Praise for Five Pillars of Prosperity

“Five Pillars of Prosperity is an excellent resource for people of all

faiths. I strongly believe this book will be life changing for all readers,
as it will help them to understand the basics of finance, Islamic finance,
and financial responsibility, leading to a more fulfilling and prosperous
life spiritually and financially.”
–Imam Mohamed Maged, Executive Director, Religious Affairs,
ADAMS Center, and President, Islamic Society of North America

“Five Pillars of Prosperity provides great advice on the value of solid,

basic principles that can and should guide us in life, in our family, or
in our business. It is good advice whether you are Christian, Muslim,
or Jewish. Yaqub Mirza has put a lot of wisdom between the covers of
this book.”
–John H. Sununu, former Governor of New Hampshire and
White House Chief of Staff under President George H. W. Bush

“I loved this book! Not only does Dr. Mirza educate the reader as to the
principles of Islamic investing, he illuminates the guiding principles
of a religion many of us know only through the cloudy lens of recent
and devastating historical events. Because he has made accessible to
his readers these principles—principles which are the essence of all
religions—he has undertaken a tremendous public service, one too
few of our educators have the ability to undertake. Too little time has
been spent and attention paid to making all of us understand that ‘we
are in this together.’ Dr. Mirza is to be admired for doing so effectively
and in a manner guaranteed to leave the reader wiser.”
–Nancy Luque, Principal Attorney and Partner, Luque Marino LLP

“At a time when too often it seems the only moral instruction provided
by Wall Street is ‘go forth and mulitply,’ Yaqub Mirza offers an enriching
alternative. It is easily read, but even my mentor, Sir John Templeton,
the ‘dean of global investing,’ would have appreciated it. Though a
Christian in the mold of John Calvin, Sir John also avoided the debt,
speculation, and other potentially harmful activities that Dr. Mirza
explains are to be avoided according to Shariah law. It should reassure
our increasingly financialized world that the three great Abrahamic
faiths are as relevant as ever and offer the world far more unified
solutions for peace and prosperity than the nightly news often implies.”
–Gary Moore, author of Faithful Finances 101

“Yaqub Mirza provides readers with advice about personal financial

habits and planning that is very important and useful for people of
all faiths. His main contribution lies in showing that this advice can
be made consistent with Islamic finance principles by only small
modifications in behavior and choice of financial strategies. His work
fills an important and much-neglected niche in the market for financial
planning advice.”
–Herbert Grubel, Professor of Economics Emeritus, Simon Fraser
University, and Senior Fellow, the Fraser Institute, Canada

“Five Pillars of Prosperity is a beautiful piece of writing that reflects what

this Christian has learned about Islamic values. I particularly admire
the emphasis on the acceptability of generating wealth and, after meet-
ing reasonable family needs, recycling the surplus for the benefit of
community and society. This includes all religious traditions and those
who profess no particular faith. The Hebrew prophets and Jesus agree.”
–Joseph V. Montville, Chair of Center for World Religions,
Diplomacy, and Conflict Resolution, George Mason University

“Five Pillars of Prosperity is a rare interfaith work of how to apply re-

ligion and philosophy in everyday life. It confirms what I have long
believed: wealth and possessions are worthless in themselves. Their
only proper purpose is to aid in doing God’s will—which is the only
truly lasting thing a person will ever do. Possessions will possess their
owner until he or she realizes that they are not an end but a means to
an end—a tool, not a goal—and that in any event, possessions are ours
only for a short time. Five Pillars offers good, solid advice on how to
live those convictions.”
–Lewis Perdue, entrepreneur and New York Times best-selling author

“Dr. Mirza offers practical insight into personal finance and investment
that is both useful and easy to follow for Muslims and non-Muslims
alike. It should be a help to savers and investors at all levels.”
–Sandra Spalletta, Manager and General Counsel,
BW Realty Advisors LLC

“It is best to learn from those who have actually practiced what it is
they are teaching. There is no finer representative of the principles in
this book than Dr. Mirza. His life is a testament to the principles laid
out within these pages. If you want to achieve economic well-being
and spiritual fulfillment, read this book.”
–Dr. Miles K. Davis, Dean of Harry F. Byrd
School of Business, Shenandoah University

“It is widely assumed that Shari‘ah-compliant investing is not consistent

with Wall Street finance. In Five Pillars of Prosperity, Dr. Yaqub Mirza,
an expert in both approaches to finance, demonstrates that this is not
the case and shows the reader how modern financial transactions
can satisfy the demands of major western commercial markets while
remaining Shari‘ah-compliant. It is a welcome contribution to the
increasingly complex international world of modern finance.”
–Richard Gross, Attorney and Senior Manager, BW Realty Advisors

“When I think of your treatise on investing, only one word comes to

mind: terrific. I was especially taken with the way you integrated wisdom
for daily living with your investment advice. I must say, I had to chuckle
when I read your definition of passion, i.e., ‘If you love what you do, you
will never work a day in your life.’ It occurred to me that this is the envi-
able state in which I have found myself for at least 85 percent of my life,
after holding numerous jobs in a number of different career fields. Yes, I
have been blessed, just as your book will be a blessing to all who read it.”
–Dr. Douglas M. Johnston, President and Founder, International
Center for Religion and Diplomacy; author, Religion, Terror, and Error

“The book provides invaluable advice on a holistic approach to wealth

creation that will be of universal appeal. There is substance and spirit,
theory and practice that readers will find useful in their quest for a
harmonious balance in pursuing the good life.”
–Anwar Ibrahim, Former Deputy Prime Minister
and Finance Minister, and Member of Parliament, Malaysia

“In a culture where greed and wealth building is rooted in living beyond
your means, and where financial institutions own everything you use
or have, Dr. Mirza shows us a path to achieve prosperity and acquire
wealth while living within our means, debt free! It is impressive that
he bases his plan on a lifestyle of morality and adherence to one’s faith.
He surprises the reader with the relevance of Shari‘ah to achieving the
‘American Dream’ in our pursuit of happiness—a timely endeavor while
the scare of ‘Shari‘ah’ is propagated by bigotry, ignorance, and hate.”
–Dr. Jamal Barzinji, President, International
Institute of Islamic Thought, USA

“What I appreciate most about Dr. Mirza in his teaching work, and
now in his book, is the way he makes ‘wealth building’ a relevant topic
to even those with limited means and limited understanding about the
world of finances. Using his own personal experiences and other very
practical examples, readers can develop a positive, intentional, and
faith-inspired relationship with money.”
–Salma Elkadi Abugideiri, Professional Counselor

“One of the greatest contributions a person can make is to facilitate the

acquisition of awareness, knowledge, and skills to support the practice
of one’s faith—this is precisely what Dr. Mirza has accomplished in Five
Pillars to Prosperity. Although in theory all of us are familiar with the
principles of earning, saving, investing, spending, and giving, Muslims
and other faith-inspired people will benefit tremendously from the
unselfish manner in which the author shares from his personal and
professional experiences with living out these principles. At a time
of such current economic uncertainty, Dr. Mirza’s book will certainly
provide much practical relief and advice to the reader on how to go
about as an informed participant in the process of faith-based wealth
building.”
–Altaf Husain, Assistant Professor, Howard University

“Dr Mirza has now put on paper how he has lived and raised his children
to be wise and to pass this knowledge to future generations. Financial
responsibility should be passed along to our family and this book will
help all who read it in that task. ‘Train up a child in the way he should go
and when he is old he will not depart from it’ (Proverbs 22:6).”
Doug Carnes, Pastor, and Board Member, Mar-Jac Poultry

“Dr. Mirza’s book teaches a way of conducting business based on

Muslim principles. This was something really new for me, and I am
sure it is for many people educated in Western society regardless of
their religious affiliation. Maybe from time to time someone speaks or
writes about good behavior in doing business and being charitable, but
practicing it in the way he describes in his book seems rare. This makes
an important difference, which is well illustrated with examples from
his own experience.”
–Sergio Araya, General Manager, Sterling Agricola S.A.
Five Pillars
of Prosperity
Essentials of Faith-Based Wealth Building
M. Yaqub Mirza

White Cloud Press

Ashland, Oregon
 All rights reserved. Copyright © 2014 by Five Pillars of Prosperity, LLC.
No part of this book may be reproduced or transmitted in any form or by any
means whatsoever, including graphic, electronic, or mechanical, including
photocopying, recording, taping, or by any information storage or retrieval
system, without permission from the publisher.

White Cloud Press books may be purchased for educational, business, or sales
promotional use. For information, please write: Special Market Department,
White Cloud Press, PO Box 3400, Ashland, OR 97520
Website: www.whitecloudpress.com

Illustrations by Alaa Fadag

Cover and Interior Design by C Book Services

First edition: 2014

Printed in the United States of America

Library of Congress Cataloging-in-Publication Data

Mirza, M. Yaqub.
Five pillars of prosperity : essentials of faith-based wealth building / M. Yaqub
Mirza.
pages cm
Includes bibliographical references and index.
ISBN 978-1-935952-88-6 (pbk.)
1. Finance, Personal. 2. Success in business. 3. Investments. I. Title.
HG179.M5267 2014
332.024’01--dc23
2013042677
To my parents, siblings (especially Dr. Ishaq Mirza), in-laws, children,
extended family, and my beloved wife, Tanveer
also
to my brothers and sisters in Abrahamic faith
and all other faiths who desire to live in peace, love, and prosperity
General Disclaimer

The information contained in this book was obtained from various

sources. The author does not guarantee its accuracy or completeness
nor the accuracy or completeness of the analysis relating to it. Any par-
ty relying on the contents will be doing so at his or her own discretion.
This book is for general circulation and is provided for general
information only. It should be treated as a guide and as a service to
community. The information, examples, and case studies in this book
are intended to be a general introduction to financial management.
They are not intended to be either a specific offer by any Sterling Man-
agement Group Inc. entity or person to sell or provide, or a specific
invitation to apply for, any particular product or service. Sterling Man-
agement Group Inc. and its affiliates offer a broad range of investment
advisory and financial services. The nature and degree of advice and
assistance provided, the fees charged, and client rights and Sterling
Management Group Inc.’s obligations will differ among these services.
Neither Sterling Management Group Inc. nor its personnel provide
individual legal or tax advice. Clients should review any planned finan-
cial transactions and strategies that may have legal or tax implications
with their personal advisors.
Although the author is a founder and trustee of Amana Mutual
Funds Trust and a board member of University Islamic Financial
(UIF), a subsidiary of the University Bank, the work is entirely that of
the author. Neither the Trust nor its advisor, Saturna Capital Corpora-
tion, nor UIF and University Bank, suggested the creation or produc-
tion of this work.
Contents
Foreword xiii
Preface xvii
Acknowledgments xix
Introduction xxi

1. Pillar One: Earning 1

Means of Livelihood and Sustenance on Earth 1
The Social Function of Wealth 3
Earning Money 5
Employment 8
Entrepreneurship 9
Social Entrepreneurship 12
Questions for Aspiring Entrepreneurs 13
Eight Qualities for Success 14
Income Management 17

2. Pillar Two: Saving 19

Living Debt Free 22
A few thoughts on moving towards debt-free living 22
Developing a Plan in Order to Save 27
Specific Suggestions for Saving 32

3. Pillar Three: Investing 37

Set Up an Investment Strategy 41
Consult an Investment Professional 42
Educate Yourself 43
Take a Consistent Approach 44
Seek Out Faith-Based Investments 44
Investment Vehicles for Muslim Investors 45
The Role of Stocks in a Muslim’s Portfolio 46
Modes of Islamic Financing 55
A Note about Insurance 59
Islamic Banking in North America 60
University Bank 60
 4. Pillar Four: Spending 63
Steps to Spending Money Wisely 63
Paying for a College Education 65
Opening an Education Savings Account 69
Planning for the Hajj 72
Purchasing a House 73
A Roth-IRA: An Individual Retirement Account 76
Gifting and the Gift Tax 76

5. Pillar Five: Giving 79

Understanding Zakah 82
Who Deserves to Receive Zakah? 83
Limit of Exemption (Nisab) 87
When to Pay Zakah 88
Calculating Zakah 89
Cash and Cash Equivalents 91
Risk Investments: Shares and Mutual Funds 91
Buildings, Factories, and Businesses (Non-Trading) 92
Retirement Accounts, Life Insurance Policies, and Annuities 93
Giving While Living 94

6: Key Wealth-Building Strategies 103

Growing Your Assets 105
Wealth Preservation Strategies 106
Inheritance Laws 107
Common Questions about Islamic Inheritance Law 110
Wills 112
Estate Planning Mistakes to Avoid 113
Revocable Living Trusts 115
Irrevocable Trusts 117
Family Limited Partnership (FLP) 117
Other Financial Vehicles 119

Afterword 121
Resources 123
Notes 129
Glossary 137
Bibliography 143
Foreword

Prosperity has long been cherished as a goal. The desire is universal

and rightly so. Prosperity is desired to provide an atmosphere conge-
nial for living in peace, with dignity. Human beings are here on earth
to demonstrate that one can be good by choice. They are to compete
with one another in attaining moral excellence. That is what raised
humans’ stature not only above animals but also above angels, the “no
sin, no wrong-doing” creatures!
In the hundred fifty or so pages that follow these lines, Dr. Mirza,
whom I have known as pious people’s money manager since 1972,
when we first met, tells you how to go about working for prosperity.
The message is simple: earn, save, invest, spend, and give. What is
unique about it that justifies writing a book? Well, for a complete an-
swer you have to read the book. But I can tell you something to begin
with. The significance lies in the sequence. Also, each one of these five
steps implies a certain mindset, rather, an ethic. Focus on these and
you have your answer.
Earning requires working, which calls for some self-discipline, and
that brings in the big question of motivation. History is witness to the
interesting relationship between strength and weakness of motivation
and the rise and fall of civilizations, Islamic civilization being no excep-
tion. The Prophet (peace be upon him) had some strongly motivated
people around him. Motivation is multi-dimensional, but here I am
largely thinking of money making. Few remember that as many as four
out of the ten Companions of the Prophet who were congratulated
as they were promised a place in Jannah died billionaires, in today’s
terms. There is ample evidence that they worked hard for that kind of
wealth, especially as some of them, like Abdur-Rahman ibn Auf, had
migrated to Medina empty handed. To the possible query, why earn so
much? The answer that Islamic history provides with reference to men
like Abdur-Rahman ibn Auf and Uthman ibn Affan, the celebrated
third Caliph, lies in the last of the above sequence: giving.

xiii
xiv I FIVE PILLARS OF PROSPERITY

Unfortunately, the self-confidence that makes a conscientious

Muslim a big money maker in a life by definition transient and desired
to be lived in preparation for the eternal life in the Hereafter was soon
lost under the influence of Christian asceticism and, possibly, Greek
and Hindu Philosophies. A shadow was cast upon “earning.” This
raised alarm bells among the wise and the farsighted, inviting a spate
of works titled The Book of Earning, beginning with Kitab al Kasb by
Imam Muhammad bin al-Hasan al-Shaybani( d.189 h/834 c.e.). These
books, numbering a dozen over the next hundred years, argued in the
light of texts from the Qur’an and Sunnah that it was all right for a
Muslim to earn, save, and invest. The first generation of Muslims had
a vision of living that precluded the need for such arguments. Going
further into this probe will, however, take us far from the limited
scope of a foreword, to a book making a plea for Muslims to take their
finances seriously. Suffice it to say that something bigger than your
pleasure and the felicity of your progeny is at stake.
Convince Muslims that they need not be very keen to earn and you
have knocked the bottom out of the whole edifice; pulling down this
one pillar threatens the whole structure with collapse. Sounds strange
in twenty-first century America, where everybody is going crazy after
earning. Well, have a second look at the recipe: earn, save, invest, spend,
and give. Many Americans spend before they earn. Do not do that,
the author says, as our beloved Prophet was averse to indebtedness,
so much so that his supplications to God included seeking protection
from being in debt. Reported supplications associate heavy indebted-
ness with bondage (ghalabat al-dayn).
Some venture to give without having saved and invested. Not sus-
tainable, warns our money manager. You have to plan for giving in an
efficient way. The idea of efficient giving should be pursued further;
indeed organized philanthropy deserves a chapter in all textbooks on
Islamic economics. Zakah, waqf, and charitable giving in general pro-
vide an important complement to market economy in Islam. The focus
in the book is on how to calculate zakah-liability. The next step is how
to organize zakah expenditure at community level so that its place in
 Foreword I xv

a fully functioning Islamic economy may be defined, where the state

too plays a significant role besides the market and the voluntary sector,
based on giving.
The “five pillars” of prosperity indicated by the author need not be
envisioned as a straight path. Instead, they form a ring as the one on
your finger. Earning-saving-investing enables you to spend and also
creates an obligation to give; the urge to give prods good people to earn
more, save, and invest. In between comes spending, which gives you
comfort while boosting growth. It is a virtuous circle. Be serious about
the entire circuit, if you want the current to flow and electrify your life.
The young Islamic community in North America will greatly ben-
efit from the wealth-building strategies suggested by the author. It is a
timely contribution. The community is passing through trying times
when money would serve it well. I know of no other person better
equipped than Dr. Yaqub Mirza to perform the fard al-kifayah of tell-
ing Muslims how to manage their finances.

Mohammad Nejatullah Siddiqi

Professor Emeritus, Faculty of Business Administration
Aligarh Muslim University
Preface

While helping my father in our family business (I was 12 years old),

I studied books of the Hadith (sayings of the Prophet Muhammad,
peace be upon him), which my father had in his library. Studying these
books was a great learning experience in every respect. We discussed
work ethics, the virtues of hard work, being persistent to achieve re-
sults, helping the needy, and supporting social services that are in
keeping with one’s faith.
While discussing the concept of debt, my father used to remind me
that God will forgive through His mercy everything except debt and
wrongs done to others. These, he said, could be forgiven only by the
aggrieved party, and on the Day of Judgment if they do not forgive you,
then God will take your good deeds to recompense them.
This left a great impression on me. Growing up, I became very
conscious of debt and wanted to avoid borrowing money and hurting
someone’s feelings. I vividly recall times when I was making a purchase
and I had only part of the money; the shopkeepers (they knew me, as
we were living in a small town) would say take the merchandise and
pay the rest later. I would decline, telling them to hold the merchandise
until I had the money to pay first; the thought being that if I took the
item—while owing money and I died (on my way home)—my family
wouldn’t know I owed this money. “This will be a debt which I will
have to deal with in the Hereafter.”
This became a guiding principle in my life that pushed me to find
ways for my family to pay for a car, a house, Hajj, my children’s educa-
tion, etc., without incurring debt (and paying interest). This led me to
the study and practice (and ultimately putting this guide together) of
the five key elements of money:

EARN—SAVE—INVEST—SPEND—GIVE

xvii
xviii I FIVE PILLARS OF PROSPERITY

This approach requires a lot of discipline, patience, and fortitude, and

if you put in the effort to incorporate these in your life, you will soon
achieve wealth and peace of mind, without financial worry.
Hopefully, by following this approach, you will soon have enough
money to enjoy life and help others. Enjoy.

M. Yaqub Mirza
Washington, D.C.
Acknowledgments

While the idea for Five Pillars of Prosperity was inspired by what my
father taught me, the book quickly took on a life of its own. This deep-
ly collaborative effort has evolved over the past few years to what I
hope provides a spiritually grounded approach to building wealth in
one’s life.
First and foremost, I would like to thank my family and colleagues
(including those at Sterling Management Group) for their encouragement
and support in this effort amidst multiple priorities, as well as the many
thought leaders who graciously agreed to share their views, insights, and
lessons learned about wealth and its preservation.
Second, I would like to thank Salma El Kadi Abugideiri for suggesting
that I put my ideas down on paper, Allison Lake for her assistance in
putting together the initial draft, and Yousuf Anis for his continued
support of this and other ongoing projects.
I would also like to extend my sincere appreciation to Chris Grant
of the Lazarus Group for designing the narrative framework and
developing the process that guided the manuscript to completion.
Without his help and devotion this book would not have been possible.
I am grateful for his assistance and friendship.
I thank the many friends who took the time to review and comment
on the book, as well as Dr. Hisham Altalib, Dr. Ahmad Totonji, Dr.
Abdul Hamid Abu Sulayman, and Dr. Taha J. Al-Alwani for their
encouragement and support.
And finally, I’d like to thank Dr. Jamal Barzinji for his review of the
book, as well as invaluable advice, contribution, and friendship.

xix
Introduction

In today’s climate of economic distress and uncertainty, people the

world over have seen their assets and savings greatly diminished. Yet,
as the Qur’an points out, with crisis comes opportunity: “Surely, with
every difficulty there is relief ” (Q 94:5–6). The recession has caused
many to adopt a “back to basics” approach to finances. As individuals,
families, and businesses struggle to regain the prosperity they once
enjoyed, it has become more important than ever for them to mas-
ter and control their finances. Many are now reconsidering the use
of credit cards and borrowing even to cover essential life expenses.
People are seeking ways of managing money that ensure consistent
financial security while avoiding risky ventures and heavy borrowing
of any kind.
This book presents the Islamic approach to finance, which is based
on commonsense principles. As Muslim scholar Irfan Ul Haq notes,
Islam promotes the work ethic and private economic enterprise and
urges the creation of wealth. Islam favors accumulation of wealth
through saving and investment, and recycling of wealth through
reinvestment on a continuous basis. It simultaneously discourages
conspicuous consumption and suggests modest living. Islam argues
that society should operate responsibly, work hard, and produce a
caring and prosperous community. Taking care of its poor and needy
and behaving ethically are at the heart of Islamic values.1 The Holy
Qur’an encourages believers to engage in beneficial trade and to
invest. In it, God encourages Muslims “not to eat up your [wealth]
among yourselves in vanities: but let there be trade amongst you by
mutual goodwill” (Q 4:29).
Financing that follows Islamic principles is relatively risk-averse.
It focuses on building wealth for the long term in a way that does not
put money in the pockets of creditors or in the hands of companies
that are unethically directed. Islamic financial principles also prohibit

xxi
xxii I FIVE PILLARS OF PROSPERITY

purchasing or investing in any industry or company associated with

vices such as alcohol, tobacco, gambling, and pornography, and they
prohibit charging interest on loans.
Islam, perhaps more than any other major religion of the world,
sees finance as integral with faith. For centuries, Muslims all over the
world have directed business enterprises; financed ambitious and in-
novative projects; traded across deserts, oceans, and continents; and
provided for their families in ways consistent with Islamic principles.
Islamic financial principles are based on Shari‘ah law. With the
help of jurists (Muslim legal scholars) Muslims employ a sophisticated
understanding of economics as well as unique ways of making transac-
tions to further their financial goals.
A financial system following Islamic principles is known as Shari‘ah
compliant. To be compliant, a transaction must not contradict the
scriptures, although a transaction does not have to be mentioned in
the scriptures to be acceptable. Any law that supports what is good and
moral is considered Islamic. As long as it follows the values of justice,
preservation of equity, and fairness, then the transaction is valid. The
transaction must also use proper currency and be without ambiguity.
Living a Shari‘ah-compliant financial life is a challenge for Muslims
living today in Western cultures, where Christianity and Judaism pre-
dominate and financial culture and practices do not entirely support
the Shari‘ah-compliant financial principles of Islam. For one thing,
Christianity includes a theme of otherworldliness and puritanism: “Do
not store up for yourselves on earth . . . but store up for yourselves
treasures in heaven. . . . (Matthew 6:19–20). However, there are also
many in Christianity who question this and support a view closer to
that of Islam.
Gary Moore (who runs a financial seminary) writes, in Faithful Fi-
nances 101, that religions such as Islam, Judaism, and Christianity “aban-
doned the field of economic morality to the secular world.”2
Economic negativity has impoverished Christianity and our world
in many ways. Fear closes the hand around what one has. While
that may be beneficial to those who are spending too much, it is
 Introduction I xxiii

devastating to those who have excess and need to invest or give

that excess, rather than hoard it. It is even more devastating to
those who need those investments.3

However, Moore says, “we can’t separate our economic and political lives
from our morality and spirituality.”4 He encourages “integrating our faith
with all that we do,” and noticing “how the world of commerce and the
world of faith shape human affections, depositions, and practices.”
Moore quotes Sir John Templeton as referring to an “attitude of
gratitude” as a way to adopt a more holistic ethic in finances.5 Follow-
ing a similar approach, Moore writes that “in order to be faithful to our
finances, we must resolve consciously to use all of God’s wealth—100
percent of the time, talent, and treasure with which we have been en-
trusted—for the glory of God as well as for the benefit of others and
ourselves.”6
The Qur’an says, similarly: “Seek with the [wealth] which God has
bestowed on thee, the Home of the Hereafter, nor forget your portion
in this World: but do thou good, as God has been good to thee, and
seek not [occasions for] mischief in the land: For God loves not those
who do mischief ” (Q 28:77).
“And ordain for us that which is good, in this life and in the here-
after, for we have turned unto thee” (Q 7:156); and “Eat of the good
things that We have provided for you and be grateful to God, if it is
Him you worship” (Q 2:172).
Muslims in North America and Europe can live according to Is-
lamic financial principles, especially as existing financial institutions
begin to offer appropriate programs and new institutions are created
to specifically meet Muslim needs. They can earn their living, deposit
their savings, finance their cars and homes, insure their assets, charge
their purchases, and make investment choices for their future and the
future of their children in accordance with Islamic teachings.7
Shari‘ah law is clear on certain key financial principles, including
avoiding debt; neither earning nor paying interest; and the ethical use
of wealth for supporting first oneself and one’s family, then the larger
community. We will look at these one by one.
xxiv I FIVE PILLARS OF PROSPERITY

Refrain from Borrowing and Incurring Debt

Islam prefers that a person not be in a dependent position, so Muslims
are strongly discouraged from incurring debt. Certainly giving in
charity or spending for social welfare is better than being a recipient.
A debt-free Muslim who saves wisely can then have enough money
for a car, a college education, marriage (one’s own or one’s child’s),
hajj (pilgrimage), and umrah (travel to Mecca outside the pilgrimage
season).
Lynnette Khalfani-Cox in her book Zero Debt states: “Debt is the
longest-lasting economic curse, the most heinous financial plague, and
the least recognized form of modern slavery afflicting Americans (and
others around the world) this millennium.”8
Borrowing cannot be taken lightly. Borrowing by individuals and
businesses may be necessary and beneficial in some situations, al-
though arbitrary overextension is not a healthy practice.9 If a person
spends only a part of what he earns and practices moderation in his
living habits and controls his spending, it is unlikely that he will be
compelled to borrow.10 If you must borrow, borrow moderately, and
strive to repay the debt as soon as possible and continue to maintain
more assets than liabilities (i.e., positive net worth). Go too much into
debt and you will find yourself discredited.
The Prophet Muhammad disliked it when people were in debt
because debt worries the mind at night and is humiliating by day. It
is recorded in the hadith, the record of the sayings of Muhammad,
that he always asked God’s protection from “the burden of debt and
from the anger of men.”11 The Prophet also said he sought refuge in
Allah (God) “from unbelief and debt,” and that he equated debt with
unbelief.12 In his prayers, he frequently said, “O Allah, I seek refuge in
Thee from sin and debt.” He was asked, “Why do you so often seek the
protection of Allah from debt?” He replied, “One who is in debt tells
lies and breaks promises.”13
The Prophet also stated that financial indebtedness may lead to kufr
(rejection of God’s teachings) or immoral behavior.14 He would not say
the funeral prayer for a person who had died in a state of indebted-
 Introduction I xxv

ness and did not leave behind enough property to repay his loans. He
did this to discourage others from such an end. He led their funeral
prayers after either he or the community collectively paid off the debt.
He said, “Everything will be forgiven to the shaheed (martyr in the
cause of Allah) except debt.”15
The Muslim who is informed of these hadith understands that he
should not resort to borrowing except in the case of dire need, and if he
does borrow, he must remain mindful of the obligation of repayment.
The Prophet strongly urged those able to repay the debt they had
incurred to do so quickly and without delay. A hadith states, “If a man
borrows from people with the intention of repaying them, Allah will
help him to repay, while if he borrows without intending to repay
them, Allah will bring him to ruin.”16
At the same time, the Qur’an teaches us to have mercy on the
debtor.17 “If the debtor is in difficulty, grant him time till it is easy for
him to repay, if you remit it by way of charity that is best for you if you
only knew” (Q 2:280).

