our existing wealth for our daily sustenance such as food, shelter, transportation and family. It means that if we fail to generate return from the activity in which we undertake, our wealth will deteriorate due to no inflow of wealth where the outflow of wealth is imminent.
By undertaking some tasks to perform something already put us into the risk of losing our existing wealth. Another way where we actually take risk is when we under- take to venture into an opportunity that has potential to generate return via investing a certain amount of capital into an opportunity. Once we start investing our wealth into a particular opportunity or vehicle, automatically we have no control or ownership of the said amount of wealth invested.
Thus, we lose an opportunity to invest the said amount of wealth into other opportunities that may generate a better return than the one we invested. Furthermore, what if the opportunity in which we invested our wealth into fails, thus eating up the capital we have invested?
Once we start our investment in any investment entity or unit, automati- cally the capital we have invested is exposed to all kinds of liabilities such as lawsuit by stakeholders.
For example, if your investment is put into a business that involves setting up a plant and manufacturing certain products in which there are by-products that may pose some health risk, you will certainly face objections from the locals although you have stated in your plans to have those by-products treated before they are released to the environment.
The party who rejects your plan will not allow the business to commence before they are satisfied. In the process, there will be lawsuits and injunctions. All this will inflate the original cost of running those businesses which is supposedly an income generating vehicle. If this is not handled carefully, it will result in business failure, which will translate into loss in capital.
Therefore, comprehensive information is needed in order for a person to make a well informed decision. Yet comprehensive information alone does not guarantee that you can make a good and appropriate decision since the ability to digest the information and come out with the right decision will depend on the person’s ability to certain knowledge in regards to investment.
An ordinary person will in most circumstances make his decision based on his own gut feelings, which most of the time will lead to doom. Owing to the situation today where the investment environment is so complex, professional advice is very crucial. The advice must be from a qualified person or entity such as a licensed Investment firm or individual.
Another aspect that needs serious consideration in Islamic wealth protection is on the person’s life expectancy. You can only estimate your life expectancy based on the life of your earlier family members’ life such as your parents, aunty or uncle and grandparents.
But in reality we cannot really ascertain what our actual life span will be and yet we need to plan for it without any guarantee that it will be that kind of life we will live by. Coupled with other issues that may come together with life expectancy is the problem when we live either too long or too short.
If we live too long, the risk of higher medical cost will come into picture and if we live too short, we might not be able to achieve the goal we have set due to the limited time we have to accumulate wealth in order to fulfill the original plan we have made.
Given the new developments in the health and medical industry, including the advancements in nano- technology, we can expect to live exceeding 100 years old. The higher cost of living poses another problem due to the high medical cost.
The common retirement age, which is currently between 56 and 60 years old, will be considered another risk. The increase in life expectancy of another 15 years will give a huge impact to a person’s financial standing.
Among the considerations that most people will want to consider is to have enough takaful protection as part of the solution. That does not mean having takaful protection alone is enough. One might want to consider a considerable emergency fund as well in case they are needed.
Thus, detailed consideration is needed for each individual due to differences in resources and the set of problems that might be faced by each individual. Lifestyle is another aspect which needs to be adjusted accordingly.
Most people just plan their career acceleration process and strategy as one of the ways to accumulate their wealth. They normally do not plan how their accumulated wealth will be distributed once they reach their due time to meet the creator. Almost all Muslims will just answer that they will leave it to the faraid distribution since it has been decided by each state law that Muslim estate must be distributed under faraid distribution.
In normal circumstances before the actual distribution can be executed, there are other necessary processes that must be looked at. Among the processes that will expose a person to the distribution risk is when the assets need to be sold to the third party urgently due to certain issues such as the heirs only want cash instead of other forms of wealth. This will lead to the assets being sold at a discounted rate. This instance alone could bring down the assets value up to only 50% from the actual market value if the assets are not being forced to sell.
The cost to gather all the assets owned by the deceased will normally be more costly compared if it were to be done during his or her lifetime. This has yet to consider the family squabbles over the rights of each heir. It will be even worse when it involves a complex family, that is, a family with more than one spouse.
All the problems related above will eventually reduce the net assets received by the heirs. I am sure that once we have been working so hard to accumulate that wealth, we would not want it to deplete so much before it reaches our heirs.
To overcome the distribution risk, we will need the proper advice from the experienced Islamic estate distribution expert to help us to plan the distribution properly during our lifetime to avoid the assets distributed to the heirs being wasted in an unnecessary cost.
They will be able to help us to limit the net cost to as minimum as possible if it is done properly and execute it during our lifetime using appropriate wealth distribution tools available accordingly. This will eventually reduce the risk of losing so much in the distribution process unnecessarily.
The ultimate purpose in each individual Muslim is to be rewarded in the hereafter. Thus, proper risk management planning is important since it will be able to ensure that we will get a well deserve return from a shariah compliant investments due to the proper investment risk being managed properly.
The life risk will be addressed accordingly using a proper retirement plan, health and medical plan, education plan, be it via takaful, other suitable investment or a combination of the two. The distribution risk can be reduced via proper advice from the qualified and experienced estate distribution expert via proper wealth distribution tools that are available.
By having all the above issues addressed automatically, the risk of the original plan of a person’s wealth in one’s life time and afterlife being eroded will be minimised, thus increasing the quantum of benefit to implement all the plans that were established originally.
Islamic risk management is very important in each part of the Islamic financial planning process. Doing away with it will result in the original plans of an individual’s potential Islamic wealth management being eroded seriously and will leave the original plan simply a plan without the capacity to be implemented due to the risks involved being ignored.