Avoid Interest
Another element of the Islamic principles regarding finances is its
prohibition regarding interest. Both paying and receiving interest are
prohibited in Islam.
The word riba, translated as “interest” or “usury” by different au-
thors,18 literally means increase, addition, expansion, or growth. In
Shari‘ah, riba technically refers to the “premium” that the borrower
must pay to the lender, along with the principal amount, for postpon-
ing, deferring, or waiting for a payment of the loan.19 Riba includes
both simple and compound interest. It refers to any money made on
money, in contrast to money made by working or trade or by investing
through equity partnership on a profit-loss-sharing basis.
Riba in a loan is considered unjust, especially when the lender
and borrower enter into an agreement on unequal terms, or when the
lender is guaranteed a profit regardless of whether the borrower gains
or loses money on the transaction.20 With an interest-bearing loan the
xxvi I FIVE PILLARS OF PROSPERITY

borrower repays the lender more than he has borrowed and previously
received from him. Thus riba is like unearned income in biblical terms;
the lender “reaps where he did not sow.”
The Qur’an teaches about riba: “Devour not usury [riba], doubled
and re-doubled” (Q 3:130). “O you who believe, Fear Allah, and give
up what remains of your demand for usury, if you are indeed believers.
If you do it not, take notice of war from Allah and his Messenger. But
if you turn back, you shall have your capital sums; Deal not unjustly
and you shall not be dealt with unjustly” (Q 2:278–279). “He [Allah]
has explained to you in details what is forbidden to you except under
compulsion of necessity” (Q 8:119).
This prohibition against interest also rules out interest-bearing
investments, including conventional money market or money market
mutual funds, certificates of deposit, corporate bonds, and US Trea-
sury bonds or T-bills. Some scholars have permitted sovereign bonds
(sukuk), especially in Muslim countries.
The Jewish law with respect to interest is more qualified, permitting
interest on a loan to a stranger but not on a loan to another Jew. It
says: “On loans to a foreigner you may charge interest, but on loans to
another Israelite you may not charge interest” (Deuteronomy 23:20).
And: “If you lend money to my people, to the poor among you, you
shall not deal with them as a creditor; you shall not exact interest from
them” (Exodus 22:25).
The New Testament, on the other hand, reflects the commercial
practices of the Roman Empire because Rome ruled in that part of the
world during the lifetime of Jesus. Thus the New Testament assumes
the legitimacy of banking, credit, and interest: “Then you ought to
have invested my money with the bankers, and on my return I would
have received what was my own with interest” (Matthew 25:27).

Meet the Needs of Family

While Islam supports the accumulation of wealth, it is clear regarding
the proper use of this wealth: first to take care of the needs of oneself
and one’s family. The family bond among people bound together by
 Introduction I xxvii

blood ties and/or marital relationship entails mutual expectations of

rights and obligations that are prescribed by religion and enforced by
law. Accordingly, family members share certain mutual commitments.
These pertain to identity, provision, inheritance, counsel, affection for
the young, security for the aged, and maximization of effort to ensure
continuity of the family.
My wife and I consider education to be the most important in-
vestment in the future growth and accomplishment of our children.
When it came to our children’s educational pursuits, we did not want
to force our children down a particular career path (say to be a doc-
tor or a physicist). Instead, we simply encouraged them to discover
their God-given talents and gave them the support and freedom to
pursue and excel at them. We let them know that we expected them
to excel in whatever they chose. While we controlled family expen-
ditures, we sought to provide them ample resources with regard to
education (such as educational games and toys, computers, courses in
speed-reading and -writing, speech therapy, etc.). The children were
encouraged to look into any resource that would help them develop
their skills, and when they found it, our typical response was: “go for
it.” We are grateful for God’s blessing and are seeing positive results
from these investments.
In general, parents worry about their children having access to
credit cards, bank accounts, and cash. We had the same concern with
our children, and while we provided them access to these financial
resources, we made a great effort to teach them how to use these re-
sources properly and to be financially responsible. We felt that the only
way they could learn about money was to have access to it. Our goal
was to empower them to use these resources without fear—to be com-
fortable having access to money that they can spend but decide not to!
It is the best way to teach them money management; how else will they
learn not to spend if they do not have money?
In order to serve our family we as parents sought to do things that
ensured the continuity of our family by establishing a Family Limited
Partnership (FLP). This FLP serves not only as a vehicle for family
xxviii I FIVE PILLARS OF PROSPERITY

investments, but also as a kind of cooperative, helping each member

as needs arise. The partners (family members) meet occasionally
to discuss the business of the partnership. Within this partnership,
family members are bound together not only by the bond of blood
ties but also through “financial ties.” This will hopefully preserve and
sustain the members of the family. By executing the responsibilities
that come from managing this FLP, the partners are learning about
investment possibilities, how to “work out” their differences, and how
to keep the family together. The spouses of our children are also wel-
come to participate in these discussions and enjoy these resources.
We fully realize the challenges our children may face as the family
grows and matures, but we are quite confident that our children will
live up to this challenge. They have seen how we work out our differ-
ences while keeping our faith and family strong and united.
One of the actions the family took was to have an open discus-
sion about our core family values. Each family member was present
and contributed to the discussion and finally we created the following
(family) mission statement:
Our family aspires to live from the highest levels of sincerity,
humility and integrity, guided by a deep spiritual relationship
with Allah (swt) through (the joy) of Islam. We express this com-
mitment through: the caring & nurturing of each other’s growth
(in body, mind and soul); showing each other our love for one
another through our generosity, mercy and forgiveness; fostering
a spirit of collaboration and community activism; and continu-
ously striving to better ourselves individually and as a family.

We found having a mission statement helped us to foster and sustain

unity and focus, and I highly recommend to all families to create a
mission statement of their own.
We as a family are thankful to God for all He has bestowed on us,
and promise to live as good citizens in pursuit of peace, freedom, and
liberty, while sharing with those who are in need.
 Introduction I xxix

Give Support to Community

After the immediate family receives benefit from these resources, and
when any extended family (for example, aunts and uncles, in-laws,
cousins) who are in need have been helped, our assistance should then
extend to the larger community.
For Muslims living in North America or Europe today, the larger
community includes people of other faiths, particularly the other two
Abrahamic faiths, Judaism and Christianity.
These three religions are naturally suited to coexist and even to
mutually reinforce each other. As one author explains:
Being originally one religion, the three Abrahamic faiths worship
the same God, although the three religions may differ in how
they conceptualize that one God. God made this very point in the
Qur’an when He said that the Muslims and the People of the Book
[ahl al-kitab; i.e., Jews and Christians] have the same deity: “our
God and your God is One; and it is to Him we bow [in Islam].”21

Few non-Muslims are aware that the Prophet Muhammad, the mes-
senger of Islam, preached that Jesus and Moses were the pre-Islamic
bearers of God’s revelation to mankind. Islam recognizes both the
Torah and the New Testament, and texts from these scriptures are
cited in the Qur’an. As Christians believe the New Testament was the
completion of the “Old Testament” of Judaism, so Muslims believe the
Qur’an is the final completion of these books, and Muhammad is the
last Prophet and Messenger of God.22
Judaism, Christianity, and Islam are all monotheistic religions,
namely, they believe that there is only one God.23 Jews and Muslims
greatly stress the oneness and unity of God. The affirmation of the
oneness of God by Christians is sometimes misunderstood, because
many Christians believe that the one God is triune (the Holy Trinity).
However, this is not a denial of monotheism but an affirmation of the
complexity of their understanding of the Divine Being.
All three religions believe that this God, the origin and source of all
that exists, is just and also merciful. He has provided basic rules for our
xxx I FIVE PILLARS OF PROSPERITY

guidance so that we may be good and righteous, and by His grace we

are given the strength to be righteous.
Judaism, Christianity, and Islam also share common rituals and
practices (such as regular prayer and charity). All three value pilgrim-
age and share many common holy places; promise that behavior will
receive its proper rewards and punishments in the future, on earth and
in an afterlife; and balance and integrate strands of mysticism, legal-
ism, and pious devotion.
Love of God and love of one’s neighbors are the two great command-
ments in Judaism, Christianity, and Islam. The New Testament says:
“Love the Lord your God with all your heart and with all your soul and
with all your mind and with all your strength. Love your neighbor as
yourself ” (Mark 12:30-31).
The essence of Islam is to serve Allah and do good to your fellow-
creatures. This expands on the theme of “Love God and love your
neighbor.” It includes duties to animals as our fellow creatures and
emphasizes service in addition to sentiment.
As the Qur’an says: “Serve Allah, and join not any partners with
Him; and do good—to parents, relatives, orphans, those in need,
neighbors who are near, neighbors who are strangers, the companion
by your side, the wayfarer (you meet), and what your right hands pos-
sess: For Allah loveth not the proud and boastful ones” (Q 4:36).
Many hadith enjoin good treatment of neighbors in general, re-
gardless of whether they are relatives or not—and whether they are
of the same religion or not. For example, the Prophet said:24 “Jibreel
[Gabriel] kept urging me to treat neighbours kindly, until I thought
that he would make neighbours heirs.”25
The Sahâbah (Companions) heard this teaching of the Prophet, and
they hastened to put it into practice in their daily lives with their own
neighbors, both Muslims and non-Muslims. ‘Abdullah ibn ‘Amr, the
great Sahâbi (Companion), remembered this hadith when he slaugh-
tered one of his sheep, and he asked his servant, “Did you give any to
our Jewish neighbor? Did you give any to our Jewish neighbor? For I
heard the Messenger of Allah say . . .”—and he quoted this hadith:26
 Introduction I xxxi

“He does not believe in me who goes to bed full when his neighbor
beside him is hungry and he knows about that.”27
The Qur’an repeatedly calls for universal cooperation among all
races, peoples, and tribes. Muslims must deal kindly and justly with
all those who have different beliefs from theirs, as long as they are not
at war against Muslims on account of their faith nor have driven them
out of their homes (Q 60:7-9).
These comments about the commonalities among the three Abra-
hamic religions are about similarities of faith and ethics. Similarly, the
interfaith movement, which may include not only Jews, Christians, and
Muslims but also Sikhs, Hindus, Buddhists, and others, has generally
been focused on sharing scripture. However, the core commonality we all
have is not in our understanding of what God is or is not, but in the fact
that we all live together on earth.28 My friend and religious scholar Joseph
Montville has beautifully expressed this interfaith perspective as follows:
“The community may also include those who profess no religion, but still
reflect God’s guidance in their lives—individuals whose number would
greatly expand the community. In the end, it is God only who judges who
is worthy of salvation regardless of professed faith or none.”29
The larger community is built around our shared love of God and
love of the planet. Service to nature is the bond that connects people
of all faiths. The environmental movement offers Muslims, Christians,
Jews, and other faith congregants the opportunity to connect in a spirit
of service to our shared earth.
There are several charitable organizations (like FAITH: Founda-
tion for Appropriate Immediate Temporary Help, located in Herndon,
Virginia) striving to foster understanding and acceptance among
adherents of the Abrahamic and other faiths. One such organization
is the Centre for Abrahamic Religions. This center is the result of a col-
laborative effort among Durham University and Cambridge University
in the United Kingdom and the University of Virginia in the United
States. The center, through its Scriptural Reasoning program, seeks to
acknowledge and discover the commonalities and distinctiveness of
the Tanakh, the Qur’an, and the Bible.
xxxii I FIVE PILLARS OF PROSPERITY

While I am not trained in nor do I profess to interpret the scripture,

I do envision a world in which we the people find the ways and means
to “commune.” I accept the fact that others have no wish to convert to
Islam but are willing to learn from one another and live in peace and
harmony. It may not be easy, but I believe this is the only way we can
all progress and coexist as human beings on this planet Earth—to live
in a compassionate “global community.” We must treat others like we
ourselves wish to be treated.

Today’s Need for the Five Pillars of Prosperity

The global community of today is both fortunate and challenged. We are
experiencing a proliferation of opportunities available to more people
than ever before in history. At the same time, we live in a world that is
obsessed with money: acquiring it, possessing it, and spending it (and
sometimes showing off too!). The purpose of money is to serve as a me-
dium of exchange for goods and services. In today’s world, however, it
has come to represent power and prestige. For the typical person money
serves as a means to define his/her identity (i.e., “I am a millionaire . . . ”)
Having (or not having) money should not define who we are as a
person. In reality, if you make the mistake of allowing money to define
you—it will enslave you. Instead of working for a living, you’ll end up
living to work. In most societies around the globe, there is a grow-
ing desire to consume and acquire things. The world’s marketers (and
the businesses they represent) are busy developing more effective and
clever means of getting you to desire things that separate you from
your money and possibly your future happiness.
Historically, many institutions—through the world’s media (adver-
tising; marketing), banking and finance systems—have encouraged,
cajoled, enticed, seduced, and conditioned us to be blind consumers.
They generate profit by incentivizing citizens to spend their future
earnings through incurring debt. Sadly, we’ve become desensitized
to physical money, and we are being encouraged to use credit cards,
debit cards, and other electronic payment systems instead of physi-
cal money. This has caused many people to become impulsive buyers,
 Introduction I xxxiii

paying for things today against money earned at some future date.
This is a rat trap—one that can be quite destructive. Many people have
become victims to the ill practice of “buying things you do not need
with money you do not have,” resulting in unnecessary borrowing and
living it up with someone else’s money.
In 2009, the US economy was in a deep recession, with the debt
of the US federal government exceeding 15 trillion dollars just three
years later. Rather than setting the example for sound financial plan-
ning, the US Congress has taken the opposite tack, choosing to put
off making the hard choices involving austerity and fiscal discipline
in favor of short-term gains. This approach has created a host of prob-
lems for Americans. American workers and business owners are facing
levels of uncertainty about the future that haven’t been seen since the
Great Depression. No one knows if the US government will ultimately
default on its debt, or how stable their investments will be in the future,
or whether there will be a sudden collapse of the US stock market.
All of this uncertainty underscores the need for citizens to take
responsibility for insuring their own financial well-being, and it’s my
hope that the information provided in this book will assist the reader
with this imperative.
There is a way out.
The way out is to understand and then build your financial life
upon the five pillars of prosperity: to become masters of earning, sav-
ing, investing, spending, and giving.
This guide can be used as a starting point, and the time to start the
process is today. In the following chapters we will discuss each of these
elements in detail:

Pillar 1: Earning. This is the key element that supports the other
four; we’ll discuss the three levels of earning or money creation.

Pillar 2: Saving. This is the key element that ensures that we

become good stewards over the money that flows into our lives.
Through the practice of “delayed gratification,” it conditions us
to be in control of our overall financial health.
xxxiv I FIVE PILLARS OF PROSPERITY

Pillar 3: Investing. Mastering this element will give us the ability

to actively use our money without consuming it. It teaches us
how to manage our surplus earnings and put this money to work
for our future (cash flow) needs.

Pillar 4: Spending. Mastering this element helps us master cash

flow and budget and control spending, and insures that we avoid
addictive and impulsive spending due to outside influences
(marketing manipulation, status, peer pressure, etc.).

Pillar 5: Giving. Perhaps the most important element to pros-

perity; this element teaches and encourages us to make mean-
ingful contributions to individuals and our society and gives us
an opportunity to exercise the best part of ourselves by support-
ing others for the greater good.

This five-step financial program can be summarized as follows:

According to Islamic financial principles, a person’s first financial
duty is to take care of the needs of self and family—to earn the money,
to save it by keeping daily expenditures less than income, and to invest
the money so it will increase. In addition to daily expenditures, one
can plan in order to spend intelligently on big-ticket expenditures of a
constructive nature, such as education and hajj. Finally, after the daily
and big-ticket needs of family are met, one can give in order to help the
larger community, as formalized in the Islamic practices of zakah and
sadaqa, as well as other forms of giving while living.
In this book, you will find practical tools for managing money and
building wealth. The approach in this book is faith-based, but one does
not need to be Muslim to utilize this book and benefit from it.

How to Use this Book

I recommend that you read through this book chapter by chapter. Try
not to skip chapters even if you feel you are already strong or knowl-
edgeable in a particular section. After each chapter, in a journal or a
 Introduction I xxxv

notebook, write down three actions you will take as a result of what
you read. These actions may be academic actions (to seek out further
information for study, for example), or they may be concrete actions
(opening an investment account, writing a will, investing in a mutual
fund, writing a budget, etc.).
For those of you who are young (teenagers, young adults), I recom-
mend that you study the guide with a friend or a group of friends or a
family member (spouse, parent, or sibling). The fastest way to learn is
to teach and then practice: take the chapters and divide them among
your group. While everyone will read every chapter, the person that
is assigned a chapter has the responsibility to present the “key points”
or takeaways that they identify from the chapter. This will help make
the concepts quickly “sink in,” and, in time, become an integral part of
your thinking and habits around personal finance.

How the Prophet Muhammad Implemented

the Concept of Pluralism
The Prophet established the first pluralistic, multi-faith state. The state
of Yathrib, which was founded by the Messenger, was formed of various
groups of people, who are mentioned in the text of the Saheefah, a kind
of “Constitution,” which was drawn up by the Prophet. This was similar
in many ways to the modern political concept of the state, which is
defined by the groups living in the state and the land where they live.
The Prophet did not restrict his community to only one group that
followed one particular religion. He included in it the Muslims who
had migrated from Mecca (the muhajirun), the Muslim inhabitants
of Medina (the ansar), and the Jews who were with them. He said
concerning all of these people in the Saheefah: “They are one nation,
distinct from other people.” This concept is now known as pluralism or
described as a multi-cultural community.
Allah willed that this new Islamic state should be recorded for the
first time in history in a constitutional document that was approved of
by all parties.
xxxvi I FIVE PILLARS OF PROSPERITY

Lay congregations can come together and work together. This work
will consist of radically altering our way of thinking about development,
profit, gain, and loss. We need to connect with those of other faiths to
raise our children as part of a larger community of “people of faith.”
We make these connections through establishing community gardens,
engaging in cleanup efforts, renovating or replacing old buildings, and
salvaging useful materials.
One such example is the Masjid At-Taqwa in Brooklyn, New York.
When Imam Siraj Wahhaj and his colleagues purchased the building
at 1266 Bedford Avenue in Brooklyn back in the early 1980s, it was an
abandoned clothing store. Their first job was to expel the drug users
and dealers. Thanks to joint efforts between the police and Muslims
organized by Imam Wahhaj, the area was successfully reclaimed from
drugs and crime. Today, the “mosque of God-consciousness” serves as
a symbol of the neighborhood’s flourishing “Muslim economy,” which
includes a deli, a convenience store, and a Halal restaurant.32
“Those who have faith and do righteous deeds—they are the best
of creatures” (Q 98:2).
1 I Pillar One: Earning
“Far and away the best prize that life has to offer is the chance to
work hard at work worth doing.” –Theodore Roosevelt

In the twenty-first century, earning—the ability to generate income—

is more complex and fluid than at any other time in history. While the
principles surrounding investing and business ownership have largely
remained constant, employment and what it means to be employed
are undergoing significant changes. Within these changes lie earning
opportunities for those who have the eyes to see them and the courage
to act on them.
Earning, the first pillar of prosperity, makes prosperity possible; it
is the foundation upon which the other four pillars are built. Earning
is thus fundamental to our livelihood.

Means of Livelihood and Sustenance on Earth

The Qur’an points to the matter of livelihood as inseparable from being
alive as a human being.1 It states: “The earth will be your dwelling place
and your means of livelihood for a time” (Q 2:36; see also 7:24). This
verse addresses Adam and Eve, but it is applicable to all humankind for
all times. The Qur’an further says that our means of livelihood is given
by God: “It is We who have placed you [humankind] with authority
[or ability] on earth, and provided you therein with means of fulfill-
ment of your life [ma’ayash]: small are the thanks you give” (Q 7:10).
Similarly, “And [We] have provided you therein means of subsistence
for you [humankind] and for those for whose sustenance you are not
responsible” (Q 15:20).
We acquire our livelihood through work. One of the Qur’anic prin-
ciples is that “man can have nothing but what he strives for” (Q 53:39).
This has a spiritual meaning and it also has a worldly meaning: earnings
come through work, and when a person works he or she will see the
fruit of that effort, which will be fully rewarded in Heaven (Q 53:39–41).

1
2 I FIVE PILLARS OF PROSPERITY

The Qur’an uses several terms when referring to work: ’amal

(work), kasb (earning), sakhkhara (to employ or utilize), ajr (wages
or reward), and ibtigha’a fadl Allah (seeking God’s bounty for creating
wealth). The Qur’an sees work—both manual and intellectual, as well
as the combination of the two, which is the usual case—as the pri-
mary means of acquiring income, property, and wealth. It insists that
people should work: “And say: Work (i’malu), soon will God observe
your work . . .” (Q 9:105). This command to work is universal, not
conditioned by time, and applicable to everyone.
As is evident from this verse and also verse 34:13 (“Work you!. . .”),
work has moral value. All of one’s actions will be judged (rewarded or
punished) on the Day of Judgment, including one’s work. Therefore,
work is necessary not only to meet personal and family needs and
wants, but also to demonstrate one’s moral worth.
The Prophet clearly emphasizes the importance of working and
earning a livelihood in the following words: “To strive to earn a liveli-
hood through the right means is an obligation after the obligation of
prayer,” and “Bread earned by one’s own labor [or effort] is the best of
all earnings.”2
We are meant to work and earn our livelihood during the day. The
Qur’an explicitly points this out: “It is out of His mercy [or grace] that
He has made for you the night and the day, so that you may rest [at
night] and that you may seek of His bounty [during the day]; and [He
has given you all this] in order that you may be grateful” (Q 28:73;
also 17:12). Also, “made the day as a means of subsistence [for you]”
(Q 78:11), and the following: “And among His signs is the sleep that
you take by night and work by day” (Q 30:23).
The Qur’an implies that all seven days are open for work except
Friday, the day of communal gathering (yawm al-jumu‘ah), during the
time when the Jummah prayers (around noon) are performed. Once
the prayers are completed, we should return to work. “And when the
prayer is ended, then disperse in the land and seek of Allah’s bounty,
and remember Allah much, that ye may be successful” (Q 62:10). The
Qur’an does not ask Muslims to abstain from work during the month
 Pillar One: Earning I 3

of Ramadan (the ninth month in the Islamic lunar calendar), during

which fasting from dawn to sunset is an obligation upon all healthy
adult Muslims (Q 2:185). It even permits the combining of work with
religious duties like hajj (pilgrimage) (Q 2:198).

The Social Function of Wealth

Along with valuing work, Islam places a high value on the cultivation
of wealth that results from work.3 Acquiring wealth is necessary for
performing the religious duties of zakah (obligatory giving) and hajj.
So also, voluntary social contributions (sadaqah), which are critical
for the support and growth of society, cannot be made without wealth.
However, the value Islam places on accumulating wealth should not
be construed to mean that those without wealth are less worthy than
those who have it.
Some people argue that acquiring wealth is not good, that one
should just focus on the worship of God. On the contrary, as Irfan
Ul Haq points out, the Qur’an associates the earning and creation of
wealth with God’s bounty, grace, and good (al-khayr).4 The Prophet
clearly views acquiring wealth as praiseworthy because it makes it
possible for the earner to support society through activities such as
feeding the hungry, taking care of the needs of widows, and supporting
orphans and the poor.
First and foremost, Islam requires the individual to earn and ac-
cumulate sufficient wealth to satisfy his or her own needs and the
needs of his or her family. This follows from the Qur’anic command to
work and the Qur’anic injunctions to support one’s wife and children.
Numerous traditions of the Prophet affirm this principle. For instance:
“Every man is a guardian of his family and is responsible for it.”5
The responsibility to provide healthy maintenance of oneself and
one’s dependents is not only a worldly obligation but also a religious
duty toward God and society. Islam regards life as sacred and its pres-
ervation as a moral and legal obligation, and this includes support of
one’s dependents at a reasonable level. No effort should be spared in
the fulfillment of this primary function.
4 I FIVE PILLARS OF PROSPERITY

After the needs of self and family are met, an individual should
consider how any additional wealth can be used to help others. A
minimum level of goods production within a community is necessary
to ensure everyone’s needs are fulfilled. Islam also encourages trade to
acquire necessary goods that cannot be produced locally, or at least not
cost effectively.
Islam regards the purpose of economic enterprise to be the fulfill-
ment of society’s material and service needs—easing homelessness
and hardship, and establishing justice and prosperity for all. Helping
to accomplish this is considered fard al-kifayah (socially obligatory)
for Muslims. At the same time, according to a Prophetic tradition, it
is open to each human being to determine how much to contribute to
society, be it little or more, and in what form, be it wealth, stature, or
personal capabilities. Whatever the amount and form, this contribu-
tion is counted as a rewardable charity both in this world and in the
hereafter.6
Although the New Testament may not be as explicit as the Qur’an
and the Prophet Muhammad regarding the importance of acquiring
wealth for benefiting society, some modern Christian writers do ad-
dress this point. One such author, Wayne Grudem, says:
“The ability to earn a profit is thus the ability to multiply our
resources—while helping other people. It is a wonderful ability
that God gave us and it is not evil or morally neutral but funda-
mentally good. Through it we can reflect God’s attributes of love
for others, wisdom, sovereignty, planning for the future, and so
forth.”7

Grudem also points out: “We could use our resources to advance our
own pride, or we could become greedy and accumulate wealth for its
own sake, or we could take wrongful security in riches (Matthew 6:19;
Luke 12:13-21; James 5:3). We could use our possessions foolishly and
wastefully, abounding in luxury and self-indulgence while we neglect
the needs of others (James 5:5; John 3:17).” However, he says, “These
things are called ‘materialism,’ and they are wrong.”8
 Pillar One: Earning I 5

At the same time, Grudem says, the social teaching of the Church
insists that businesses must also safeguard the dignity of the individual,
and that even in moments of economic difficulty, business decisions
should not be guided exclusively by considerations of profit. “We can
imitate God’s attributes each time we buy and sell, if we practice hones-
ty, faithfulness to our commitments, fairness, and freedom of choice.”9
The Prophet is clear that those capable of earning should not allow
themselves to become a burden on society but should remain produc-
tive, earning members of society who contribute to the community’s
well-being and economy. That is why the Prophet prohibits healthy
adult men from begging and from receiving zakah under normal cir-
cumstances. He affirms the dignity of labor—any kind of labor—and
the indignity of depending on the dole of others: “It is better for anyone
of you to take a rope and cut the wood [from the forest] and carry it
over his back and sell it [as a means of earning his living] rather than to
ask a person for something and that person may or may not give him.”10
Yet, as Irfan Ul Haq points out, this should not be taken to imply
that only working-age people and their dependents should be fed,
clothed, and sheltered.11 Sometimes, in spite of their hard work, people
may not earn enough to meet their own needs. Or, due to infirmity,
age, or another handicap, they may not be capable of earning and may
not have a family member who can take care of their needs. For such
people who are financially strapped, God has decreed receiving charity
in the form of zakah as their means of livelihood.

Earning Money
In today’s society, money is essential for living. Livelihoods are earned
and wealth is accumulated and shared in the form of money. Because
of money’s importance, many people regard it as a form of protec-
tion from harm and hardship, which encourages a “survival-based”
attitude around money. But basing one’s survival on something—in
this case, money—that is outside oneself causes apprehension or fear.
This is the reason for the anxiety around money that is rampant in
society today.
6 I FIVE PILLARS OF PROSPERITY

In fact, money is simply a medium of exchange. What fundamen-

tally keeps us alive is our faith, vitality, and strength of spirit—not
money.
Money is a medium of exchange in return for value given. Our abil-
ity to generate money is directly linked to our ability to generate value
in the lives of others. This value may be given to a person, a company,
a project, or an enterprise.
In general, the more the world values what you generate, the more
money will be given to you. However, not all value is equal. There are
essentially three factors that determine your ability to generate money
through providing value:
n The uniqueness (or possibly exclusivity) of what you are offering
n The “footprint” of what you offer, that is, the number of people
who benefit from it
n The impact your offering has on someone else
 Pillar One: Earning I 7

The degree of value you offer with regard to each of these three factors
determines the amount of money you receive in exchange.
What kinds of activities are involved in earning money? Basically,
there are three types: you make money for yourself, other people make
money for you, and your investments make money for you. I will dis-
cuss these one by one.
You make money for yourself. The majority of the world’s
population earns money by making it for themselves. People working
in every job classification—whether they be doctors, engineers, pilots,
gardeners, grocery clerks, or factory workers—trade their time for
money. The challenge with this method of earning is that a person’s
time is finite—and thus so is the person’s income. Hence, if you become
unable to trade your time for money, you’ve lost your source of income.
Other people make money for you. For small-business own-
ers and other individuals involved in entrepreneurial pursuits, revenue
and ultimately profit are generated by the activities of the business
and the efforts of its employees. This makes better use of the business
owner’s time, since the time of several people is focused on earning
money for the business and, ultimately, for the owner. It is also more
stable, since if one person cannot work, others are present to take up
the slack. Small-business owners and other individuals involved in
entrepreneurial pursuits fall in this category.
Your investments make money for you. Earning a profit
on investments is the optimal earning strategy, although only a small
percentage of the world’s population effectively uses it. Using money
to make money requires knowledge and skill—and money. Sadly, most
people, whether due to lack of knowledge, living paycheck to paycheck,
or for other reasons, are unable to earn money through investments.
That said, many people can eventually earn money this way if they follow
the five principles outlined in this book. Here again, the key ingredient,
besides money, is time, since the length of time the money is invested
factors significantly in the success or failure of most investments.
In the rest of this chapter, I discuss employment and entrepreneur-
ship, which are often, though not always, aligned with the first two
8 I FIVE PILLARS OF PROSPERITY

methods of earning money: making money for yourself and other

people making money for you. The third, earning through investing, is
discussed in chapter 3.

Employment
The great majority of us start out our professional journey employed.
But I would advise the following: While working as an employee, start
seeing things with the eyes of an owner. Whether your employer is a
big or small company, take the opportunity to experience and grow as
much as possible. Learn to become aware of what impact your work
has on the organization’s success, and you will start to develop an ap-
preciation for things beyond your job.
For example: If you are paid $65,000 income, depending on your
benefits (health, 401K, training reimbursement, vacation, etc.) your
actual compensation can be up to 36 percent more on average (when
you factor in payroll taxes, health insurance, office overhead, and
other benefits). This means your employer is actually paying closer to
$90,000 in total compensation to you. Since the business cannot run
on a deficit, your contribution must be generating at least what they
are paying you. Ideally, your contribution converts to some multiple of
what you are being paid.
My advice to younger readers aspiring to have a successful career,
who may be contemplating eschewing more traditional professions
for the latest and greatest, such as high technology and other highly
visible and apparently lucrative endeavors, is this: be diligent in your
research of any career track you are considering. You may want to read
Richard N. Bolles’ What Color Is Your Parachute? book series. It pro-
vides a practical and systematic approach to discovering career and job
choices that would be most appropriate for you. Books like What Color
is Your Parachute? are extremely helpful to anyone wishing to change
jobs or career tracks as well.
My personal motto has been “If someone else can do my job, then
I am not doing my job.” We must persist and excel at what we do and,
hopefully, do it better than others.
 Pillar One: Earning I 9

Entrepreneurship
With the development of information technology and the growth of
the internet as a marketplace, it is becoming easier for more people to
become entrepreneurs. As this entrepreneurial trend grows, it is es-
sential that people of faith take leadership roles as entrepreneurs. The
world needs business owners who can ensure the call of God as they
help build and lead society through faith-based businesses.12
The combination of faith and entrepreneurship has been modeled
in Islam from its very beginning. The Prophet Muhammad himself was
an influential and successful businessman and a trader. He was known
for always charging fair prices and never hoarding any goods. Because
of this, the people of Mecca dubbed him Al-Sadiq and Al-Amín (the
Truthful and the Trustworthy).
Abdur-Rahman ibn Auf, an early believer and Companion of the
Prophet, was born in Mecca and became a Muslim when he was thirty
years old. He then migrated from Mecca to Medina, where he started
his business and soon became the wealthiest merchant in Medina.
Uthman bin Affan, the third Caliph, learned to read and write at
an early age, and as a young man became a successful merchant. His
generosity had no limits. On various occasions, he spent a great por-
tion of his wealth for the welfare of the Muslims, for charity, and for
equipping the Muslim armies. That is why he came to be known as
ghani, meaning “generous.”
Imam Abu Hanifah (d. 767 c.e./148 a.h.), founder of the Hanafi
school of law, was born into a family of tradesmen. He earned his living
through trade and used his earnings to meet the needs of his students.
He gave much to charity. Every Friday he would distribute twenty gold
coins to the poor for the benefit of his parents’ souls.
The Bible also describes several entrepreneurs, including Peter, Paul,
and Job.13 Peter was a commercial fisherman in partnership with his
brother Andrew (Matthew 4:18). Paul was the sole proprietor of a tent-
making business (Acts 18:3). Job was an industrious farmer who owned
seven thousand sheep, three thousand camels, five hundred oxen, and
five hundred donkeys, leading to his launching businesses in wool cloth-
ing, freight hauling, and dairy.
10 I FIVE PILLARS OF PROSPERITY

One reason the world needs people of faith in business is because

their faith guides their ethics. The business practices of Muslim entre-
preneurs must be above reproach, because they are obliged to follow
the business principles outlined in the Qur’an:
Do not engage in bribery or dishonesty (Q 2:188)
Deal justly in business or trade (Q 38:24)
Document and witness agreements (Q 2:282)
Do not engage in fraud or deception or mismeasurement (Q 83:1-3)
Give everyone his due share (Q 4:33)
Do not engage in hoarding or exploitation (Q 10:58)
Be kind (Q 5:13)

The Prophet Muhammad emphasize ethics in business. He urged

Muslims to be truthful in all business dealings, to honor their prom-
ises, to negotiate honestly, and not try to lower the value of goods
by berating another’s merchandise nor inflate the value of their own
goods through exaggerated claims. He told Muslim entrepreneurs not
to avoid payments they owe, and when others owe them to not make it
difficult for debtors to repay them.
Having served on the boards of several publically traded compa-
nies, I can attest that the temptation to deviate from ethical practices is
always present. For example, reporting one cent more profit per share
on a company’s profit-and-loss statement could mean a stock price in-
crease of twenty cents. And if one owns 100,000 shares or options, that
translates to a $20,000 (assuming a P/E [price/earnings] of 20) gain.
But we stick to our creed, not the greed.

Passion, Creativity, and the Entrepreneur

The social and economic environment in America provides excellent op-
portunities for people of faith to be successful in business and shape the
future of the world we live in. The success of the democratic capitalist
system stems from freedom of ideas, creativity, and invention. Those with
a natural ability to see what is around them differently and then move
 Pillar One: Earning I 11

beyond conventional thinking and ways of doing things have historically

provided the driving force for invention, change, and success in America.
If you are an individual who is willing to take a risk to start a busi-
ness, works tirelessly, has abundant energy, foresees change, develops
new products to take advantage of that change, uses innovations (in
technology, processes, or marketing) to take those products in new
directions, and is committed to growing fast without being over-
whelmed with the possibility of failure, then you have the makings of
an entrepreneur. In my experience, the most successful entrepreneurs
are those who strive to succeed from a foundation of passion and un-
wavering belief in what they are trying to create. It’s this passion and
belief, along with prayer, that allows them to persevere through the
inevitable challenges that occur along the way.
Another important element in the success of an entrepreneur is cre-
ativity. One of the greatest gifts God has bestowed upon human beings
is our ability to imagine. It’s astounding how creative and inventive we
can be when it comes to pursuing a dream or an idea.
The Qur’an views the creation of ideas and the pursuit of knowledge
as activities of the highest value. It advises: “Say ‘O my Lord! Advance
me in knowledge’” (Q 20:114). Conversely, the Qur’an tells us to turn
away from the ignorant (Q 7:199). It says that humankind’s existence
and superiority over all other creatures is based on the human faculty
for understanding and knowledge as well as the freedom and ability to
use it (Q 2:30–33). Knowledge enables humans to lead an enlightened
life and to fulfill the purpose of creation by fulfilling the will of God. The
Qur’an says: “And say: My Lord! Increase me in knowledge” (Q 20:114).
“Verily in this is a sign for those who give thought” (Q 16:69). “Verily
in that are signs for those who reflect” (Q 30:21). “That man can have
nothing but what he strives for” (Q 53:39).
Muslims, along with all people of faith, must invent and innovate.
They must find new ways of doing things better, easier, cheaper, smarter,
and faster. They should come up with more efficient products and ser-
vices to win global markets. It is always safe to assume not that the old
way is wrong but that there may be a better way.
12 I FIVE PILLARS OF PROSPERITY

The Prophet Muhammad said, “God has decreed that for every-
thing there is a better way.”

Social Entrepreneurship
An aspect of entrepreneurship that may be a good fit for people of faith
is social entrepreneurship. In this form of entrepreneurship, which is
a growing movement worldwide, a for-profit venture exists to generate
income for a social purpose. For example, an independent for-profit
venture might donate its profits to charity. Or a company or other large
enterprise might hire less-privileged or unemployed workers to pro-
vide services or create a product.
Social entrepreneurs often take on society’s most pressing prob-
lems. They may serve as change agents for the masses, exploiting op-
portunities that others miss, improve systems, and develop creative,
scalable solutions that improve society. Recent examples of social en-
trepreneurs are Muhammad Yunus, founder of Grameen Bank (Ban-
gladesh), a microfinance organization and community development
bank that provides small loans to the poor; and Istvan Aba-Horvath,
whose mission is to aid Gypsy children in Hungary in getting an edu-
cation while earning money.
Then there are social entrepreneurs such as Muhammad Bah Abba,
who has resurrected a form of pottery used in ancient Egypt that al-
lows his people to keep their food fresh in the harsh climate of Nigeria;
and Rafael Alvarez, who founded Genesys Works, an organization that
helps American youth extend their outlook beyond high school gradu-
ation by training them in highly skilled jobs.

Questions for Aspiring Entrepreneurs

Over the years, aspiring entrepreneurs have asked me, in one form or
another, the question: “What should I pursue?” I always answer them
with a series of questions, which I share here:
1. In what areas are you most gifted and talented?
2. Where do your passions lie?
 Pillar One: Earning I 13

3. Where are you starting from? (What experiences, resources,

connections, etc., do you have to work with?)
4. What product or service do you want to offer and to whom?
5. Is there a demand for this product or service, and if so, is it
already being met? If not, why not?
6. Have you done a needs assessment or a feasibility study?
7. How exactly will you make money from this venture? (From
whom? How much? When?)
8. How serious are you? (What steps have you already taken?
What research have you already done?)
9. What’s your motivation for doing this? (Perhaps the most im-
portant question.)

Armed with answers to these questions, the person can look at the
myriad of ideas out there and quickly identify one or more that reso-
nates with his or her skills, passion, and beliefs.
Another method of determining preferences may be to conduct
a SWOT analysis. This involves listing and analyzing your Strengths,
your Weaknesses, the Opportunities available to you, and the Threats
(lack of experience, lack of capital, competition, etc.) that you face.
Entrepreneurship is not limited to those with lots of previous experi-
ence in business or as an employee. A younger person with passion,
commitment, and willingness to learn can succeed just as well, as the
stories of many of the most successful startup companies show. Paul, the
apostle, encouraged Timothy, a young person: “Let no one look down
on your youthfulness, but rather in speech, conduct, love, faith and pu-
rity, show yourself an example to those who believe” (I Timothy 4:12).

Eight Qualities for Success

Regardless of whether you choose a traditional means of employment
or decide to strike out on your own as an entrepreneur, I’ve found that
the following are key attributes that many of the most successful people
possess.
14 I FIVE PILLARS OF PROSPERITY

Gratitude—This is perhaps the most basic—and important—attribute,

upon which all others are built. In my humblest opinion, people who
possess this attribute tend to be some of the most extraordinary people
that will ever walk the earth, and it’s an attribute that can readily be ob-
tained and cultivated in every human being. All of the Abrahamic faiths
speak to the importance of gratitude, of being grateful. People possess-
ing gratitude enjoy not having to succumb to greed or envy but instead
largely operate from love, appreciation, and generosity.
An additional benefit to possessing this attribute is that you can
avoid the traps that come from being too prideful. It’s one thing to
take pride in one’s work and appreciate one’s accomplishments, and
it’s quite another to have so much pride that you’re seen as boastful
or vain. Too much pride can be like a cancer, one that can hurt and
consume a person without creating any meaningful benefit. I believe
gratitude is the precursor to the attainment of true “wealth” in one’s
life. Always have an attitude of gratitude.

Strong Work Ethic—Having a strong work ethic means being will-

ing to do what must be done 100 percent of the time. It can sometimes
mean that you are faced with having to endure doing difficult work for
a long duration of time. But it also means approaching one’s work with
both dignity and intelligence. Your work ethic is a reflection of your
“soul,” the very essence of your being; give the world your best efforts,
put in an honest day’s work, even when no one appears to notice.
The Qur’an is constantly encouraging the Prophet to strive hard
in the cause of Allah: “And those who strive in Our [cause], We will
certainly guide them to our Paths: For verily God is with those who do
right” (Q 29:69).

Focus—When I think about management, leadership, and an organi-

zation at large, another key attribute I’m constantly seeking (for both
myself and others) is an ability to focus.  “Focus,” in my view, really
suggests mindfulness: being fully present in the moment with the task
or objective in hand. Not allowing for outside distractions that can have
detrimental effects on the quality of your work and the perceived (and
 Pillar One: Earning I 15

real) contributions that your work has in the organization you work for
(or own). Some of you may be asking yourselves, “focusing on what?”
To focus merely for focus’ sake isn’t very useful: you should strive to
avoid merely “being busy” versus achieving meaningful work (and thus
value) for both yourself and the company you represent. Focusing on
the most meaningful work will require being willing to be strategic in
your approach towards your work as well as expending effort to set pri-
orities (on your time and effort). Being seen as someone who is focused
implies that you are careful, conscientious—and motivated.  From a
career-building perspective, having both focus and ambition together is
a powerful combination and can lead to great opportunities.

Persistence—Even with the strongest commitment, intent, and mo-

tivation, despite one’s best-laid plans, there are times when success
can seem elusive and practically unattainable. In such times, one has
to have the ability to persist—the willingness to sustain one’s effort
through continual trial and experiment, until the desired outcome is
accomplished The most successful often find themselves in situations
requiring not only patience but persistence, and the more persistent you
can be, the more likely it is that good fortune and other opportunities
will unfold for you.
And He provides for him from [sources] he never could imagine.
And if anyone puts his trust in Allah, sufficient is [Allah] for him.
For Allah will surely accomplish His purpose” (Q 65:3).
Successful indeed are the believers who are humble in their
prayers (Q 23:1–2).

But remember the LORD your God, for it is he who gives you the
ability to produce wealth, and so confirms his covenant, which he
swore to your forefathers, as it is today (Deuteronomy 8:18).
O ye messengers! Enjoy (all) things good and pure, and work
righteousness; for I am well acquainted with (all) that ye do (Q
23:51).
16 I FIVE PILLARS OF PROSPERITY

Passion (aka “Ambition”)—Having passion for what you do for a

living can do more good for your career than almost any other thing.
Finding ways to deeply enjoy what you do, being inspired to learn and
explore the depths of your chosen profession, can lead to new discov-
eries, new skills and abilities, and new interests and career directions,
expanding opportunities and choices. If you’re lucky, you sometimes
can discover your passion first, with skill and expertise coming after-
wards. But I find that one discovers what one is passionate about after
first becoming really good at something, so don’t despair if you haven’t
“found” your passion yet. Loving what you do often comes after being
very good at what it is you do.

Integrity—I think having integrity—something that I hope is instilled

in every child growing up—is absolutely paramount to one’s success at
being a valued member of mankind. Being true to your word—being
impeccable with your word—trumps the most ironclad contract. Hav-
ing integrity implies that one is a person who takes responsibility for
one’s commitments, obligations, and promises seriously.   In fact, being
a person of integrity is the ultimate contract, and conducting business
(as an entrepreneur) or contributing to an organization from a place of
integrity will give you access to near unlimited opportunity.

High Standards—A person who has high standards (for both one-
self and others) is a person who seeks and is striving for excellence. A
person who chooses to have high standards tends to avoid medioc-
rity and instead works to be, do, and have the best in everything. As a
young adult, this means striving to gain access to the best educational
resources one can afford, seeking the best mentors one can find, and
doing the best that one can do in any give moment. Just as success
breeds success, seeking the best in everything tends to attract the best
in everything.
The Prophet said, “God loves when one of you is doing something
that he [or she] does it in the most excellent manner.”
 Pillar One: Earning I 17

Generosity of spirit—giving credit where credit is due;

humbleness; appreciating others. Fairness and kindness—deal-
ing with people in a fair way—go a long way without taking undue
advantage of others in a moment of weakness. Kindness includes
avoiding talking down to people or taking a superior position to an-
other person.

Serve others—When you experience success, don’t forget how you

obtained it. Even while you are climbing the ladder of success, be will-
ing to serve others.

Income Management
As important as it is to earn money, it’s equally important to manage
what’s earned. In particular, it’s vital to establish strategies for handling
both increases and decreases to your income when they happen.
An increase may be due to a raise, promotion, or salary increase if
you are employed, or due to the growth of your business if you are an
entrepreneur. An increase can also happen through tax refunds, gifts,
or receiving an inheritance. A decrease in income may be due to a job
layoff or because of periodic smaller earnings in your own business.
Other causes include disability, a natural disaster, or relocating in or-
der to care for a family member who is ill. Without a strategy in place,
a person may have difficulty riding through these ups and downs in
one’s income stream, which are normal and to be expected.
In some ways, an increase in income is more challenging to manage
than a decrease. Without a plan in place, people are more likely to
view the increase as a windfall. They feel this money is “extra money,”
so they expand their lifestyle—buying a new car or a “bigger” house,
going on a vacation, and the like—which effectively consumes the in-
crease. Living without a plan or a budget and not understanding where
your money is really going, you will automatically increase your daily,
weekly, and monthly spending, leaving you with the same amount of
net earnings as prior to the increase. If you have assumed new debt
obligations, you may have even less.
18 I FIVE PILLARS OF PROSPERITY

My recommendation if you experience an increase in earnings is

to resist changing your lifestyle for at least six months to a year (and
preferably, not change it at all). Give yourself a chance to live with this
new income and see how it factors into your saving and investment
goals before you make changes. If you don’t take the time to adjust to
the increase, you’ll consume all of it and won’t know where it went.
Another good rule of thumb is to spend 10 percent of this new
money (you’ll consume this amount with some kind of purchase),
apply 30 percent of this new money to ongoing obligations (e.g., cost-
of-living expenses), and bank the remaining 60 percent in savings or
investments.
With a little planning and discipline, you can apply these increases
intelligently. Here are a few ideas: pay off debt obligations, invest
the money in something long-term, pay down or eliminate a home
mortgage, or gift all or part of the increase to parents or other family
members as a way to share in the pleasure of additional income.
2 I Pillar Two: Saving

Islamic economic doctrine emphasizes hard work, productivity, and the

generation of surplus.1 The surplus makes possible saving, whether for
future contingencies, posterity, or other purposes—such as investing,
making major purchases, or giving to help the needy and supporting
projects of public good. Therefore, while the first pillar of prosperity is to
generate sufficient income to meet the current consumption needs of the
individual and his or her family, the second pillar is to generate savings.
Some people think spirituality and saving do not go together. But
there is nothing unspiritual about having money set aside for invest-
ments and for future needs. This does not in any way show a lack of trust
in God’s provisions. Prophet Muhammad used to urge his Companions
to be prudent by not spending all that they had.2 The Qur’an recounts
how, in times of plenty, Prophet Yusuf (Joseph) organized great reserves
to meet the needs of famine (Q 12:47–49). Christian author Dwight
Nichols points out in God’s Plans for Your Finances that, according to
the scriptures (Proverbs 6:6–8 and 21:20),
a person who stores in times
of plenty and prepares for
winter is wise.3

19
20 I FIVE PILLARS OF PROSPERITY

The cornerstone of achieving financial freedom is the recognition

that you are responsible for your own financial well-being, and the desire
to save is the first step to financial freedom. The Qur’an also wants you to
be cognizant of your own financial activities and their effects on yourself,
your family, and others: “O you who believe! You have charge over your
own souls” (Q 5:105). Unfortunately, too few people in America today
are following this commonsense wisdom. Here are a few sobering statis-
tics generated by Scottrade’s 2011 American Retirement Survey:4
n Almost half (47 percent) of Baby Boomers (Americans born
between 1945 and 1966) have $100,000 or less saved, and more
than a third (37 percent) are concerned that they will have to
work in their retirement years.
n Almost a quarter (23 percent) think they’ll still be working at
age 75 or older.
n A majority of Baby Boomers (58 percent) say that, if given a
second chance, they would have started saving at a younger age.
n The majority (55 percent) of Gen Yers (Americans born be-
tween 1983 and 1992) have not started to save for retirement.

No one ever went broke saving money. Having more in savings means
that money is available for college, vacations, retirement, and other long-
term goals. In addition, the income from these savings may provide you
additional cash flow that you may use at times of need or emergency.
Is a penny saved a penny earned, as Benjamin Franklin said? Not
quite, because a penny saved is really equal to one and a half pennies
earned; that is, it is the amount you would have after paying taxes on 1.5
pennies. How is this so? Federal, state, and sales taxes combined are ap-
proximately 33 percent. Therefore, $1.50 earned – .50 tax (33% of $1.50)
= $1.00 net. So when you spend $1.00, pause and think, because you are
really spending $1.50 earned. Conversely, if you cut expenses and save
$1.00, you are really earning $1.50.
The key to being able to save is to engage in a profitable economic
activity while maintaining a moderate level of consumption—in other
 Pillar Two: Saving I 21

words, to spend less than you earn. So this chapter focuses on saving by
spending carefully on a daily basis. This involves moderation and balance.
The Qur’an commands that we be moderate in our living habits
and thrifty in our financial affairs: “And do not squander [your wealth]
wantonly; truly, those who squander are the brothers of the Evil Ones”
(Q 17:26–27). “O Children of Adam, wear your beautiful apparel at
every time and place of prayer; eat and drink; but waste not by excess,
for Allah loves not the wasters” (Q 7:31). “And follow not the bidding
of those who are extravagant” (Q 26:151). Islam encourages simple,
modest living, not necessarily bare minimum subsistence.
The Qur’an condemns high consumption levels, opulence, waste-
fulness, and overindulgence in pleasures. The New Testament says,
similarly: “And He said to them, ‘Beware and be on your guard against
every form of greed; for not even when one has an abundance does
life consist of his possessions. For life is more than food, and the body
more than clothing. For where your treasure is, there will your heart be
also’” (Luke 12:15, 23, 34).
In recent years, the American public has seen a demonstration of the
costs of unethical practices in business driven by greed. We watched ex-
ecutives lie, stock values plummet, companies (like Enron, MCI World-
Com, and Adelphia) implode, and jobs and investments disappear. When
lies are woven into the fabric of financial life, that fabric will inevitably
fray. It does not need to be this way. Sir John Templeton, investor and
mutual fund pioneer, never used his wealth for a huge house, multiple
residences, yachts, or private planes.5 He was also thoughtful in his in-
vestment policy, avoiding the “sin stocks” belonging to alcohol, tobacco,
and gambling companies (all items also prohibited in Islam).
Both the Qur’an and the Prophet Muhammad emphasize a balanced
and moderate approach to solving problems, both spiritual and secu-
lar. “Believers are those who, when they spend, are not extravagant and
not miserly but hold a just balance between those extremes” (Q 25:67).
Balance (tawazun) is associated with justice, equity, and the practical
dealings of life. A balanced approach in economic and financial mat-
ters discourages excess. Islam approves of lawful earnings, as well as
lawful ways to save, spend, and enjoy life.
22 I FIVE PILLARS OF PROSPERITY

Living Debt Free

One of the keys to saving is to be free of debt. To stop being a slave to
debt, you must stop the vicious, dead-end, no-win cycle of excessive
spending. The average US household spends $1.22 for every $1.00 it
earns. That’s a recipe for a lifetime in debt.
Debt is strongly discouraged in Islam. Dr. Omar Clark Fisher says,
“Muslims are urged in the Holy Qur’an and Sunnah to minimize bor-
rowing and to repay financial obligations as soon as possible.”6 The
Prophet is reported to have said: “O God, I seek refuge in Thee from
disbelief and debt.” When a man asked him, “Do you equate debt with
disbelief?” he replied, “Yes.”7
In another instance, when the Prophet said, “O Allah, I seek refuge
in Thee from sin and debt,” he was asked, “Why do you so often seek
protection of Allah from debt?”
He replied, “One who is in debt
tells lies and breaks promises.”8

A few thoughts on moving towards debt-free living

During the research for the book, I’ve run across many sources offering
suggestions on moving towards a debt-free life. Most of these sugges-
tions fall in one of two camps. In one, most take what I would consider
a technical approach to debt elimination—establishing (and living by)
a budget, negotiations with creditors (to reduce or eliminate debt), and
 Pillar Two: Saving I 23

concepts like “debt acceleration.” The other camp takes a more creative
approach: coupon clipping, timing of purchases to exploit sales, bulk
purchase schemes, and other means of “stretching” the dollar.
Both camps can lead you down the same road—a road of debt-free liv-
ing. And for those of you who may find these strategies too extreme, what
follows is a blend from both camps that I believe could serve you well.
Step 1: Assess your current debt picture. This is a vital first
step: reviewing and listing all current debt (including personal loans).
Until you have a complete and accurate picture of your debt situation,
it will be very difficult to work your way out of it, so start with knowing
where you are. When listing this debt, be sure to include the inter-
est rate (if any), the due date (e.g., the tenth of each month) and the
amount due for each payment. Once you’ve done this, review the list
and do the following:
n Flag any debt you’re not paying on a regular basis.
n Flag any credit-card debt for which you’re only paying the
minimum payment each month.
n Flag any debt on which you’re consistently paying late (and
incurring late charges).

Step 2: Reorganize your cash flow. This step will be espe-

cially useful for those of you who find that (1) you’re making only the
minimum monthly payments; or (2) you have most of your expenses
“front-loaded” with income received at the beginning of the month
(when rent or mortgage is typically due). Part of the challenge for
people who are trying to break free from debt is that often all of the
major expenses are front-loaded at the beginning of each month (rent,
mortgage, car), with credit card and other installment debt often due
several times each month, leaving one with the sense of never having
any money and always under pressure to pay something.
Here is a strategy I recommend: arrange your debt payments so
that with each paycheck, you are left with as much net income (after
expenses) as possible. Here’s an illustration:
24 I FIVE PILLARS OF PROSPERITY

A Typical Scenario...
1st of Month 15th of Month
Income (paycheck) $ 1,684 Income (paycheck) $ 1,684
Rent 850 Cable/TV/Internet 124
Car 265 Cell phone 75
Utilities (gas, electric) 80 Transportation (fuel, metro) 250
Car insurance 75 Food 300
Student loan 85
Credit card 1 48
(minimum payment)
Credit card 2 28
(minimum payment)
Totals $1,684 $1,431 $1,684 $749
Net Income $253 Net Income $935

A Typical Scenario with debt re-organized

1st of Month 15th of Month
Income (paycheck) $ 1,684 Income (paycheck) $ 1,684
Rent 850 Cable/TV/Internet 124
Car 265 Cell phone 75
Student loan 85 Transportation (fuel, metro) 250
Credit card 1 48 Food 300
(minimum payment) Utilities (gas, electric) 80
Credit card 2 28 Car insurance 75
(minimum payment)
Totals $1,684 $1,276 $1,684 $904
Net Income $408 Net Income $780

As you can see, making just a few adjustments to the payment due
date on some of the debt items provides more remaining net cash from
your income across the entire month. Most of your creditors can eas-
ily accommodate a request to change the payment due date—in some
cases you can do this from your account online and otherwise, a simple
phone call can be placed to make this arrangement.
 Pillar Two: Saving I 25

Step 3: Start living on a “cash-and-carry” basis. As you

go about gaining control over your debt and cash flow, it’s critical that
you begin to conduct your life from a cash mindset. Leave the credit
cards and debit cards at home (better yet—cut them up) and start
carrying and using cash. For those of you who want or need to take
baby steps—start with the debit card. You’ll find that if you get in the
habit of actually using cash, you’ll automatically begin to cut down on
impulsive purchases, because cash makes you sensitive to money that
you have—and don’t have—on you. It sounds simple, and it is, but for a
lot of people, regaining this sensitivity to money really goes a long way
to helping them break free from living in perpetual debt.
Step 4: Start saving money. This is the next critical step,
because after you’ve organized your debt payment schedule and have
smoothed out your net income, you have to quickly establish the habit
of saving your net income. It doesn’t matter whether its $25, $50, $100,
or more you save—the important thing is getting in the habit of consis-
tently saving income. Eliminating debt without the savings habit just
means you’ll have more money to spend—and still have no savings.
The key here is saving money.
So, as you begin to repay and eventually eliminate your debt, get in the
habit of saving the money that would normally have gone to that retired
debt. Any bonuses, pay raises, and the like—save it. Try to delay increas-
ing your lifestyle to consume the pay raise and instead sock it away.
Step 5: Increase your net income. After you’ve gotten in the
habit of consistently saving, managing your bills and cash flow, it’s time
to take things up a notch. Review your list of creditors, specifically
credit card, really any debt that has an interest payment attached to it,
and set aside some time to contact each one of these creditors to see if
you can get your interest rate lowered. As a rule, I would suggest con-
tacting these creditors at least once a year to inquire about and request
a lower interest rate. In many cases (especially if you are consistently
paying on your bills) they will accommodate you and lower the rate. In
some cases, they may even offer to lower the overall amount you owe
and/or offer to accept a lump-sum payment that is less than the actual
outstanding amount. There is a range of possibilities, but the most
26 I FIVE PILLARS OF PROSPERITY

basic step and goal should be to request and receive a lower interest
rate, which effectively lowers your payments and overall indebtedness.
Step 6: Create a spending plan (aka: “budget”). The sixth
and last core step towards debt-free living is to come up with a plan—a
plan for the rest of your life. After reducing and/or eliminating your
debt, then what? Well, to answer this question involves taking time
to sit down and think about your life and the management of this life.
And the beginning step towards management (and eventual mastery)
is planning. At this stage, you’ve created enough momentum and real
results that you can see, touch, and feel regarding your finances and
now it’s time to beginning planning. Creating a spending plan or a
budget insures that as your income grows, your wealth and your life-
style will grow steadily and at a measured pace, as you all the while
avoid overconsumption and falling into a debt trap.
The problem of indebtedness is being tackled by many communi-
ties, including religious communities. Reverend DeForest Soaries Jr.,
senior pastor of the First Baptist Church of Lincoln Gardens in Som-
erset, New Jersey, has made a commitment to his congregation to help
them clean up their financial lives through the church’s revolutionary
program “dfree.” The foundation of the dfree program is the elimina-
tion of three things: debt, delinquencies, and “deficit living,” or not liv-
ing within one’s means. These three objectives are reinforced through
dfree’s “Say Yes to No Debt” pledge9:
I pledge:
n To use God’s strategy for managing money
n To keep my expenses below my income
n To pay my bills on time
n To invest in assets that grow in value
n To contribute to my church and its ministries [community]

Reverend Soaries says, “There are many definitions of freedom. Given

the avalanche of bankruptcies, foreclosures, and high-interest credit
card debt that many people are experiencing, there may be no greater
 Pillar Two: Saving I 27

need than to understand the value and joy of debt-free living. There
may be no greater legacy we can leave our children. Our ships [for-
tunes] can come in if we make a commitment to debt-free living and
teach our children how to manage money and invest in their futures.”10
Other religious communities, including temples and mosques, could
adopt similar programs to help members be financially responsible.

Developing a Plan in Order to Save

Saving is a practice of delayed gratification, a way to postpone
consumption until a future time when it will be more enjoyable or
more needed. To achieve this involves directing your choices away
from satisfying immediate desires and toward the accumulation of
long-term, income-producing assets. This is the core of building your
net worth and economic progress.
We do not have to (and we should not) spend everything we earn.
Instead, it is essential to plan ahead. It is better to live below our means
now and reap the rewards later.
Your net worth is your assets minus your liabilities. You can in-
crease your net worth by earning more, cutting expenses, minimizing
(or removing) debt, saving regularly, and achieving a reasonable rate
of return on investments. To do this involves setting up a plan for sav-
ings, as described in this section. The steps of the plan are: set financial
goals, develop and live by a budget, track day-to-day spending, and get
a handle on monthly income and expenses.

Set Financial Goals

A personal wealth-creation strategy is based on specific goals. Most
people who have built wealth didn’t do so overnight. They became
wealthy by setting goals and striving to reach them.
In preparing your goals,
n be realistic;

n establish time frames;

n devise a plan; and

n be flexible, since goals can change.

28 I FIVE PILLARS OF PROSPERITY

As an example, Joseph set two short-term goals: to save $5,000 a year

for five years to have $25,000 for a down payment on a house, and to
pay off his $3,000 credit card debt within two years. He also set two
long-term goals: to save and invest enough to have $25,000 in fifteen
years for his children’s college education, and in twenty years to have
$50,000 saved toward retirement.
In the space provided, you can list your own top short-term and
long-term goals:
Short-term Goals:
1.___________________________________________________
2.___________________________________________________
3.___________________________________________________

Long-term Goals:
1.___________________________________________________
2.___________________________________________________
3.___________________________________________________

Now you can choose how you will meet those goals. This is where bud-
geting comes into play.

Develop a Budget and Live By It

When it comes to budgeting, people generally fall into one of the fol-
lowing groups. Where do you fit in? Knowing what kind of financial
manager you are will help you determine what changes to make.

Planners control their financial affairs. They budget to save.

Strugglers have trouble keeping their heads above rough finan-

cial waters. They find it difficult to budget to save.

Deniers refuse to see that they’re in financial trouble. So they

don’t see a need to budget to save.
 Pillar Two: Saving I 29

Impulsives seek immediate gratification. They spend today and let

tomorrow take care of itself. Budgeting to save is foreign to them.

Sarah, a single parent with one child, is a planner. Saving is important

to her. She budgets in order to live on her modest income. She has a
little PDA on which she tracks every dime she spends. When her son
was born, she started investing every month in a mutual fund for his
college education. She is proud to say that she controls her future. She
has bought her own home and provided for her son, and she has never
bounced a check.
Lina, by contrast, is an impulsive. Lina has a good job, makes good
money, and lives a pretty comfortable life, but her finances tell a dif-
ferent story. She has no savings or investments, owns no property, and
has no savings for retirement. Plus, she’s got a lot of credit card debt,
lives from paycheck to paycheck, and doesn’t budget.
To maximize your wealth-creating ability, you want to be a planner,
like Sarah. A budget allows you to
n Understand where your money goes;
n Ensure you don’t spend more than you make; and
n Find uses for your money that will increase your wealth.

To develop a budget, you need to both track your daily spending and
understand your monthly income and expenses.

Track Day-to-Day Spending

One day, Lina, the impulsive, realized that to create wealth she had to
become more like Sarah and plan her financial future. To start, Lina
analyzed her finances to see how much money she made and how she
was spending it. She set a goal to save $175 a month to put toward
creating wealth.
First, she tracked her daily expenses for a few days. She carried a
little notebook with her for jotting down her daily spending, whether
by cash or debit card, check or credit card. A page from her notebook
is on the following page.
30 I FIVE PILLARS OF PROSPERITY

Table 2.1 Lina’s Day-to-Day Spending

DATE EXPENSE CASH/DEBIT/CHECK CHARGE

1/2 Breakfast, Get-N-Go $3.56

1/2 Coffee .90
1/2 Lunch $6.75
1/2 Soft drink 1.25
1/2 Gas for car 46.00
1/2 Drinks with friends 10.00
1/2 Dinner 10.00
1/2 Newspaper .50
1/3 Pancakes and eggs, Moonlight Diner 4.95
1/3 Newspaper .50
1/3 Coffee .90
1/3 Lunch with coworkers 5.72
1/3 Dinner 15.00
1/3 Dress (clothing) 45.00
1/3 Soft drink 1.25
1/3 Trip to the movies 15.00
1/4 Breakfast 3.50
1/4 Coffee .90
1/4 Lunch 5.75
1/4 Cookies 1.25
1/4 Newspaper .50
1/4 Birthday present 15.00
1/4 Dinner 6.77
1/5 Breakfast 3.25
1/5 Coffee .90
1/5 Soft drink 1.25
1/5 Newspaper .90
1/5 Magazine 3.95
1/6 Breakfast 3.25
1/6 Coffee .90
1/6 Newspaper .50
1/6 Lunch 4.50
1/6 Cookies 1.25
1/6 Jacket 50.00
1/6 Video rental 3.95
 Pillar Two: Saving I 31

Table 2.2 Lina’s Monthly Budget

CURRENT INCOME NEW
INCOME CHANGES BUDGET

Take-home pay $2,235 $2,235

Overtime pay $40 40
Pension, Social Security benefits
Investment earnings not reinvested
Earnings on savings accounts
Alimony/child support
Other income
Total income $2,235 $40 $2,275

EXPENSE AMOUNT NEW

AMOUNT REDUCED AMOUNT

Rent $680 $680

Renter’s insurance 20 20
Electricity 60 60
Gas 30 30
Water 25 25
Telephone 50 50
Cable TV/Internet service 55 – 20 35
Insurance (life, disability) 0 0
Charitable donations 0 0
Credit card payment 25 25
Groceries 200 200
Clothing 130 – 30 100
Day care/tuition 0 0
Car loan 300 300
Car insurance 75 75
Gas for car 145 – 20 125
Meals out & entertainment 425 –100 325
Miscellaneous daily expenses 100 –50 50
Total expenses $2,320 –220 $2,100
Monthly net (income – expenses) $ – 45 $175
Available to save or invest $0 $175
32 I FIVE PILLARS OF PROSPERITY

Get a Handle on Monthly Income and Expenses

Lina used the information from tracking her day-to-day expenses to
develop a monthly budget. She added up her monthly bills and added
to them her monthly expenses, calculated from what she had tracked.
She also calculated her monthly income.
When Lina reviewed her budget, she realized she was spending
more than she earned. Lina knew if she were ever going to save $175 a
month, she had to cut her expenses, earn more money, or both. So she
started to work overtime at her company, which increased her take-
home pay. She also bought fewer clothes, discontinued premium cable
TV channels, carpooled to work to cut gas consumption, and reduced
her spending on eating out, entertainment, and other miscellaneous
daily expenses.
Tracking her expenses paid off. Lina successfully developed a bud-
get that enabled her to save $175 each month (see page 32).
If Lina sticks to her budget, she will have $175 a month that she can
n put in a savings account;
n invest in a 401(k) retirement plan at work;
n invest in an individual retirement account (IRA or ROTH-IRA);
n invest in stocks or mutual funds; or
n use to pay off debt.

These are just some of the wealth-building choices that become avail-
able when you budget to save.

Specific Suggestions for Saving

An important aspect of saving money is establishing habits that pro-
mote saving. Gary Moore, in Faithful Finances 101, writes: “The first
rule of making money is not to lose it. Take time with your family to
sit down and make a list of how each family member can contribute to
saving money each day.”11
In her book 7 Money Mantras for a Richer Life, Michelle Singletary
recommends establishing several money-saving habits.12 The first is to
 Pillar Two: Saving I 33

deposit money in a savings or “rainy-day” account. This fund should

provide for the inevitable rainy day when an appliance breaks down,
or for the monsoon of losing one’s job, she said. You should make it a
practice to put away money in the rainy-day fund when you receive
bonuses, gifts, income tax refunds, salary increases, a windfall (such as
an inheritance), or repayments of loans (return of funds you loaned).
She also suggests accumulating “good” assets, such as cash, invest-
ments, real property, and personal property (car, clothing, household
goods, and furniture). At the same time, you should avoid accumu-
lating bad assets (such as the junk accumulating in the garage or the
self-storage unit, and other infrequently or never-used items).
Singletary also recommends that before making a purchase, you
always ask yourself if it is a necessity or a want. Today, most of the
major manufacturers, like Apple, are churning out interesting and
highly addictive products every two years, stoking a perpetual desire
and lust for the latest gadget. Ask yourself the following: “Is it really
necessary for me to spend $200 every two years for a new cell phone?”
Marketers regularly incorporate the latest advances in behavioral sci-
ences to figure out how to compel and influence desire and need for
their products, with many successfully convincing you their brand is
an important part of one’s “lifestyle.”
Small expenses definitely add up, especially when we treat “wants”
as “necessities.” Starbucks’s 2011 revenue was $11.7 billion (the equiva-
lent of $37.36 for every American)—a clear indication of how much
Americans are spending for “wants.”13 Singletary notes how high much
of our daily spending can be, including expenses such as lunches,
phone calls, restaurant meals, movies, bank charges, delayed payment
charges, and so on.
Another point Singletary emphasizes is that cash is better than
credit, and she encourages people to “avoid credit card craziness” un-
less you pay off your credit card bill each month. American business
magnate Warren Buffett offers advice along the same lines: “Stay away
from credit cards and bank loans and invest in yourself and remember:
Money doesn’t create man, but it is the man who created money.”14
34 I FIVE PILLARS OF PROSPERITY

Singletary presents three other useful principles of sane money

management: keep it simple; priorities lead to prosperity; and pay at-
tention if you are immersed in a cycle of being tired because you are
working too hard to pay your bills, at the expense of your time with
family and friends.
Singletary’s suggestions clearly support spending wisely, and
spending wisely and in moderation is a key to being able to save. There
are other behavioral changes that may not appear to directly affect our
individual budgets. However, if everyone attempts to save money in
these ways, our behavior can affect how much we are charged in the
future for items such as utilities, household goods, and so on. Here are
some ideas to save money, including several from Singletary’s chapter
“Penny Pinchers”:
n Conserve water and electricity.
n Use only the hot water you absolutely need.
n Turn down the temperature of your water heater by 10 to 20
degrees.
n Use travel bargains and frequent flyer miles for perks and up-
grades.
n Stock up at bulk stores on travel essentials and food prior to
your trips.
n Turn off the lights at home, in the office, and in hotels (when
not in use).
n Think globally: your behavior outside the home affects overall
energy costs.
n Use the stairs instead of the elevator (good for health and saves
energy).
n Turn up the thermostat in summer by 1 degree and down by 1
degree in winter, saving about 3 percent on your energy bill.
n Use environmentally safe laundry and dishwasher detergents.
n Unplug chargers and appliances when not in use (saves energy).
 Pillar Two: Saving I 35

These ideas can be supplemented by many more. Take time to brain-

storm other energy-saving and cost-saving ideas with your family and
friends. Begin to practice them, and soon these new habits will become
part of your daily routine. We must find new ways of doing things
better, faster, and cheaper, resulting in more savings.
Warren Buffet gives the following advice:15
n Live your life as simply as you can.
n Don’t be seduced by the brand label; instead wear things that
are made well and are comfortable.
n Avoid wasteful spending.
n Manage your life and priorities so that you can live on less than
you earn, saving 20% (or preferably 30% or more) on all that
you make.
36 I FIVE PILLARS OF PROSPERITY

Turning Off the Lights:

Saving Two Cents Can Go a Long Way
Growing up, my siblings and I were trained to save money by cutting
unnecessary expenses. In particular, my dad always stressed turn-
ing off lights. I remember my dad frequently coming into the living
room, turning off any unused lights, and then turning to me and say-
ing, “Younus, that’s saving two cents right there.” (My dad always
made sure to turn off the lights in front of me and then explain to me
why he was doing it.) Whenever I left the house and forgot to turn
off the lights in my room, he would remember (even if it was hours
later) to tell me that he had turned off my room’s lights.
This constant reinforcement eventually had an impact on me, but
I did not realize how much I had internalized the lesson of turning off
the lights until I got married. My wife would sometimes come home
to a dark house and perplexingly ask, “Younus, why are all the lights
turned off except the one that you are using?” I would respond,
“Ask my dad.” I would find myself unconsciously going through the
house turning off lights. Sometimes I would accidently turn off the
light that my wife was using, leading her to exclaim: “Younus, I am
using that light! Go find another light to turn off!”
But the biggest lesson I learned was that it wasn’t good enough
to save money for money’s sake. I never saw my dad going through
his bank account giddy with how much money he had. Rather the
purpose of the lesson was so we could invest money in more im-
portant things, notably education and helping those in need. When
it came to buying books or paying for college, my dad was always
eager to help out. Whenever somebody needed assistance, my
dad would take pride in being the one who was able to provide
the support. Thus I learned an invaluable life lesson that I am now
passing on to my kids: saving two cents now can eventually turn
into helping others later.
– Younus Y. Mirza, Ph.D.
3 I Pillar Three: Investing

As Irfan Ul Haq points out in Economic Doctrines of Islam, accumula-

tion of wealth for its own sake is highly undesirable. The Qur’an severe-
ly condemns the noninvestment, or hoarding, of wealth (Q 102:1–6;
104:1–9).1 Instead, according to Islamic principles, once a reasonable
amount of money has been saved, some portion of it should be invested.
Many people make the mistake of looking at investing as a means
to becoming wealthy. In fact, true wealth cannot be “purchased”; it is,
instead, a state of mind. Your wealth consists of not only material things
but also less tangible things such as your health, your time, your rela-
tionships (with family, loved ones, and the community), your generos-
ity, and your heart. The sole purpose of investing is to generate income.
Investing, besides increasing one’s own wealth, has social value.
Irfan Ul Haq comments on the benefits of both private and social in-
vestments. When savings are invested as private investments (through
nonpublic markets), they create goods and jobs, generate income, im-
prove the living standard, and bring monetary reward to the investor.
For this reason, private investing is meritorious and rewardable in the
eyes of God.
Similarly, when savings are invested as social investments (for the
betterment of society), they benefit the recipients, meeting their im-
mediate needs and raising their living standard while also adding to
aggregate demand and creating jobs and income through the multiplier
effect. Social investing is therefore rewarded several-fold while allowing
the purification and “sweetening” (tazkiyah) of the investor’s wealth.2
I learned the value of investing early on through personal experi-
ence. In the early 1970s, when I was a graduate student, I saved about
$200 a month (65 percent of my income). When I became a postdoc-
toral fellow, this amount increased to about $500 a month. By 1980, I
had accumulated around $53,000. These funds, which were invested

37
38 I FIVE PILLARS OF PROSPERITY

at a 10 percent rate of return on average, grew to $120,000 by the time

my wife and I built our house, and to $266,000 by the time our oldest
child was ready to go to college. By continuing to add some portion of
our savings to these funds over time, we had enough to cover college-
related expenses for our three other children and part of the purchase
price of our house and cars.
What makes investing over a long period of time like this so suc-
cessful is the power of compounding, which is best illustrated by com-
paring the following three examples:
As a girl, Sana showed that she was smart and responsible, so her
parents wanted to do something nice for her by securing her future
financial needs, including retirement. When she turned fourteen, her
parents decided to gift her $2,000 every year for the next five years.
They invested the money in a stock mutual fund (investing in growth
stocks that follow Islamic principles). The investment during those five
years totaled $10,000.
At age nineteen, Maryam secured a good job. She wanted to save
and invest her money, so she asked her uncle for advice. He suggested
investing $2,000 each year in a mutual fund (investing in growth stocks).
She downloaded the forms, carefully read the prospectus, and opened
her account. At age twenty-seven, she decided to buy a house and stop
contributing to this savings account, letting it grow without adding more
to it. Her total investment during those eight years was $16,000.
Julie had student loans that she wanted to pay off. She was very con-
scious of saving, so at age twenty-seven she decided to invest $2,000
each year until she reached the age of sixty-five. Her total investment
during those thirty-nine years was $78,000.
Table 3.1 compares the total accumulation of funds for each woman
when she reaches age sixty-five, assuming a 10 percent annual rate of
return. (This rate is not utopian, because historically, since 1926, US
stocks have yielded an average rate of return of more than 10 percent.)
By comparison, bonds (not recommended) have averaged 5 percent,
with inflation averaging around 3 percent per year.
The lesson of this comparison is clear: Time plays two key roles in
wealth-building activities. It is the determining factor in the effectiveness
 Pillar Three: Investing I 39

Table 3.1 Comparison of Total Accumulation of Funds by Age 65

Sana Maryam Julie
Investing began Investing began Investing began
at age 14 at age 19 at age 27
(10% Annual Return) (10% Annual Return) (10% Annual Return)
AGE INVEST. TOTAL INVEST. TOTAL INVEST. TOTAL

14 $2,000 $2,200
15 2,000 4,620
16 2,000 7,282
17 2,000 10,210
18 2,000 13,431
19 0 14,774 $2,000 $2,200
20 0 16,252 2,000 4,620
21 0 17,877 2,000 7,282
22 0 19,665 2,000 10,210
23 0 21,631 2,000 13,431
24 0 23,794 2,000 16,974
25 0 26,174 2,000 20,871
26 0 28,791 2,000 25,158
27 0 31,670 0 27,674 $2,000 $2,200
28 0 34,837 0 30,442 2,000 4,620
29 0 38,321 0 33,486 2,000 7,282
30 0 42,153 0 36,834 2,000 10,210
31 0 46,368 0 40,518 2,000 13,431
32 0 51,005 0 44,570 2,000 16,974
33 0 56,106 0 48,027 2,000 20,871
34 0 61,716 0 53,929 2,000 25,158
35 0 67,888 0 59,322 2,000 29,874
36 0 74,676 0 65,256 2,000 35,072
37 0 82,144 0 71,780 2,000 40,768
38 0 90,359 0 78,958 2,000 47,045
39 0 99,394 0 86,854 2,000 53,949
40 0 109,334 0 95,540 2,000 61,544
41 0 120,267 0 105,094 2,000 69,899
42 0 132,294 0 115,603 2,000 79,089
43 0 145,523 0 127,163 2,000 89,198
44 0 160,076 0 139,880 2,000 100,318
40 I FIVE PILLARS OF PROSPERITY

Table 3.1 Continued

Sana Maryam Julie
AGE INVEST. TOTAL INVEST. TOTAL INVEST. TOTAL

45 0 176,083 0 153,868 2,000 112,550

46 0 193,692 0 169,255 2,000 126,005
47 0 213,061 0 188,180 2,000 140,805
48 0 234,367 0 204,798 2,000 157,086
49 0 257,803 0 226,278 2,000 174,094
50 0 283,358 0 247,806 2,000 194,694
51 0 311,942 0 272,586 2,000 216,363
52 0 343,136 0 299,845 2,000 240,199
53 0 377,450 0 329,830 2,000 266,419
54 0 415,195 0 362,813 2,000 295,261
55 0 456,715 0 399,094 2,000 326,988
56 0 502,386 0 439,003 2,000 361,886
57 0 552,625 0 482,904 2,000 400,275
58 0 607,887 0 531,194 2,000 442,503
59 0 668,676 0 584,314 2,000 488,953
60 0 735,543 0 642,745 2,000 540,048
61 0 809,098 0 707,020 2,000 596,253
62 0 890,007 0 777,722 2,000 658,078
63 0 979,008 0 855,494 2,000 726,086
64 0 1,076,909 0 941,043 2,000 800,895
65 0 1,184,600 0 1,035,148 2,000 883,185
Total Total Total
invested = $10,000 invested = $16,000 invested = $78,000
Earnings beyond Earnings beyond Earnings beyond
investment = $1,174,600 investment = $1,019,148 investment = $805,185

of compounding income. And it is an ally with regard to your investment

“time horizon,” meaning that the more time you have to invest, the more
likely it is that good years will offset bad years and your investment’s re-
turn will come close to the long-term average that you expect.
The best way to build a sizeable estate is to start early. The next best
way is to start at once. During a CNBC interview program with Liz
 Pillar Three: Investing I 41

Claman, Warren Buffett said that he bought his first share of stock at
age eleven, and he now regrets that he started too late.3
As a businessman, investor, and active member of the Muslim com-
munity, I am often approached by people seeking investment advice.
While an in-depth discussion of investing is beyond the scope of this
book, there are in fact quite a number of excellent books on the subject,
which can be found in the bibliography section at the end of this book.
What follows are several key pieces of advice I can offer about investing.4

Set Up an Investment Strategy

The first key piece of investing advice is to have a strategy. When it
comes to investments, many people are simply confused. As often as
not, their investments are nothing more than a haphazard collection
that accumulated over time without careful planning, though each
investment may have seemed good at the time of purchase. The results
of a lack of planning can be risky, leaving people short of achieving
important financial goals, such as having sufficient retirement income
or money for their children’s college education.
Selecting an investment strategy may seem like a difficult task. In
fact, it is not so difficult. Focusing on your long-term financial goals
(where you want to be in several years) is the starting point.
Step 1: Take your financial inventory. Pull out your financial
records on stock investments, mutual funds, or other liquid assets. Add
the value of your house or condominium. Search for hidden assets like
retirement plans, IRAs (individual retirement accounts), life insurance
policies, and so forth. Once you have located your assets, total them
up. Then subtract any debts you have: mortgages on real estate, taxes
you owe but have not yet paid, credit card balances, home equity loans.
The resulting figure is your net worth.
Step 2: Create your emergency fund. Once you have
completed your inventory, set aside an emergency fund, which should
be about six months’ expenses. You should not take even modest
investment risks until you have accumulated enough funds to cover
your basic emergency needs.
42 I FIVE PILLARS OF PROSPERITY

Step 3: Determine your risk tolerance. Next, determine the

amount of investment risk you can afford to take. Generally, the longer
it will be until you need your money, the greater the risk you can afford
because you have the time to ride out temporary drops in the value of
your investments.
On the other hand, if you will need your money soon—perhaps you
are nearing retirement and will need the money to pay expenses—you
should limit your investment risks. You do not want to take the chance
of having to raise funds for living expenses at a time when the value of
your portfolio is temporarily low.
Furthermore, if you are the sort of person who can’t sleep at night
because your portfolio is temporarily down even a little in value, then
you should definitely limit the risk you take. Peace of mind is important.
Step 4: Create an investment portfolio. The next step is to
construct a diversified portfolio that blends many types of investments
in order to lessen the risk associated with limiting yourself to only a
particular investment. A diversified portfolio might include several
types of investments: stocks, profit-sharing funds, real estate, and pre-
cious metals. For the Muslim investor who desires to follow Shari‘ah,
many kinds of investments present a problem because the type of busi-
ness type is unacceptable or the company pays interest. For this reason,
stocks play an unusually important role for Muslim investors.
Of course, the Muslim investor must pay attention to the companies
in which he or she holds stock to be sure they follow practices consistent
with Islamic principles. This isn’t always easy. Coca-Cola, for example,
may appear to be simply a soft drink company, but it also has large hold-
ings in the wine business, which is prohibited for investment by Muslims.

Consult an Investment Professional

Another key piece of advice for successful investing is to consult an
investment professional. In fact, not working with a professional is
often the primary reason people do not reap the full potential of their
investments.
When people achieve a certain degree of success in a profession
(say, in medicine or engineering or science), they sometimes assume
 Pillar Three: Investing I 43

they can be equally successful in making the choices that become

available as a result of that success, including choices about investing.
However, as Michael Mauboussin explains,5 such overconfidence can
lead to three illusions that can cause poor decisions: an unrealistically
positive view of oneself, seeing one’s own future as brighter than that
of others, and behaving as if one can control, or at least influence, cir-
cumstances that one demonstrably has no influence over.
In fact, success in one’s profession cannot guarantee success in oth-
er areas of one’s life. Accessing investment opportunities and making
investment decisions require special training and skills. Not everyone
can be good at these tasks, just as not everyone can be a good doctor
or engineer or scientist.
Not only that. Not all investment professionals are the same, just as
not all doctors are the same. Some are excellent doctors, and others are
not so excellent. For this reason, choose your investment professional
as carefully as you would choose your doctor or lawyer or other profes-
sional consultant.
Above all, do not buy something just because an expert, such as the
ones you see on CNBC, recommended buying it. Consider this: How
will you know when that same expert will sell it?

Educate Yourself
Successful investing requires some effort to educate yourself. The best
investors spend time learning about the markets they are investing in.
While a good advisor is invaluable in guiding an investor’s investment
decisions, it is still up to the investor to understand what he or she is
investing in—both the risks involved and the rewards. I can recom-
mend several great books to help you get started. Burton Malkiel’s
A Random Walk Down Wall Street is a timeless classic, and Warren
Buffett’s Berkshire Hathaway Letters to Shareholders: 1965–2012 reveals
his views on business and investing. Peter Lynch’s Learn to Earn is an
excellent primer for young investors, while The Intelligent Investor, by
Benjamin Graham, is an advanced book that may prove valuable once
you have gained some experience with the markets.
44 I FIVE PILLARS OF PROSPERITY

Take a Consistent Approach

Another key to successful long-term investing is consistency. Most in-
dividual investors tend to be market followers, investing when things
seem to be going well and selling (or at least holding off on investing)
when things don’t look so good. However, following the market vio-
lates the basic rule of investing: buy low and sell high. Unfortunately, it
is hard to tell what “low” or “high” is in an investment context, so many
people tend to time their buying and selling badly. In addition, many
studies have shown that timing the markets accurately is extremely
difficult. Even if you do a good job of market timing, you must be right
most of the time to make it worth the trouble.
For the majority of investors, a consistent and disciplined approach
is important. Select your strategy, stick to it, pick your investments
accordingly, and make your investments consistently.

Seek Out Faith-Based Investments

In addition to developing an investment strategy, consulting a profes-
sional, and being consistent with their investing strategy, investors
who wish to follow the principles of Islam have special needs to be
 Pillar Three: Investing I 45

met. Following Islamic financial principles, Muslims tend to avoid

speculation, in the sense of uninformed, undisciplined betting on the
future. Many Muslims avoid futures contracts or investments that are
not backed by a tangible asset or identifiable service. And Muslim in-
vestors want to their investments to be Shari‘ah compliant.

Investment Vehicles for Muslim Investors

The remainder of the chapter discusses several key investment vehicles
available today, including some that are especially appropriate for
Muslim investors.

Real Estate: A Traditional Choice

Investing in real estate for the long term is a long-standing traditional
way to accumulate wealth through increases in value of the asset and
rental income. Investments in real estate usually start when a person buys
a home to live in. People also invest in real estate in the form of vacation
homes, waterfront properties, condominiums, and apartment buildings.
They also buy investment units in publicly traded REITs (Real Estate
Investment Trusts) or in private partnerships that own real estate.
When investing in real estate, a Muslim can try to ensure that the
method of financing is Shari‘ah compliant. For additional information
on investing in real estate I recommend Virginia Morris’s book, A
Muslim’s Guide to Investing and Personal Finance.6
Yet with real estate, as with any investment, there are risks. If the
real estate market declines, one stands to lose. This is especially true if
the real estate holdings are leveraged.
Buying an older property poses its own challenges because of the
upkeep involved and the need to make sure the property conforms to
current building codes. It is wise to do a comprehensive investigation
into the operation costs, maintenance costs, and other costs (e.g., en-
vironmental costs, such as the cost of removing asbestos or lead from
the property) before deciding to purchase such property.
Ramit Sethi, in his book I Will Teach You to Be Rich, realistically
analyzes the pros and cons of buying a house.7 Sethi quotes a comment
made by Yale economist Robert Shiller: “From 1890 through 1990,
46 I FIVE PILLARS OF PROSPERITY

the return on residential real estate was just about zero adjusted for
inflation.”8 I have looked at the same charts from 1890 through 2011
and seen that the result is almost the same. Real estate prices peaked
in 2006, but then turned right back down and are projected to decline
almost to the level where they were when the boom started.9
Sethi comments: “Of course, there are certainly benefits to buying a
house and, like I said, most Americans will purchase one in their lifetime.
If you can afford it and you’re sure you’ll be staying in the same area for
a long time, buying a house can be a great way to make a significant
purchase, build equity, and create a stable place to raise a family.”10
He suggests a conservative approach to buying a home—one
should put a down payment of at least 20 percent, and get a 30-year
fixed mortgage (I prefer 15-year mortgages) which should represent
no more than 30 percent of the buyer’s gross pay. The buyer should
plan to live in this house at least five or ten years, preferably longer.
If you cannot do as Sethi suggests, then it is probably best to wait
until you have saved enough money for the down payment. You can
stretch a little but not too much.

The Role of Stocks in a Muslim’s Portfolio

Common stocks play a major role in any long-term investment strategy.
Owning stocks represents partial ownership of a business and a claim on
the business’s earnings and value over time. Although the value of stocks
fluctuates with changing market conditions, successful businesses grow
in value, and this growth generally results in higher stock prices.
As a successful company’s earnings grow, they are either reinvested
in the business to increase its value or paid out to shareholders as divi-
dends. Stocks earn a return based on the company’s success. Stocks are
not interest-paying securities representing a loan, and therefore stock
ownership is considered an acceptable instrument for Muslims.
Remembering that stock prices fluctuate, an investor should be
careful to diversify, or blend, the investment portfolio across several
companies and industries. Diversification diminishes the risk of a single
company’s stock price severely reducing the value of an entire portfolio.
 Pillar Three: Investing I 47

One strategy that helps diminish fluctuations in the value of a stock

portfolio is to invest in companies that have a record of paying consistent
dividends. Because such companies are generally more mature, they
tend not to have the growth potential of smaller, less mature companies.
Companies that are rapidly growing and reinvesting every available
dollar back into their growth can become very profitable. However, the
less volatile stock price and steady payment of dividends of a mature,
stable business often show up as a more stable portfolio value.

Mutual Funds: A Possible Solution

One way to get a desirable balance of growth, diversification, and in-
come in a portfolio is with mutual funds. Mutual funds pool the assets
of investors. They also provide the following for the individual inves-
tor: professional management services, buying and selling of stock in
the portfolio, simplified record-keeping, lower transaction costs, and a
well-researched investment portfolio.
Each fund has a different objective. A potential investor needs to
read each fund’s prospectus to be certain that its objective is in concert
with his or her own. Some funds charge sales commissions (“loads”)
when stocks are bought or sold. The funds with no sales charges (“no-
loads”) represent the best value, since no money is going towards sales
costs. Other funds say they have no loads but charge ongoing fees,
called “12b-1 fees” (used to cover costs of marketing the fund), after
the rule permitting them. These extra fees and charges add up. Read
every fund’s prospectus carefully and understand all the charges and
expenses of the fund before you invest.
While no mutual fund can guarantee that it will achieve its objec-
tives, by diversifying their investments mutual funds help reduce the
risk of owning just a few securities. Before selecting a fund, an investor
must carefully read its prospectus and study its historical performance
and expense ratio. It is also wise to consult an advisor to determine
whether a particular fund is suitable for you.
One popular technique for mutual fund investing that also uses the
principle of consistency in investing is called “dollar-cost averaging.”
48 I FIVE PILLARS OF PROSPERITY

This involves periodic investments into mutual funds at specified con-

sistent intervals, regardless of market conditions.
By following such a consistent strategy—say, a weekly or monthly
investment of a hundred dollars—you are forced to buy fewer shares
than you normally would when the price per share is high, and to buy
more shares than you normally would when the price is low. The result
is a lower average cost per share. Consider the following example,
illustrated in table 3.2:

Table 3.2 Calculating Average Share Price and Average Price per Share
AMOUNT SHARE NUMBER OF
MONTH INVESTED PRICE SHARES OBTAINED

1 $100 $10.00 10.000

2 $100 $9.00 11.111
3 $100 $8.00 12.500
4 $100 $7.50 13.333
5 $100 $7.00 14.286
6 $100 $6.00 16.667
7 $100 $5.50 18.182
8 $100 $5.00 20.000
9 $100 $4.00 25.000
10 $100 $3.00 33.333
11 $100 $2.00 50.000
12 $100 $1.00 100.000
$1,200 $68.00 324.412

Average share price: $5.67

Average price per share purchased: $3.70

Study carefully the relationship between the last two columns. As you
can see, as the price falls, an increasing number of shares are purchased.
This is why the average price per share purchased is $3.70, not $5.67.
The average price of a share is $5.67, which is obtained by dividing
$68.00 by 12 (months).

total share prices = $68 = $5.67

12 (months) 12
 Pillar Three: Investing I 49

The average price per share purchased is determined as follows:

total amount invested = $ 1,200 = $3.70 per share

total number of shares 324.41

The two equations give different pieces of information. The first deals
with the average prices paid and the number of months it took to
acquire the shares, while the second focuses on the number of shares
owned and the money that was invested. What you learn from the first
equation is that $5.67 is the average price that the shares are worth, while
the second equation reveals that $3.70 is the average cost of those shares.
Now look again: The average price is $5.67. The average cost is
$3.70. If this investment method you are forever paying the average
cost for shares that are forever worth a higher average price, doesn’t it
suggest that this method produces a built-in-profit? Absolutely!
This is the power of dollar-cost averaging. Like diversification, it
works very well—but only under certain conditions:
1. The amount of money invested must be consistent.
2. This money must be invested at regular intervals.
3. The invested money must be recently obtained (new money,
not money from reinvested proceeds).
4. This system must be maintained for a long period of time
(years).

Without question, your retirement plan, if you are employed, is an

ideal vehicle for taking advantage of dollar-cost averaging. This is true
for four reasons:
1. Your paycheck is the same amount each pay period, so you can
place the same amount into your plan each time.
2. You get paid at regular intervals, so the contributions to the
plan are made at regular intervals as well.
3. The money gets invested the same day you are paid, so it is
“fresh cash.”
50 I FIVE PILLARS OF PROSPERITY

4. You can expect to be working for a long time—years and

probably decades. That’s more than enough time for dollar-cost
averaging to ride the waves of the market’s volatile performance.

Whatever strategy you use, the point is to invest regularly, consistently,

and without regard to a particular market level that may cloud your in-
vestment judgment. The goal is to accumulate wealth for the long term.

Faith-Based Mutual Funds

Because mutual funds offer a selected portfolio of investments, they can
be designed to follow certain chosen guidelines, including those dictated
by principles of faith. Faith-based funds can be not only ethical but also
profitable, yielding a 10 percent annual rate of return. In fact, there are
several Islamic-based mutual funds that over a long period, say, fifteen
years, provide returns in excess of 10 percent. You can search for these
funds on fund ranking and research sites such as Morningstar or Lipper.11
Most faith-based funds start their stock picking by screening out
what they call “sin stocks.” These are stocks in companies that produce
harmful products or offer immoral services, such as abortion, pornog-
raphy, gambling, alcohol, or tobacco.12
 Pillar Three: Investing I 51

Jay Peroni, who specializes in faith-based investing, cautions us,

however. What one denomination may think is acceptable for invest-
ment, another may not. “There are different opinions even within one
faith,” he says.13 Daren Fonda, in his article “Faith and Finance” in
Smart Money magazine, describes the criteria used by various faiths,
from evangelical Christians to Mennonites to Muslims, and how they
impact historically on fund performance.14
Today there are several mutual funds designed to meet Islamic re-
quirements, such as Amana Income Fund (AMANX), Amana Growth
Fund (AMAGX), Imam Fund (IMANX), Azzad Ethical Mid Cap
Fund (ADJEX), Azzad—The Wise Capital (WISEX), and the Amana
Developing World Fund (AMDWX). These funds avoid interest (riba)
by not investing in bonds and other fixed-income securities. Nor do
they invest in businesses that deal in goods and services considered
harmful by Shari‘ah law. These funds seek to offset inflation by making
long-term equity investments.
Mutual funds based on Islamic principles follow several guidelines
that have been agreed upon by Muslim legal scholars. These principles
cover not only how the companies whose stocks are in a given portfolio
should conduct business but also other aspects of the fund, including
how the fund is managed. Investments following Islamic principles
adhere to the following:
1. Transactions must be free of interest (“unearned income”).
2. Money in itself should not be used to produce money. There
should be direct participation in an economic activity.
3. Competition is encouraged, in contrast to monopoly. Elimi-
nating monopoly is regarded as a prerequisite to justice and
growth.
4. Bribery and stealing are prohibited.
5. Justice and fairness in all aspects of business transaction are
required.
6. Transactions must be documented and witnessed.
52 I FIVE PILLARS OF PROSPERITY

7. Each person must be given his or her due share.

8. Productive enterprise, cooperation, and development must be
encouraged.
9. Development efforts must include social development. Indi-
vidual cooperation must be voluntary, not forced.
10. Hoarding of money is strictly prohibited. One of the purposes
of zakah is to discourage hoarding (and encourage invest-
ments).
11. Unnecessary destruction of nature is prohibited, but moderate
exploitation of resources is allowed.
12. Labor should be valued and must be compensated. Laborers
should get their fair remuneration without delay.
13. Speculation is not allowed.
14. Harmful goods and services cannot be produced, consumed,
or traded. These are the following:
n Alcohol
n Tobacco
n Pork-related products
n Unjust financial services (conventional banking, i.e.,
interest-based banks or savings and loan associations)
n Weapons used to suppress people or for mass destruction
n Immoral entertainment (casinos, gambling, pornogra-
phy, etc.)
n Illegal drugs
n Harmful products (items that cause pain or suffering un-
der normal use)

Amana Mutual Fund

Amana (ticker symbols: AMANX, AMAGX, and AMDWX),
headquartered in Bellingham, Washington, is the first and largest US
 Pillar Three: Investing I 53

mutual fund following Islamic principles. The Amana Funds are

unique in that they were specifically conceived to meet the specific
needs of Muslim investors.
For example, Muslims are motivated to save and invest in order to
prepare financially to make the hajj, which in Islam is considered one of
life’s primary duties. The money used for hajj must be saved and invested
according to Shari‘ah principles. To make the hajj, a Muslim must first get
his or her financial house in order, which presents special challenges if
the money is to be invested in compliance with Shari‘ah principles.
The guidelines that Amana follows when deciding whether to
buy, hold, or sell stocks are in keeping with Islamic principles. These
guidelines, or screens, help Amana sift through and select potential
investment opportunities.
The first factor Amana considers when buying stock is the com-
pany’s debt-to-market capitalization ratio, since Amana will invest
only in companies that have moderate to low debt. The debt-to-market
capitalization ratio should be less than one-third.
It is understandable that companies do and will borrow money
from time to time to expand business or add new equipment or un-
dertake new ventures. However, when companies start getting into
trouble, the common trend is for them to borrow more money. Four
prominent examples are Enron, MCI, WorldCom, and Adelphia. The
debt-to-market capitalization ratio of these four companies used to be
less than one-third, then jumped higher than one-third. An investor
following Amana’s policy would have sold his or her stock twelve to
eighteen months before these companies went down. In fact, Amana
did own stock in Enron, but following its guidelines and screens, it
sold off its Enron stock long before the company’s devastating collapse.
The second factor Amana looks at is the company’s accounts receiv-
able and cash deposits. The acceptable ratio [(accounts receivable +
cash) ∕ total assets] is less than 45 percent. If the ratio is more than 50
percent, the company’s stock can be traded but only at book value,
without any premiums.
The third factor Amana considers is whether impure revenue (in-
terest, selling pork and wine, etc.) earned by the company is less than
54 I FIVE PILLARS OF PROSPERITY

Table 3.3 Applying Amana Mutual Fund Screens

Teck Resources (TCK):

Metals mining and processing.
Revenue & income growing, solid profit:
20000 100%

Revenue Net income Profit margin (%)

15000 75%

10000 50%

5000 25%

0 0%
2007 2007 2009 2010 2011

Teck Resources (TCK):

Passes financial screens.

Total Market Cap: $35,730,690,755

Total Debt: $ 5,793,244,626
Ratio: 16%

Total Accounts Receivable: $ 1,100,991,294

Total Assets: $29,395,662,456
Ratio: 4% .ACCEPTABLE.

5 percent. We find that companies who generate large income from

interest and are accumulating large amounts of cash, are often are af-
flicted with the “urge to merge;” and may be a strong indicator that
the business isn’t a good investment (excess cash often indicates poor
management or reinvestment deficiencies). Dividends received from
such a company can be purified by giving away in charity this percent-
age of “impure income.”
 Pillar Three: Investing I 55

Table 3.3 shows how these financial screens are applied to a com-
pany called Teck Resources.
Amana has grown steadily over the years and is now experienc-
ing exponential growth. A recent MSN Money article praised Amana
and the return it was providing to investors. It also stated that, among
social and religious investors, Muslims have the best chance to do well.
The fact that Amana does not invest in banks that lend money based
on interest or in companies that borrow heavily has helped.

Modes of Islamic Financing

One of the current trends in finance these days is the growing interest
in socially responsible financing, a quest that Islam supports. Islamic
finance promotes universal human improvement and, along the way,
yields a fairer distribution of benefits than most conventional finance
approaches. The following Islamic financial principles are being fur-
ther developed and refined in various types of financial arrangements:
Mudarabah (Profit Sharing). Mudabarah is a contract under which
the two parties, the supplier of capital and the entrepreneur (general
partner), share the profits according to an agreed-upon profit-loss-
sharing (PLS) ratio. The PLS ratio is typically 50:50 or 40:60.
The first key element of a mudarabah contract is that the financier
or investor is not guaranteed a specific profit. There is no fixed an-
nual or monthly payment. This is in direct contrast to conventional
interest-based lending and financing, in which a loan is not contingent
upon the profit or loss of the enterprise, requires monthly payments,
and is normally secured by a collateral.
The second key element is that the financier or investor is not li-
able for losses beyond the capital he or she has contributed, and the
entrepreneur does not share in financial losses except for the loss of his
or her time and effort.
Musharakah (Joint Venture). Musharakah is a partnership contract
between two or more parties, each of which contributes investment
capital. The first element of a musharakah contract is that both parties
contribute capital. Profits are shared by a prearranged agreement, not
56 I FIVE PILLARS OF PROSPERITY

Table 3.4 Comparison Between Conventional and Murabahah Transactions 1

CONVENTIONAL LOAN MURABAHAH TRANSACTION

Underlying Loan (money with money) Sale (money for goods)

transaction
Profit to bank May be variable or fixed Price must be fixed
according to customer and
bank mutual agreement
Asset for bank Loan receivable Sales receivable
upon funding
Late payment Additional income to bank None or charity – because
riba al-nasi’ah 2
Restructuring Yes, at additional interest Restricted: Extension of time
(loan duration) without increasing
the amount due.
Early settlement May agree to rebate formula Rebate at bank’s discretion
up front and in documents
Sell portfolio to Any price – may discount Exchangeable without premium
third parties or discount (bai al-dayn) 3
Default Continuing liability No liability; however, a Muslim
should honor its commitments

1. Copyright 2012 All Rights Reserved SHAPETM Financial Corp. From: The CIFA Guide to Islamic Finance. Permission granted
to M. Yaqub Mirza to reproduce with attribution.
2. A type of riba that exists in, or results from, a sale transaction that unduly benefits one the counterparties in the form of a
surplus or extra amount due to delay of delivery of his or her side of the transaction. More specifically, riba al-nasi’ah arises
in loan transactions (on the basis of future repayment of more than the principal) as well as sale transactions (on the basis of
deferred price). An example of loan-based riba al-nasi’ah would be a loan with $1,000 principal on which $1,200 is to be paid

necessarily in proportion to their capital contribution. In case of loss,

parties share in proportion to their capital contribution.
The second element is that all parties share in determining how the
investment is managed. Thus any partner has the right to examine the
enterprise’s books and supervise its management. The third element is
that liability is unlimited.
Murabahah. Murabahah is a cost-plus-profit margin contract
whereby the financier purchases an asset on behalf of the entrepre-
neur and sells it, usually at a profit or higher price, to the entrepreneur
at a predetermined price, paid over time. The key characteristic of a
 Pillar Three: Investing I 57

Table 3.4 Continued

Murabahah, a sales contract with the profit disclosed to the buyer, is the main tool of
modern Islamic finance. The nature of murabahah is to sell and give credit by allowing
deferred payment. Because murabahah discloses the seller’s price and profit, and results
in credit, many global banking authorities permit it as a credit instrument.
In the United States, banks with Islamic financial products such as University Bank en-
gages in home finance via murabahah to purchase order. Instead of lending money to
the customer secured by a mortgage, University Bank buys a house selected by the cus-
tomer, receives title, and then sells it to the customer. This gives the bank some risk of
having to dispose of the house if the customer declines to complete the transaction, and
the bank is unable to claim penalty interest for late payments. Customers who wish to
have more time to pay their murabahah off will have the same price with no adjustments
to raise the price. Around the world, banks use murabahah for consumer goods finance,
import finance, and commercial supply programs. In some countries, banking authorities
allow banks to hold inventories waiting for customers to come, select an item, which the
customer may then buy on murabahah basis.
This differs from a conventional loan significantly, as a loan is an exchange of one
amount of money for more money later. But, in a murabahah transaction there must be a
non-monetary good or item to be sold in exchange for money. Finally, since murabahah
involves goods, the buyer has many rights, which include inspection and the right to
reject any goods that are faulty or not as described.

next year. An example of sale-based riba al-nasi’ah is a sale of 100 kg of dates to be paid back with 120 kg six months later.
This type or riba is clearly forbidden in Qur’an. It existed in the pre-Islamic era in the Arabian peninsula, and thus was known
as riba al-jahiliyah (riba of the era of ignorance).
3. The Arabic term for the trading of debt is bay al-dayn. The majority of scholars in the Middle East consider the trading of
debt to be similar to trading of money. In general, this means that a debt can only be transferred at face value and not traded
at market value, as many conventional bonds are.

murabahah contract is that ownership of the asset remains with the

financier until all of the payments have been made. For a comparison
between murabahah and conventional transactions, see table 3.4.
Ijarah (Leasing). In an ijarah contract, the financier purchases the
asset on behalf of the entrepreneur and allows him or her to use it
for a fixed rental payment. The entrepreneur may eventually opt to
buy the assets at a previously agreed upon price. The key characteristic
of ijarah is that ownership of the asset remains with the financier or
is gradually transferred to the entrepreneur as the lease payments are
made.
58 I FIVE PILLARS OF PROSPERITY

Istisna‘a (Manufacturing Finance). Istisna‘a is a contract of exchange

with deferred delivery applied to specified made-to-order items. Gen-
eral principles of this practice are difficult to identify; however, very
often the following are true:
n The nature and quality of the item to be delivered must be
specified.
n The manufacturer must make a commitment to produce the
item as described.
n The delivery date is not fixed; rather, the item is deliverable
upon completion by the manufacturer.
n The contract is irrevocable after the commencement of manu-
facture except where delivered goods do not meet the contract-
ed terms.
n Payment can be made in one lump sum or in installments, and
at any time up to or after the time of delivery.
n The manufacturer is responsible for sourcing the inputs to the
production process.

Istisna`a differs from ijara (rent or lease) in that the manufacturer

must procure the raw materials. Otherwise the contract would amount
to hiring the seller’s wage labor, as occurs under ijara. Istisna`a also
differs from bay salam in that (a) the subject matter of the contract is
always a made-to-order item, (b) the delivery date need not be fixed in
advance, (c) full advance payment is not required, and (d) the istisna`a
contract can be canceled but only before the seller commences manu-
facture of the item.
Practically speaking, it is best to undertake a business or produc-
tion of a product when one is confident it can be successfully estab-
lished or completed, yet even in the most optimistic situations there
is always risk. It is in this context that some instruments of lesser risk,
like murabahah, ijarah, and diminishing musharakah, are allowed by
Shari‘ah scholars. It is also wrong to say that these instruments have an
element of camouflaged interest. In fact, if implemented with all their
 Pillar Three: Investing I 59

necessary conditions, as Shari‘ah scholars have always stressed, they

are substantially different from interest-based financing.15
Qard al-hasan (Benevolence Loan). Qard al-hasan, a zero-return
loan, or negative investment, is a great vehicle for community de-
velopment. It is not a profit-making transaction; it is a social service
vehicle providing an interest-free loan to an individual in need or to
an organization.
Takaful (Pooled Money for Emergencies). Takaful is a type of Islamic
insurance in which members contribute money into a pooling system
in order to guarantee each other against loss or damage. It offers an
alternative to conventional life, property, and car insurance. The prin-
ciples of takaful are as follows:
n Policyholders cooperate among themselves for their common
good.
n Every policyholder pays his or her subscription to help those
who need assistance.
n Losses are divided and liabilities spread according to the com-
munity pooling system.
n Uncertainty is eliminated concerning subscription and com-
pensation.
n No advantage is derived at the cost of others.

A Note about Insurance

Takaful is a form of cooperative or mutual insurance. Its purpose is
not profit but to uphold the principle of “bear ye one another’s bur-
den.” Muslims are discouraged from using the various kinds of con-
ventional insurance because they may contain elements of uncertainty
(al-gharar), gambling (al-maisir), or usury (riba).
However in 2006, the Fiqh Council of North America discussed the
thirty-six-page research paper on life insurance in the United States
written by Dr. Mokhar Maghraoui, one of the most respected and re-
nowed Muslim scholars in North America, and came to the following
conclusions:
60 I FIVE PILLARS OF PROSPERITY

n The practices and laws regulating life insurance in North

America have changed significantly to allow for more equitable
transactions and to prevent deceptions and uncertainty.
n The life insurance contract is a hybrid of ta’awn (mutuality)
and istithmar (investment), which are both Islamically sound
transactions.
n Each specific life insurance contract must be examined to
see that is free of riba—that is, that no funds are invested in
interest-paying instruments like bonds.

Therefore, a variable life insurance policy that allows the policy owner
to allocate premiums for investment in selected equity mutual funds
(preferably Shari‘ah-compliant funds) is acceptable. “He [Allah] has
explained to you in detail what is forbidden to you except under com-
pulsion of necessity” (6:119).

Islamic Banking in North America

Several Islamic financial institutions have emerged in North America
in the past few years that are using modes of transactions following
Islamic principles. This has been made possible due to several changes
in the US and Canadian regulatory environment.
The US Office of the Comptroller of the Currency (OCC), the admin-
istrator of national banks, has permitted banks to offer murabahah and
ijarah to their customers.16 Many banks, including Bank of America,
Bank One (in Ohio and Michigan), Bank of Whittier (in Los Angeles),
Devon Bank (in Chicago), and University Bank (in Ann Arbor), cur-
rently provide or are in the process of providing some of these financ-
ing alternatives.

University Bank
University Bank is the first bank in the United States to create an
Islamic subsidiary, University Islamic Financial Corporation (UIF).
University Islamic Financial is committed to running in accordance
with Shari‘ah principles.18 It offers FDIC-insured mudarabah deposits
 Pillar Three: Investing I 61

to Muslim customers nationwide. It provides ijarah home and com-

mercial financing. It also offers various forms of Islamic financing
for residential and commercial properties, as well as FDIC-insured
profit-sharing CDs and money market funds. The profit-sharing rates
vary as the “rental” income fluctuates. They also vary based on how the
underlying financed asset performs.
Having started its home finance efforts in Michigan, University
Islamic Financial is expanding its home and commercial financing
product into additional states, including Maryland, Virginia, Indiana,
Ohio, California, New York, New Jersey, and Texas.
For individuals (primarily those who are older) not wanting to take
the higher risk associated with investing in stocks or mutual funds,
mudarabah is a great choice. One can also “park” funds in these accounts
in between investments or while waiting to make an investment decision.
University Bank hopes to expand its investment options and to offer
takaful insurance to its clients and financial institutions nationwide.
4 I Pillar Four: Spending

Spending and saving are closely intertwined. Managing spending,

especially daily expenses, makes it possible to save, as we saw in
chapter 2. In turn, saving makes it possible to spend, especially on big-
ticket items. The strategies that support success in savings, including
the use of technology (such as Quicken or a simple Excel spreadsheet),
are the very same strategies used for managing one’s spending.
For the purposes of this book, I define spending as “spending
wisely money that is earmarked for living.” In a lifetime, you can save
a tremendous amount of money by learning to spend wisely. Learning
this skill is just as important as developing the habit of saving your
hard-earned cash. In fact, it’s more important, because there is no end
to spending. When spending is not under control, it can negatively
impact every area of your financial life.
One of the easiest ways to spend your money in a deliberate and
conscious manner is to establish a personal budget—a spending plan.
Planning helps to condition your thinking and shape your behavior
when it comes to spending money. It teaches you to become aware of
the money going out for the items vital to living (such as groceries,
rent, mortgage, car payment, debt repayment, utilities) and to manage
your impulses to buy things you don’t necessarily need. At the same
time, it allows you to plan for purchasing things you want but may not
need—things that improve the quality of life, like education, owning
a car or a house, and hajj. How to spend intelligently on these and
similar items is the topic of this chapter.

Steps to Spending Money Wisely

The following three steps will take you well down the road toward
mastering spending:

63
64 I FIVE PILLARS OF PROSPERITY

The first step is to learn to control your impulses. Especially in the

United States, we’re conditioned at a very early age to consume, and to
consume from impulse. By conducting most of your major spending
from plans and budgets, you’ll begin to limit impulsive purchases.
The second step is to give yourself time before making any major
purchases. Sellers of big-ticket items have made it very easy for people
to make a quick purchase. A car dealer can arrange a test drive, craft an
offer, and get you into an executed contract on a new vehicle within a
matter of hours. The intelligent approach is to take the time necessary
to properly research and evaluate your options before setting foot into
the dealership.
The third step is to get in the habit of using cash or a debit card for
most purchases. This habit alone can accelerate your ability to both
track and control your spending. It’s so easy to buy things we really
can’t afford by just putting it on credit, and what starts off as a small
balance soon becomes a large one, taking years to pay off purchases
that have long since been consumed.
 Pillar Four: Spending I 65

Paying for a College Education

Most of us at some time face the challenge of paying for higher edu-
cation, whether trying to find scholarships for ourselves or helping a
loved one achieve his or her academic goals. Not only have educational
standards greatly changed recently, but professions have become more
specialized, meaning that students now need a higher degree—perhaps
a master’s degree or specialized training—just to land their first job.
As student loans are becoming more difficult to obtain, carefully
planning to save for college has become crucial. Assuming the person
going to college is not yet eighteen, these investments should be made
in an Education Savings Account (ESA, discussed in the next section).

Anyone who has met my father can probably attest to his devotion
to saving and efficiency. Almost every day, my dad shares a new
way he found to save: a new website, a new way of doing some-
thing ordinary, or simply utilizing some restraint. Even savings of a
couple of pennies were retold as major victories. My father’s devo-
tion to saving—and efficiency—was trumped only by his belief in
education and personal improvement.
While we had to plead and bargain for movies and videos, any-
thing that could be described as “educational” Abba would buy
without hesitation. My first cell phone was couched in the terms of
allowing me to attend more school events and extra-credit assign-
ments, since I’d be able to arrange for rides and it would allow my
mother to contact me at all times, and therefore raise my grades (all
for only an extra $10 a month!). Of course, that was before the bill for
excessive text messaging arrived. Now that was harder to explain!
By always being willing to spend his hard-earned and -saved
money on educational activities, both scholastic and religious ones,
my dad engrained in me the importance of education and self-
improvement. The opportunities they provided and allowed access
to warrant their cost. While saving money was important, that saved
money was meant to better our lives or the lives of those around us.
—Sana Y. Mirza, Ph.D. Candidate
66 I FIVE PILLARS OF PROSPERITY

You can use the following worksheet (table 4.1) to determine the ap-
proximate amount of money that should be saved. The table includes
an example: The family of Fatima, currently age eight, plans that, in ten
years, she will attend a university that currently charges $6,000 per year.
This means that the family needs to invest $2,220 annually (e.g., $555
quarterly or $185 monthly) in an ESA account to pay the entire tuition.
Alternatively, Fatima’s parents can open an ESA account for the
child by making a gift of $2,000 and next year contribute another
$2,000. Even if they add nothing more to the account, by age 18, Fatima
will have about $13,000 toward her college education from that initial
investment of $4,000. Of course, additional contributions will make
the fund grow even larger.
These figures are based on the assumption that university education
costs will rise at the average rate of 3 percent per year (due to inflation)
and that the expected pretax average return on investment will be 8
percent per year. Tables 4.2 and 4.3 show the inflation rate and the
investment factor calculated for eighteen years.
Here is another example of calculating the amount of money to
save for college, starting when the child is one year of age:

Child’s age = 1 year

Years to college = 17 years
Estimated cost = $6,000 per year
Estimated cost for 4 years
of college in 17 years = $39,600
Yearly investment = $1,173
Quarterly investment = $293
Monthly investment = $97

Wouldn’t it be nice to be able to pay for items we want (or need) to buy
without debt? The same tables and worksheet can be used to plan for
a wedding, hajj, buying a car, making a down payment on a house, ac-
quiring a business, vacations, retirement, or any other major expense.
Here are some additional examples:
 Pillar Four: Spending I 67

Table 4.1 Worksheet for Financial Planning for Higher Education

EXPECTED COST OF COLLEGE EDUCATION
SCHEDULE A: Expected Cost of College Education
FATIMA YOUR CHILD

1. Current age of the child 8

2. Years to college (18 minus child’s age) 10

3. The current cost of a college education (in-state) $6,000

(in 2011, approximately $6,000 per year)

4. Inflation factor (from Table 4.2) corresponding 1.34

to number of years in line 2 above

5. Multiply line 3 by line 4 above to find the estimated $ 8,040

future cost of college education at the end of the
number of years specified in line 2

6. Future total cost for four years of college $32,160

HOW MUCH SHOULD BE INVESTED

SCHEDULE B: Lump Sum Investment
FATIMA YOUR CHILD

1. Enter amount from line 6 in Schedule A $32,160

2. Enter lump sum return factor from Table 4.3 2.16

3. Divide line 1 by line 2 $14,900

to find lump sum investment now

SCHEDULE C: Periodic Investment

FATIMA YOUR CHILD

1. Enter amount from line 6 in Schedule A $32,160

2. Enter periodic return factor from Table 4.3 14.50

3. Divide line 1 by line 2 to find the annual target amount $2,220

4. Divide line 3 by 4 to find the quarterly target amount $555

5. Divide line 3 by 12 to find the monthly target amount $185

68 I FIVE PILLARS OF PROSPERITY

Table 4.2 Inflation Factor

(Assuming that the cost is rising due to inflation at an
average of 3 percent per year)
YEARS TO INFLATION YEARS TO INFLATION
EXPENDITURE FACTOR EXPENDITURE FACTOR
1 1.03 10 1.34
2 1.06 11 1.38
3 1.09 12 1.42
4 1.12 13 1.47
5 1.16 14 1.51
6 1.19 15 1.56
7 1.23 16 1.60
8 1.26 17 1.65
9 1.30 18 1.70

Table 4.3 Investment Factor

(Assuming a pretax average return of 8 percent per year)
YEARS TO LUMP PERIODIC YEARS TO LUMP PERIODIC
EXPENDITURE SUM YEARLY EXPENDITURE SUM YEARLY

1 1.08 1.00 10 2.16 14.50

2 1.17 2.08 11 2.33 16.66
3 1.26 3.25 12 2.51 18.99
4 1.36 4.51 13 2.71 21.51
5 1.47 5.87 14 2.92 24.23
6 1.59 7.34 15 3.15 27.16
7 1.72 8.92 16 3.40 30.33
8 1.86 10.64 17 3.67 33.75
9 2.00 12.50 18 3.96 37.45
 Pillar Four: Spending I 69

Car
Buy a reasonable used car now, and save enough money to buy a good
one later. Or, if the car is bought and financed today, your payment
would be approximately $466 per month.
Average cost (2013) = $20,000
Years to purchase = 5
Cost in 5 years = $23,760
Yearly investment = $4,752 (perhaps investing your tax refund)
Monthly investment = $396

Wedding
Average Cost (2012) = $15,000
Years to marriage = 4
Cost in 4 years = $16,800
Yearly savings = $3,725 (perhaps investing your tax refund)
Monthly investment = $310
Perhaps this is the only way to pay for the cost of a wedding, as I do not
know of any institution that will finance it.

Opening an Education Savings Account

One way to deal with higher education costs is to open an Education
Savings Account (ESA) or a Section 529 college savings plan. Both can
be wonderful college savings devices due to their tax advantages. How-
ever, while a particular state’s 529 plan may be a good tool to save for
college, most of these plans do not offer investment choices. You simply
participate in an established program with set investment options that
may or may not be suitable for people of certain faiths, such as Muslims.
An ESA account, on the other hand, is similar to an IRA account,
where funds can be invested according to one’s wishes. It can also be a
self-directed account, which allows the individual to make an annual
nondeductible contribution to a specific trust account, where the funds
grow free of taxes. There is also no tax when the money is withdrawn,
as long as the funds are used for education and educational materials.
70 I FIVE PILLARS OF PROSPERITY

An ESA is surprisingly easy to set up. The first step is to figure out
who is eligible for an ESA. The beneficiary must be under the age of
eighteen during the period when the contributions are being made.
Second, the amount to be contributed has to be determined. The
contributors, if filing their taxes jointly, must have a modified adjusted
gross income of less than $190,000—or less than $95,000 for single
filers—to qualify for the full $2,000 deduction. For incomes up to
$220,000 ($110,000 for single filers) smaller contributions can be made.
Third, where to establish the ESA must be decided. Any bank, mu-
tual fund, or other financial institution can serve as a custodian. Al-
though there is no limit to the number of ESAs that can be established
for a child, the combined contribution from multiple givers may not
exceed $2,000 per year per child. This presents a great opportunity to
save for the education of your child or grandchild, or even for the child
of a friend or of a needy person).
In summary, the benefits of an ESA (as of this writing) are the
following:
n The maximum annual contribution to an ESA remains $2,000
per child (under 18 years of age).
n Withdrawals for kindergarten through college expenses are not
taxed.
n Hope and lifetime learning tax credits can be claimed during
the same tax year when tax-free ESA withdrawals are made to
cover education expenses.

Those who do not qualify to set up an ESA may establish and contribute
to a regular savings account (or UGMA account, under the Uniform
Gifts to Minors Act). It is also possible to establish both kinds of ac-
counts with no limitation—though giving more than the gift tax exclu-
sion (in 2014, $14,000) per year per child may be subject to a gift tax).
A UGMA account, which is a custodial account, offers a bit of tax
relief. Income and capital gains of up to $850 are untaxed, while the
next $850 is taxed at the child’s rate (generally 15 percent and subject
to kiddie tax rules).
 Pillar Four: Spending I 71

A custodial account belongs to the child; an adult controls it until

the child is eighteen. After that, the child is free to spend it as he or she
wishes.1 The advantage of an ESA in this regard is that it can be used
only for educational purposes (with a UGMA the eighteen-year-old
may decide to buy a BMW rather than get an MBA!).
By establishing an ESA, you can help a child fulfill the obligation
of seeking knowledge. The Qur’an states: “O my Lord, advance me in
knowledge” (20:114). If the child does not attend college, the ESA can
be used for someone else. There are no adverse tax consequences, as
long as the funds are used for educational purposes.
In the Muslim community we are often invited to many aqeeqa
(parties to introduce newborn children). Instead of taking the usual
kinds of gifts, consider giving the parents of the newborn a check in
the name of an Islamic mutual fund, and tell them to open an ESA for
the baby, after studying the prospectus carefully, of course. Few gifts
are better than the gift of education.
As an example, Inayah was born on March 4, 2007. Her grandpar-
ents were so excited to have their first grandchild, they kept asking
themselves what they could do for her that would have a positive effect
on her life forever. They decided to give her the gift of education by
depositing $2,000 in an ESA through an Islamic mutual fund investing
in growth stocks. On her first birthday they gave her another gift of
$2,000 sent to her ESA.
In May 2009, Inayah’s aunt, Asma, was graduating with her MBA
and wanted to use her own ESA to pay her tuition. However, the value
of her account was low because the stock market had taken a plunge
in March 2009. Instead of liquidating her ESA at a loss, she decided to
gift it to her niece. That way, it would remain invested, and when the
market recovered, the ESA’s market value would be higher again. So
Asma transferred her ESA ($3,724) to Inayah.
Inayah’s grandparents also gifted her with $2,000 on her third, fourth,
fifth, and sixth birthdays. So now her ESA account has grown to $24,157.
On her eighteenth birthday, depending on stock performance and
with no additional contributions, Inayah stands to have approximately
$62,800 in her ESA. If, in addition, her parents start contributing
72 I FIVE PILLARS OF PROSPERITY

$2,000 per year until she is eighteen, she will have approximately
$120,000. (See Table 4.1 to make these calculations.)
Once she is eighteen, Inayah may be able to extend these funds
even further. By taking advanced placement courses, she may get her
bachelor’s degree in three years instead of the usual four. In this case
she would have enough money to go to any school she wants—public
or private—without incurring debt. She’ll avoid having student loans
to pay for the rest of her life!
If Inayah spends less on her education by getting a scholarship or
attending a good public university, she has enough money in her ESA.
Excess funds can be used for earning her master’s degree, or she can
gift leftover ESA money to her siblings or cousins (as did her aunt).

Planning for the Hajj

Islam prescribes that all financially and physically capable Muslims
perform a pilgrimage to Mecca—the hajj—once in a lifetime. Besides
commanding his Companions to perform the hajj, the Prophet Mu-
hammad taught them the way the hajj rituals were to be performed. He
also advised them on how to prepare for the hajj, financially and other-
wise. The Prophet raised the religious and ethical value of pilgrimage
so high that it became the ultimate worldly hope and crowning event
of every Muslim’s life.
The hajj is the purest self-presentation before God. It should be
undertaken as a response to God’s calling. The phrase that the pilgrim
chants throughout the pilgrimage (Labbayk Allahumma—I am here, O
Allah!) is an expression of this acquiescence to Allah’s call.
Muslims prepare for the hajj as if they were leaving this world for-
ever. That is why many write their wills before starting on this journey.
First, they have to pay off their debts, including any zakah due on their
wealth. They return whatever was given to them in trust. They rely on
their savings to pay the expenses of the journey, such as airline tickets,
hajj tax, lodging, and the sacrifice of an animal. In addition, they have
to provide for their families and dependents during their absence.
They must have earned and saved enough to cover those expenses. No
hajj is valid if performed “on credit.”
 Pillar Four: Spending I 73

Every Muslim must make hajj a priority and plan to perform it at

least once in his or her lifetime, as soon as possible. In the opinion of
some, the cost of performing hajj a second time may be better spent if
it is contributed to Islamic charities.
What is the cost of hajj for someone living in the United States?
How much should be invested? Let us assume hajj costs rise an average
3 percent per year, due to inflation, with a pretax average investment
return of 8 percent per year. Taxes to be paid on investment income
should also be accounted for.
The accompanying worksheet for hajj financial planning (table 4.4)
can help you determine the amount to be invested. For example, if a
person plans to perform pilgrimage in five years, assuming hajj costs
$5,000 per person today, then the person needs to put aside and invest
a lump sum of $4,300 or else invest either $1,100 annually, $275 quar-
terly, or $92 monthly. The intending pilgrim may consider investing
more than these amounts to cover for rising costs or a lower investment
return. For a husband and wife, simply multiply these amounts by two.

Purchasing a House
Few people are able to purchase a house outright, paying cash. Howev-
er, because conventional mortgages involve interest, they are not halal,
or permissible, under Islamic law. This problem has been addressed in
several ways.
In 1975, a group of Muslims in Halifax, Nova Scotia, Canada,
bought a home and implemented a precursor to today’s interest-free
housing financing (see below), including shared equity and rental
terms. That particular home was paid off in three years. Today, interest-
free housing is still unusual in the West, where property is customarily
purchased through a conventional mortgage.
Almost at the same time, a group of Muslims in Plainfield, Indiana,
organized the Indiana Housing Cooperative. Several people purchased
their homes through this co-op. In this type of business partnership,
shareholders (partners and/or investors) invest money in a single
home and rent it to one of the partners. The renter is allowed to buy
back the shares from other owners to increase his or her ownership
74 I FIVE PILLARS OF PROSPERITY

Table 4.4 Worksheet for Hajj Financial Planning

EXPECTED COST OF HAJJ
SCHEDULE A: Cost of Hajj
1. Number of years from now when you plan to make hajj $
(insha Allah)
2. The current cost of hajj per person (in 2011, about $5,000) $
3. Enter inflation factor (from Table 4.2) corresponding to $
number of years in line 1 above.
4. Multiply line 2 by line 3 above to find the estimated future $
cost of hajj at the end of the number of years you specified
in line 1.

HOW MUCH SHOULD BE INVESTED

SCHEDULE B: Lump Sum Investment
1. Enter amount from line 4 in Schedule A. $
2. Enter lump sum return factor from Table 4.3. $
3. Divide line 1 by line 2 to determine the lump sum $
investment required.

SCHEDULE C: Periodic Investment

1. Enter amount from line 4 in Schedule A. $
2. Enter periodic return factor from Table 4.2. $
3. Divide line 1 by line 2 to find annual target amount. $
4. Divide line 3 by 4 to find quarterly target amount. $
5. Divide line 3 by 12 to find monthly target amount. $

and eventually buy the property. Property values and appreciation

determine share and rental amounts.
In 1982, when interest rates in the United States and Canada rose to
almost 20 percent, many people, including Muslims, lost their homes.
Consequently, the idea of a shared-equity rental (SER) was revived,2
catching the attention of the Canadian Broadcasting Corporation.
 Pillar Four: Spending I 75

Later, a successful housing cooperative in Toronto financed hundreds

of homes.
Currently there are several housing cooperatives operating in the
United States and Canada. However, by the very nature of cooperatives,
which involve investments only from members and other individuals
(who often have limited finance resources), the cooperative model can
support just a limited number of homebuyers at any given time. Ad-
ditionally, cooperatives are “illiquid,” meaning their securities are not
freely traded on the financial markets and there is no secondary market
where securities of the cooperative can be traded (i.e., bought and sold).
Another solution to the problem of purchasing a house without
interest has been the development of interest-free home financing.
In order to respond to the growing needs of Islamic home financing,
Guidance Financial, a licensed mortgage lender, came into the mar-
ket. Later, because of their ability to sell a nearly unlimited number
of mortgages to Fannie Mae and Freddie Mac, several banks, such as
Devon Bank, La Riba affiliate, Bank of Whittier, Broadway Bank, and
United Trust, began offering interest-free home financing.3
Then, in December 2005, University Bank formed the first Islamic
banking subsidiary, University Islamic Financial (UIF), which is cur-
rently the only US bank that offers Islamic financing for residential
and commercial properties using Islamically acceptable documenta-
tion. Freddie Mac agreed to accept this documentation without any
modification or promissory note. This provided cash in the secondary
market for these securities, resulting in UIF’s having the capacity to
provide an almost unlimited number of financings. Its home financing
and deposit products are backed by a fatwa from leading Islamic schol-
ars. It is also able to service the financed transactions after origination
in an Islamically acceptable format.
If you would like to help someone (a relative, child, or grandchild),
give them a one-time gift (up to the current gift tax exclusion). If in-
vested (Islamically) for, say, seven years, the recipient may have about
$29,000. Supplemented with his or her own savings, the total will make
a nice sum for the down payment on the purchase of a home.
76 I FIVE PILLARS OF PROSPERITY

A Roth-IRA: An Individual Retirement Account

A Roth-IRA (an investment account provided by most banks and
mutual funds) is a great way to save for retirement. The funds grow
tax-free, and upon retirement (or after age 59½) of the investor, with-
drawals (principle plus accumulated growth) are all tax-free. Five years
after a Roth-IRA account is opened, the principal contributed can be
withdrawn.
If you want to help someone who is good and hard-working but for
one reason or another has not been able to save for his or her retire-
ment, you can encourage that person to open a Roth-IRA account with
an Islamic mutual fund (that invests in growth stocks) and gift that
person, in the form of contributions to the Roth-IRA, $4,000 annu-
ally.4 The recipient will certainly thank you.
I know a couple who set up such an arrangement for several rela-
tives. One of these relatives, Noor, now age fifty, has approximately
$33,000 in her Roth-IRA. Assuming no more contributions are made,
and using the calculation for the inflation factor provided in table 4.2
and figuring a rate of return of 10 percent, at age sixty-seven she is
likely to have $151,700. This is enough to supplement her social se-
curity income.5 However, if she can contribute even small amounts to
this Roth-IRA herself, she will have even more funds to enjoy at her
retirement.
As Noor approaches retirement, she may want to consider rolling
over part of these funds into a profit-sharing CD that matures at stag-
gered dates over a period of time, say, one year, two years, and five
years.6

Gifting and the Gift Tax

In the United States, an individual can gift up to the dollar amount of
the gift tax exclusion (in 2014, $14,000) per year per person without
paying the gift tax. You may choose to gift a portion of this amount,
say, up $5,000, to a Roth-IRA for your children, your siblings, relatives,
friends, or anyone you like in the community (provided the person
earns at least that much during that year and his or her adjusted gross
 Pillar Four: Spending I 77

income is less than $105,000). The remainder of the amount (in this
example, $9,000, figuring a gift tax exclusion of $14,000) can be gifted
for investment in a mutual fund (preferably one following Islamic
principles). This money is available for use whenever the need arises.
You also can give the following without triggering the annual gift
tax exclusion rule:
n Gifts to a spouse
n Gifts to a charitable organization (these gifts are tax-deductible)
n Gifts of educational expenses. These are unlimited as long as
you make a direct payment to the educational institution for tu-
ition only. Books, supplies, and living expenses do not qualify.
n Gifts of medical expenses. These, too, are unlimited as long as
they are paid directly to the medical facility.
5 I Pillar Five: Giving
“Help yourself by helping others. Those who do good, do well.”
– Sir John Templeton

All the great faith traditions require and encourage giving. Giving is
the essence of living. It touches everything we do that is truly mean-
ingful. I believe we are all here to make a difference—otherwise what
is the purpose of living? As we live and experience the world during
our time here, our contributions hopefully leave the world a better
place. We also give to provide cross-generational fairness; that is, if we
are doing well, then let us do something so the next generation will
have the same opportunities.
Giving is not meant to encourage dependency in the receiver or
create a permanent underclass. Most of us support the principle: it is
better to teach a man how to fish than to give him a fish. However, by
serving those genuinely in need, we are serving God Himself. This is
said on multiple occasions in the Qur’an as well as in the Jewish Bible
and the Christian New Testament:
And don’t forget to do good and to share with those in need.
These are the sacrifices that please God. (Hebrews 13:16)
And spend of your substance in the cause of Allah, and make not
your own hands contribute to [your] destruction; but do good;
for Allah loves those who do good. (Q 2:195)
Those who spend [in charity] of their goods by night and by day,
in secret and in public, have their reward with their Lord: on them
shall be no fear, nor shall they grieve. (Q 2:274)
For I was hungry and you gave me something to eat, I was thirsty
and you gave me something to drink, I was a stranger and you
invited me in, I needed clothes and you clothed me, I was sick
and you looked after me, I was in prison and you came to visit me.
(Matthew 25:35–36)

79
80 I FIVE PILLARS OF PROSPERITY

You will be made rich in every way so that you can be generous on
every occasion. (2 Corinthians 9:11)
You shall open your hand to your brother, to your poor and needy
in your land. (Deuteronomy 15:11)

A person who cannot give money should give whatever he or she has
available to give, as illustrated in the following two stories:
The Prophet Muhammad said: “Every Muslim has to give in char-
ity.” The people then asked: “[But what] if someone has nothing to
give, what should he do?” The Prophet replied: “He should work
with his hands and benefit himself and also give in charity [from
what he earns].” The people further asked: “If he cannot do [even]
that?” The Prophet said finally: “Then he should perform good
deeds and keep away from evil deeds, and that will be regarded as
charitable deeds.”1
The Prophet Muhammad said: “Charity is prescribed for each
descendant of Adam every day the sun rises.” He was then asked:
 Pillar Five: Giving I 81

“From what do we give charity every day?” The Prophet answered:

“The doors of goodness are many . . . enjoining good, forbidding
evil, removing harm from the road, listening to the deaf, leading
the blind, guiding one to the object of his need, hurrying with the
strength of one’s legs to one in sorrow who is asking for help, and
supporting the feeble with the strength of one’s arms—all of these
are charity prescribed for you.” He also said: “Your smile for your
brother is charity.”2

In Islam, giving falls into two categories: obligatory giving, called za-
kah, and voluntary giving, known as sadaqah. These are discussed in
the remainder of this chapter.
The Prophet said, “God, whose Majesty and Glory are but manifest,
has enjoined a portion for the poor in the wealth of the rich that is
within their capacity [to give]. If they withhold it from them until they
go hungry, naked, or their lives become a continuous hardship, God
shall be severe in holding them accountable for what they had done
and punishment shall be stern” (narrated by Ali ibn Abi Talib).
In light of the aforementioned statements, I often wonder about the
significance of the various percentages of zakah (“portion” of wealth
prescribed) on different sources of wealth—what do these various per-
centages really mean?
I recognize that many Muslims distribute their zakah directly to
individuals or charitable organizations of their choice; therefore, esti-
mating total zakah that is being given out (by a community as a whole)
is nearly impossible.3 However, I made a very rough estimate that
faith-based community centers like those found among Muslim com-
munities (and in the other Abrahamic faiths) often receive perhaps 10
percent of the zakah that is actually due of that community.
But I am an optimist at heart. I feel that, if every Muslim (and person
of faith) calculates his or her zakah (tithe) accurately—based on the pre-
scribed percentage(s)—and faithfully distributes it on a consistent basis,
then we should be able to totally eliminate poverty from the world.
If this was not to happen, the Creator might have chosen higher
percentages, so that poverty would be eliminated and everyone would
82 I FIVE PILLARS OF PROSPERITY

live with dignity!  In fact, it has been historically documented that we
once lived in a time when Muslims, when seeking to pay zakah, could
not find anyone who qualified to receive the tithe.

Understanding Zakah
For those who have money to give, Islamic law requires that they give
it on a yearly basis as zakah (charity, or wealth tax). Zakah is consid-
ered so important that it is the third of the five pillars of Islamic faith.
Fulfillment of this pillar requires Muslims to reach out to the com-
munity and to interact with others in a meaningful and profound way.
Just imagine, how would you know if someone is in debt? Is that per-
son going to approach us and say, “I have $17,000 in credit card debt?”
Probably not. However we may come to know this as we become ac-
tively involved in the community and exchanges of personal informa-
tion occur. Then we can know who is in need of receiving zakah.
Zakah is similar to tithing in Jewish and Christian traditions. The
words in Hebrew (ma‘aser) and in Greek (apodekatoo) for “tithe” both
simply mean “a tenth.” The Hebrew Bible says one should tithe 10 per-
cent of what one earns:
“For every tenth part of herd or flock, whatever passes under the
rod, the tenth one shall be holy to the Lord.” (Leviticus 27:33)
“and this stone that I have set up as a pillar will be God’s house,
and of all that you give me I will give you a tenth.” (Genesis 28:22)

In the New Testament the actual percentage required is unclear. It

simply suggests tithing “in keeping with your income” (I Corinthians).
Some churches use the 10 percent figure stated in the Jewish scripture
as a general guideline or “recommended minimum.”
“Woe to you, teachers of the law and Pharisees, you hypocrites!
You give a tenth of your spices—mint, dill and cumin. But you have
neglected the more important matters of the law—justice, mercy and
faithfulness. You should have practiced the latter, without neglecting
the former” (Matthew 23:23).
Zakah as the obligation to the needy is decreed by God, the ulti-
mate Owner and Giver. The Prophet used to give whatever exceeded
 Pillar Five: Giving I 83

his needs, placing his faith in God to provide: “They ask how much
they are to spend; Say: Whatever is beyond your needs’” (Q 2:219).
M. Umer Chapra comments: “The prescription of zakah is a clear and
unambiguous signal of the Divine desire to assure that no one suffers
because of lack of means to acquire the essential need-fulfilling goods
and services.”4
Zakah means “purification, growth, blessing, and appreciation.”
Funds on which zakah has not been paid are “impure,” polluted. But
giving a percentage of those funds as zakah purifies them.
Zakah is based on the Qur’anic injunction: “Take alms from their
wealth so that you might purify and sanctify them” (Q 9:103). In other
words, giving a stipulated percentage of wealth, or a voluntary un-
stipulated amount, purifies the owner of that wealth from stinginess,
greed, meanness, lack of sympathy with the needy, and similar feelings.
Prophet Muhammad said: “Those who give zakah from their property
[will find that] their sins will leave them.” The Qur’an says that zakah
will give satisfaction and reward in both worlds (Q 61:10–11), whereas
impure wealth will bring suffering and punishment in this world and
the hereafter (Q 3:180). One hadith states, “People who do not pay
zakah will suffer, in disaster, famine, or drought.”5
The Qur’an also says: “O ye who believe! Give of the good things
which ye have [honorably] earned, and of the fruits of the earth which
we have produced for you, and do not even aim at getting anything
which is bad, in order that out of it you may give away something,
when you yourselves would not receive it except with closed eyes. And
know that God is free of all wants, and worthy of all praise” (Q 2:267).

Who Deserves to Receive Zakah?

The Qur’an (Q 9:60) specifies eight categories of those who are entitled
to zakah:6 the poor, the needy (destitute), zakah administrators, those
whose hearts are to be reconciled, captives (those held in bondage),
debtors, wayfarers (those who are stranded), and those receiving it
in the cause of Allah. All but the last category are defined. The last
category is broad enough to include any kind of community welfare.
Thus, Islamic community centers can receive zakah because they
84 I FIVE PILLARS OF PROSPERITY

promote moral values and act as da’wah (propagation of faith) centers.

The Prophet allowed zakah to be used for education, for promoting
religious causes, and for strengthening the ummah (community).
The Qur’an makes clear that zakah is meant to help the hard-work-
ing poor who are in need but do not beg, in contrast to those who beg
for a living and do not work hard. The modest poor take precedence in
receiving zakah. It must be stressed that the people who deserve zakah
most are not beggars, especially since many of them adopt begging as a
profession, but rather those whose modesty prevents them from asking
for help. The Prophet emphasized that “a needy person is one who is
modest.” And the Qur’an teaches, “Charity is for those in need, who,
in Allah’s cause are restricted [from travel], and cannot move about in
the land, seeking [for trade or work]: the ignorant man thinks, because
of their modesty, that they are free from want. Thou shalt know them
by their [Unfailing] mark: They beg not importunately from all the
sundry” (Q 2:273).
Dr. Muhammad Ali al-Hashimi comments: “The purpose of zakah
is not to give the poor person a few dirhams7 to keep him going, rather
the purpose is to help this poor person attain a suitable and digni-
fied standard of living, one that is befitting to man whom Allah has
honoured and appointed as His viceregent on earth, without either
extravagance or stinginess.”8
Regarding refugees, caring for them and giving zakah to help with
their basic necessities is highly recommended. Many of them fall
within the categories of “poor,” “needy,” “under debt,” or “wayfarer,”
and “in the cause of Allah.” They are implicitly included in the verse
on who should receive zakah, says Shaikh Taha J. Al-Alwani, former
chairman of the Fiqh Council of North America.9
For example, after the invasion of Kuwait in 1990, many well-to-do
fled (most likely in their expensive cars) to Saudi Arabia, where they
had nothing to live on: no money, no shelter, no clothing, and no resi-
dent visa. The locals used zakah to help meet these “wayfarers’” needs.
Can Muslims in the United States do the same? The answer is yes.
You may be wondering: What about the IRS? Can we give to a refu-
gee who does not have legal status? Benson Tesdahl, a specialist on
 Pillar Five: Giving I 85

tax-exempt law, says yes. “There is no obligation I have ever seen im-
posed by the IRS or the courts that would require a charity to check the
immigration status of a poor or needy person. Any number of charities
across the country running soup kitchens and other programs . . . I
don’t know of any who check the immigration status of the recipients.
Obviously, it would be impractical for the government to require [it],
and there would be a general uproar if the government were to impose
such a rule.”10
Shaikh Yusuf al-Qaradawi, in his Fiqh al-Zakah: A Comparative
Study, explains: “Zakah does not aim only to improve the state of the
totally deprived and financially broken, but is also for those who find
they can’t fully meet their basic needs.” He also says, with regard to
giving zakah to students: “Full-time students are eligible for zakah.
Students may be given zakah in order to help them achieve that pur-
pose, including cost of necessary books, regardless of whether the
knowledge sought is secular or religious.”11
Muslims may also give charity to people of other faiths. As Abu
Saud says, There is no text in the Qur’an or Sunnah that prohibits giv-
ing non-Muslims zakah. If one is poor, needy, a wayfarer, or employed
to administer zakah, whether Muslim or non-Muslim, they are eligible
for zakah (as long as they are not fighting against Islam and Muslims).12
The Qur’an says, “God forbids you not, with regard to those who
don’t fight you for [your] faith, nor drive you out of your homes, from
dealing kindly and justly with them: For God loves those who are just”
(Q 60:8). This verse was revealed for those Muslims who hesitated to
give charity to their unbelieving relatives.
In another verse, we are instructed, “And they feed, for the love of
Allah, the indigent, the orphan, and the captive” (76:8). “Captives” in
Muslim society were usually unbelievers, as reported by al-Hasan and
others, says al-Qaradawi.
Similarly, Ibn Abbas says, “They (the Companions) used to dislike
giving charity to their kin and relatives who were unbelievers. They
asked and were permitted to do so by this verse: ‘You are not respon-
sible for their guidance, but God guides whoever He wills. Whatever
good you give away is to your own benefit, when you give desiring only
86 I FIVE PILLARS OF PROSPERITY

the Face of God. Whatever good you give away will be repaid to you in
full. You will not be wronged.” (Q 2:272)13 According to Ibn Kathir, this
verse means that if the giver of charity aims to please God, he or she
will be rewarded by God regardless of whether the recipient of charity
is righteous or not, deserving or not. The giver is rewarded for his or
her intention.
M. Umer Chapra’s comments on giving and receiving zakah include
references to several Qur’an verses:
The payment of zakah by the rich is not a favour to the poor. The
rich are not the real owners of their wealth; they are only trustees
(Q 57:7). They must spend it in accordance with the terms of the
trust, one of the most important of which is fulfilling the needs
of the poor. Any attempt on the part of the rich to show it as a
favour, thus injuring the feelings of the poor, reflects their insin-
cerity and destroys their reward in the Hereafter (Q 2:261–74).
The poor should also not treat the receipt of zakah as a personal
disgrace because what they are receiving is only their right or-
dained by God in the wealth of the rich (Q 51:91 and 70:25). They
are, moreover, free to choose how to spend their receipts of zakah.
It is their money and they may spend it in accordance with their
own priorities, which would, in a Muslim society, be within the
constraints of the Shari‘ah. However, anyone who can provide
for himself and does not deserve to receive zakah but still does
so, will be disgraced on the Day of Judgement because he is in
essence guilty of acquiring income wrongfully and of violating
the rights of others. There may not, therefore, be any need for an
elaborate system of means testing which tends to be demanding,
expensive, time-consuming, and inconvenient. It would never-
theless be wise, at least in the initial phase, to be alert to misuse
and indiscriminate handling of funds. The informal social control
system present in a morally charged Muslim society would help
weed out violators. By effectively eliminating those who are able
to take care of themselves, the system should be able to provide
meaningful assistance to those who are really needy.14
 Pillar Five: Giving I 87

Limit of Exemption (nisab)

Whether a person should give or receive zakah, and also the amount
a person should give, are determined by his or her level of wealth. The
“minimum amount of wealth subject to zakah” is known as nisab.15
Nisab is based on the amount of wealth or income that a family needs
to live a simple but decent life for one year.
Nisab encompasses essential commodities and services, such as
food, clothing, dwelling, education, medications, vehicles, and the
tools of a trade or profession. Thus nisab is an accurate and equitable
basis for determining a limit of sufficiency. The limit of sufficiency
differs from one community to another and according to family size.
Nisab is thus similar to the “consumer’s basket.” It also parallels in
some ways the poverty index for a specific locality in the United States.
Anyone whose income is less than the nisab is entitled to zakah.
Anyone whose income is more than the nisab must pay zakah.
88 I FIVE PILLARS OF PROSPERITY

When to Pay Zakah

Zakah is paid annually by all Muslims whose wealth is above a specific
amount, and is to be spent for the public welfare. Donors can give
more, but never less, than what is due, and cheating in the calculation
of zakah is a sin punishable under Islamic law.
No zakah is due on wealth held for less than one year. Muhammad’s
wife ‘Aishah related that the Prophet said, “No zakah is due on wealth
till one (full) year passes.”16 Since a complete fiscal lunar year must
elapse when a person’s assets reach nisab, each individual will have a
different zakah year.
Zakah is calculated on the basis of the lunar year cycle, which is
shorter than the Gregorian calendar by eleven days, so an investor us-
ing a Gregorian calendar has to adjust the zakah amount accordingly.
This means that the 2.5 percent zakah due on certain kinds of income
is actually 2.58 percent, and the 10 percent zakah due on other kinds
of income is actually 10.3 percent.
Zakah can be paid any time. Many prefer to pay it during the
month of Ramadan or Rajab, while some prefer to pay zakah during
Muharram, the start of the Hijri year. As long as nisab is reached dur-
ing a given year, most jurists agree that zakah can be paid in advance
of the end of the calculated zakah year, or whenever there is an urgent
need such as during a flood, earthquake, or recession.
An estimated monthly zakah payment is highly recommended, for
this helps to spread the payments over a period of time, and it fulfills
zakah’s purpose sooner rather than later. The final calculation and recon-
ciliation of payments, however, can be done at the end of each lunar year.
Or for your convenience, you can calculate zakah every calendar year’s
end (December 31), when all your financial information for the year (W-
2, 1099, K-1, etc.) is available and you are working on your tax return.
After death, unpaid zakah is deducted from the inheritance after all
debts are settled.
Delaying zakah without reason beyond a short period is not per-
missible, because you are holding funds that belong to those entitled
to receive them. Qaradawi says, “The significance of zakah distribution
 Pillar Five: Giving I 89

is detailed in the Qur’an: It is essential that the proceeds of zakah be

distributed and not kept in the state treasury (as was done before Islam
by emperors and kings with the levies they imposed on their subjects).”
In the Qur’an we are told to “pay the rightful dues that are proper
on the day that the harvest is gathered” (Q 6:141) and “race to do good
deeds” (Q 2:148). The Prophet said, “The best of good deeds is the one
done promptly,” and,“The action most loved by Allah is the one which
endures—even though it be small.”17

Calculating Zakah
Zakah is due on the current year’s gross income before taxes—zakah,
the right of Allah, is calculated before the rights of man (taxes).18
Zakah is also due on savings and investments that their owner has held
for one lunar year, all stocks in trade above the nisab, and real estate
and capital goods if they are owned (not kept on credit) and stocked
for trade (not production).
The wealth from which zakah is paid excludes debts and such li-
abilities as a home (and its contents essential for living), jewelry that is
customarily used, land, buildings, and capital materials used in or for
production.
Uninvested capital is subject to a 2.5 percent zakah per year—which
means that the zakah payments on this wealth, if not invested, would
make it disappear in about 30 years. This is one reason Islamic teach-
ings encourage Muslims to invest in productive enterprises. Besides
producing more money for the owners than the 2.5 percent zakah
payment, investing money in businesses adds to society’s wealth and
creates jobs. Zakah also adds to economic health by circulating wealth
and helping to eradicate poverty. The Prophet said, “Wealth shall never
decrease as a result of charity (sadaqah).”19
Zakah paid to a charity is tax-deductible. To maximize this tax-
deduction, you may want to pay zakah by contributing appreciated
assets (calculated at the appreciated fair market value), so no capital
gains taxes have to be paid. However, Dr. Muzammil Siddiqi, a former
president of the Islamic Society of North America (INSA), advises that
90 I FIVE PILLARS OF PROSPERITY

any money you retain when you reduce federal and state taxes should
be added to the next year’s income and is subject to zakah at that time.20
Shaikh Yusuf al-Qaradawi explains how to calculate zakah: “The rate
of 2.5 percent due on assets whose zakah is calculated on the principal
and its increments together once every year (on items such as livestock
and trade goods). Regarding the harvest, a rate of 10 percent is due
(calculated based on crops and produce at harvest time), when land is
irrigated by rain or spring and 5 percent is due in the case where land
is irrigated by man. The asset may be materially fixed, such as land, or
non-fixed, such as bees.”21
The 10 percent for harvest and 5 percent if the crops are grown on
irrigated land are based upon the words of the Prophet. The Prophet
said, “In whatever [plantation] irrigated by rain or springs or reached
water by itself, the due zakah is one-tenth. And in whatever irrigated
by an instrument the dues are half the one-tenth.” A similar hadith
reports that the Prophet said, “In whatever rivers and clouds [rain]
irrigate, tithes are due and in whatever is irrigated by instrument, half
the tithes [is due].”
Some jurists suggest that rented houses, buildings, and factories
should be treated like trade goods, appraised yearly, and subjected to
a 2.5 percent zakah on the appraisal value. However, from a practical
point of view, the required yearly appraisal is cumbersome, subjective,
and requires the services (and cost) of specialists. Others calculate
zakah on the income from such assets—assuming the nisab is reached.
Qaradawi says that zakah can be taken from the asset’s revenue. He
concludes that zakah on rented buildings and fixed industrial assets
is taken out of their income—not the principal—at the rate of 5 or 10
percent. Zakah is calculated on net income at the rate of 10 percent
when net income after deducting costs can be calculated, as is the case
with corporations. This approach is based on the fact that the Prophet
levied 10 percent zakah on crops irrigated by rain or natural springs,
as if he were taking it from the net produce.
Qaradawi further concludes that shares of purely industrial and
nontrade (i.e., manufacturing) corporations, such as those dealing
 Pillar Five: Giving I 91

with refrigeration, hotels, advertising, public transport, shipping, and

airlines, are not subject to zakah, since their capital (represented by
shares) is invested in machinery, offices, and buildings, which are not
subject to zakah. However, he says that 10 percent zakah should be lev-
ied on dividends and then on capital gains realized upon sale (if any).

Cash and Cash Equivalents

Passive investments (e.g., cash, coins, gold, certificates of deposit,
guaranteed bank credits, money market accounts, and bonds), require
2.5 percent zakah payment on the principal plus any yield on funds
invested for a lunar year (2.58 percent per Gregorian year).
Fixed income instruments, such as bonds, are not recommended in-
vestments according to Islamic law. However, the fact that interest is pro-
hibited does not exempt someone receiving interest from payments from
zakah (which is 2.5 percent per year on principal and interest income).
One who indulges in the forbidden must not be given any privilege.

Risk Investments: Shares and Mutual Funds

Zakah is due on the profit—not on the amount invested—in publicly
traded stocks (listed on a stock exchange or included in a mutual fund).
These are considered “active” investments, for they are investments in
commercial, industrial, and development (real estate) businesses. In
this case, zakah is 10 percent of the net realized profit (i.e., total return)
on funds invested for a lunar year (10.3 percent per Gregorian year).
For simplicity’s sake, and to share the returns with others sooner
rather than later, it is advisable to consider the portfolio’s market value
at the beginning and end of each calendar year (including dividends
realized and unrealized gain/loss), minus new investments and plus
withdrawals and/or redemptions, and then pay 10.3 percent of that
year’s appreciation (total return). If there is no appreciation, no zakah
is due. The portfolio’s market value at the end of the calendar year is its
beginning value for the following year.
Shares of private corporations and general/limited partnership in-
terests can also be considered “active” investments. Since their market
92 I FIVE PILLARS OF PROSPERITY

value is not readily available, the zakah is 10.3 percent on only the
dividends or distribution received, and on realized gains, if any, upon
sale of the partnership’s interest.
For additional information and detailed illustrations on zakah cal-
culations, please refer to the following section of the Amana Mutual
fund website: www.amanafunds.com/retail, then select “Zakah” from
the main menu.

Buildings, Factories, and Businesses (Nontrading)

The owner of a business or rental property can determine net income
after deducting costs, such as labor costs, utilities, maintenance, taxes,
and debt service. Depreciation/amortization is also considered a cost.
(It accumulates enough reserve funds to acquire a new asset at the end
of the old one’s productive life.) However, to calculate profit from a
personal business, a factory, or rental property for zakah purposes, one
must add all reserves (capital reserves, bad debt reserves, and contin-
gencies) to the distributed profit. Both Qaradawi and Abu-Saud say
that zakah is 10.3 percent per Gregorian year on the net pretax profit
(as calculated above) from a building, factory, or business, assuming
the nisab is reached.

Stock Options and Stock Purchase Plans

Stock options and employee stock purchase plans are granted by com-
panies to attract and retain the best available personnel for important
position, and to provide incentives for employees, consultants, and
outside directors. Stock options may be ISOs (incentive stock options)
for employees or NSOs (nonqualified stock options) for nonemploy-
ees. The stock option holder is entitled to purchase a specified number
of corporate stocks, vesting over a number of years (usually five years),
at a certain price (usually the stock’s fair market price on the day the
grant is made). The grant, therefore, has no immediate cash value.
However, over time, the option’s value may increase or decrease as the
underlying stock price changes.
There are two usual ways to cash in on this wealth. The first is to
regard it as a same-day sale, meaning the option holder exercises the
 Pillar Five: Giving I 93

option to buy stock and then sell the stock on the same day. In this
case, the realized gain is treated as additional income for that year.
Zakah on earned income is 2.58 percent per Gregorian year, minus
nisab.
The second way is to exercise and hold the stock, meaning that the
option holder exercises the option to buy the stock and then holds onto
it as an investment. Zakah is 10.3 percent on the gain, which is the sale
price minus the exercise price, when the stock is eventually sold.
Employee stock purchase plans allow employees to purchase stock
from the employer, usually at a discount, for example, 85 percent of
the market price. Upon sale, the zakah rate is 10.3 percent on the net
gain, which is the sale price minus the purchase price and any sales
commission.
There is no zakah due at the time of a stock option grant or when
the stocks are acquired through the stock purchase plan. Zakah is due
when the stocks are sold at a profit, at which point a zakah of 10.3
percent of the profit or gain is due, subject to nisab.

Retirement Accounts, Life Insurance Policies,

and Annuities
Contributions to retirement accounts (unless made after paying za-
kah) and subsequent growth in these accounts are subject to zakah, as
the contributor has access to these funds, especially the vested portion,
and may dispose of them at will (although it may be subject to penalty
and taxes). Therefore, if your 401(k), Keogh plan, IRA, SEP-IRA, or
Roth-IRA is invested in a stock portfolio, you may pay 10.3 percent of
the yearly increase in the portfolio’s value.
Contributions to retirement accounts made after zakah is paid on
income for that year are excluded from the calculation of zakah. Also,
investments held for less than a year are excluded.
A 10.3 percent per year zakah is due on the increase in cash value of a
life insurance policy, annuities, and other investments held in a personal
trust, provided these investments are made in stocks or active business.
Otherwise, cash in a life insurance policy, annuity, or other passive in-
vestment is treated as cash or cash equivalent, so zakah of 2.58 percent
94 I FIVE PILLARS OF PROSPERITY

per year is payable on the principal plus any increase in value during the
year. If these accounts are converted to an annuity that pays a monthly
sum to meet daily expenses over a specified period or for life, the peri-
odic payments should be treated as income subject to 2.58 percent per
year, preferably payable monthly after deducting nisab.
Stocks received as compensation or as a bonus are part of earned in-
come; therefore they should be added to the income for that year. Zakah
on earned income, minus nisab, is 2.58 percent per Gregorian year.

Telling People How Much Zakah to Pay

Even at age eleven, I understood that establishing one of the first
faith-based mutual funds [the Amana Mutual Fund] was no easy
feat. I tried to sit still and carefully listen to the presentation about
market share and services. Afterwards, I tugged on my dad’s shirt
and asked, “Daddy? Do you have to pay zakah on this investment?
If so, can you tell people how much they need to pay and then they
can give it to poor people?”
The next thing I knew, I was repeating my idea to his business
associates. They smiled and said, “If your Daddy can teach us how,
we can write the computer program to calculate zakah.” True to
their word, within a few years, zakah calculation and resources be-
came a standard service for all of the fund’s clients.
—Asma Y. Mirza, MBA

Public trusts and charitable organizations are not subject to zakah.

To help you determine the proper amount of zakah, I have enclosed
a calculation form from the Foundation for Appropriate and Immedi-
ate Temporary Help (FAITH) (see table 5.1).22 Feel free to reproduce it
and share it freely with others.

Giving While Living

A man came to the Prophet and asked, “O Allah’s Apostle! Which
charity is the most superior in reward?” He replied, “The charity which
 Pillar Five: Giving I 95

you practice while you are healthy, niggardly [miserly] and afraid of
poverty and wish to become wealthy. Do not delay it to the time of
approaching death and then say, ‘Give so much to such and such, and
so much to such and such.’ And it has already belonged to such and
such [as it is too late].” 23
Following this Hadith, I strongly argue for giving while living.
Why? Giving while living provides you with an opportunity to see the
effects of your gift. While living, you can direct or redirect the use of
your contributions. If a project you contributed to does not succeed,
you have the opportunity to contribute to another one.
Imagine what would happen if no one gave while living—if every-
one only willed, upon death, a portion of their wealth (up to one-third
of their estate, according to Islamic law) to the poor or needy and
noninheritors. The recipients would be praying for the person’s death,
waiting to receive the charity to fulfill their needs! Instead, during one’s
lifetime, once the loved ones are provided for and zakah has been paid,
one should give back (sadaqah) to the community.
Abu Sa’id al-Khudri reported God’s Messenger as saying, “It is bet-
ter for a man to give a dirham as sadaqah (charity) during his lifetime,
than to give a hundred at the time of his death.”24
You may ask: “Is it better to leave for a child a trust account or a
great society?”
Gifts can be made in favor of a living person capable of holding prop-
erty. However, unless you use your lifetime exemption, under IRS rules,
gifts per person per year that exceed the gift tax exemption ($14,000 in
2014) are subject to the gift tax. On the other hand, unlimited personal
gifts can be made to a
mosque, a community
center, a school, or any
charitable institution (as
well to your spouse, pro-
vided your spouse is a US
citizen).
96 I FIVE PILLARS OF PROSPERITY

I am encouraged by the growing number of people worldwide who

are embracing the notion of giving while living. I see this as a reflection
of the best qualities contained with the act of sadaqah, and it’s my hope
that this trend in giving and contribution continues to grow—through
your lifetime, your children’s lifetime, and beyond.
While most examples of this trend—as covered by the media—
mostly reflect the actions of the world’s richest individuals, there is
a more interesting—and all-inclusive—trend that makes giving while
living accessible to a broader range of people. With the advent of the
internet, social-media platforms, and concepts such as crowdsourc-
ing (like kiva.org), it’s now easier than ever for people with modest
resources to make contributions that, when pooled, can have a positive
impact on the society.
For those of you who wish to explore giving while living, the At-
lantic Philanthropies has come up with a simple nine-step process
to help you in your quest. You can access this process along with
other materials on giving while living from their website: www.atlan-
ticphilanthropies.org.
“Giving while living” is not a uniquely Muslim or Islamic concept.25
Andrew Carnegie, in his famous 1889 essay, “The Gospel of Wealth,”
argued that the wealthy have a duty to give back and help their com-
munities during their lifetime, and not merely in death. He strongly
referred to those who mainly give away wealth after death: “Men who
leave vast sums in this way may fairly be thought men who would not
have left it at all, had they been able to take it with them.”26
It is an obligation on the wealthy to support their communities and
to focus on giving back while living. We also know that the Prophet
taught that giving charity would not in any way decrease our wealth.

Donor-Advised Fund (DAF)

Giving can be accomplished through a will or by paying zakah and
sadaqah, perhaps to a donor-advised fund (DAF). A donor-advised
fund is essentially a “foundation within a foundation,” and a low-cost
alternative to a private “personal” foundation.
 Pillar Five: Giving I 97

Contributions made to a DAF are irrevocable and unconditional.

Contributed assets become the fund’s property and cannot be returned
to the donor under any circumstances. For contributions to be a
completed gift, the Charitable Gift Account allows donors to recom-
mend—but not control—grants.
However, by contributing to a DAF you are able to maximize tax
savings without having to immediately decide where your gift will go.
You may donate to the fund over time or in a lump sum all at once,
while maintaining the flexibility to recommend where the funds will
be applied at a later date.
With a donor-advised fund, the donor’s requests are considered;
however, the fund’s trustees, as fiduciary, have discretion regarding
grant recipients.
A DAF can be used to help establish a waqf (an endowment—a
sadaqah jaria, a continuous charity, in which the principal is never
touched and only income is used for charitable purposes) at a lower cost
and with possibly greater tax benefits than a private foundation. The
profits can be used for education, scholarships, community activities, or
charitable purposes. Generally, charities as defined in Section 501(c)(3)
of the Internal Revenue Code can be beneficiaries of such grants.
Wealthy individuals can create sizeable endowments under Section
501(c)(3) by establishing private or publicly supported tax-exempt
trusts or foundations engaged in religious, charitable, scientific, liter-
ary, or educational work. In general, an endowment provides cross-
generational fairness, that is, it helps future generations to have a chance
to succeed. Individuals and corporations can deduct from their taxes
contributions of cash or appreciated assets (e.g., stocks, real property,
etc.) with some limitations, made to tax-exempt organizations.
The Qur’an encourages Muslims to give in charity: “The parable
of those who spend their wealth in the way of God is [that of] a grain
of corn: it grows seven ears and each ear has a hundred grains. God
gives manifold increase to whom He pleases: and God cares for all
and He knows all things” (Q 2:261). “But whoever believes, and works
righteousness—he shall have a goodly reward” (Q 18:88).
98 I FIVE PILLARS OF PROSPERITY

Charitable Remainder Trust (CRT)

With a charitable remainder trust (CRT), assets (property or money)
are donated to the CRT while the donor continues to use the property
and/or receive income from it while living. The donor receives the in-
come, and the charity receives the principal (after a specified period of
time, or upon the death of the donor.) The donor does not have to pay
any capital gains tax on the donated appreciated assets and also gets
an income tax deduction for the fair market value of the remainder
interest donated to the CRT. In addition, the asset is removed from the
estate, reducing subsequent estate taxes.
While the contribution is irrevocable, the donor may have some
control over the way the assets are invested. The donor may even switch
the ultimate beneficiary—that is, the named charity—to another
charity, as long as the new charity is a qualified charitable organization.
This is a win-win situation for the donor and the charity. For exam-
ple, if a seventy-year-old donor with assets valued at $100,000 (which
may have been originally purchased for $25,000) donates through a
CRT, he or she receives an income of $5,000 per year for life. For this
donation, he or she receives a tax deduction of about $60,310 (equiva-
lent to a total savings in taxes of about $18,000, considering 30 percent
federal and state tax) and pays no capital gains tax on this appreciated
asset, which is donated to the CRT. Upon the person’s death, the char-
ity gets the asset.
Whether or not to use any of these charitable giving vehicles de-
pends upon each potential donor’s individual circumstances. Consul-
tation with the appropriate advisors is highly recommended.

Family Foundation
A family foundation is a legal entity whose purpose is to fulfill the
family’s wishes and vision by giving charitable grants and gifts for
designated purposes from its own funds and investment earnings. As
defined in Internal Revenue Code Section 501(c)3, the foundation
can give to charities in the United States and elsewhere for charitable,
educational, scientific, literary, and/or religious purposes, as well as
 Pillar Five: Giving I 99

other activities as may be desirable or required to accomplish the

foregoing objectives and purposes. The foundation may not engage in
nonexempt activities, such as political campaigns and events.
Here is an example of a family foundation: In 2008, our family de-
cided to form a family foundation in order to create a vehicle to give
back to the community and to continue the family’s legacy. Through
the foundation we invest in specific projects that align with our fam-
ily’s approach to philanthropy. The foundation does not consider un-
solicited requests for grants.
My wife and I plan to help our children to purchase their homes,
with the understanding that when they are in a position to do so,
they will give the same amount to our family foundation. After learn-
ing about this, our daughter Asma remarked: “This is a great deal.”
When I asked her why, she replied: “Well, there is no due date and no
interest (or rent sharing), and when you pay back you get a tax deduc-
tion!” We are sure that our children and their spouses will continue
the tradition of giving, and there are additional incentives that make
it even more exciting.
The primary reason to form any kind of foundation is to do good
and to create a stream of money for charitable purposes that may con-
tinue into perpetuity. This is a sadaqah jariyah, a perpetual charity,
that keeps on giving, for which the donor receives God’s rewards even
after death. Creating a foundation is like planting palm trees to provide
shade and fruit, even though those who plant them may never get to
eat their fruits.
There are additional reasons to form a foundation, such as income-
and estate-tax savings, getting your entire family involved in charitable
work, and possibly providing income for those who do the founda-
tion’s work. Oftentimes, people establish foundations to focus their
charitable goals. They may want to give back to the community in the
form of scholarships or health care or helping the poor and needy, or
to offer thankfulness for being blessed with a good, prosperous life.
A foundation can provide financial support to various kinds of
organizations, such as the following:
100 I FIVE PILLARS OF PROSPERITY

n Community organizations: community centers, mosques, play-

grounds, hospitals
n Educational organizations: schools, colleges, libraries, scholar-
ship funds, dormitories
n Social-services organizations: shelters for the elderly, orphan-
ages, low-income housing projects, prisoner rehabilitation
centers, half-way housing projects, debt-relief societies

Islam and Money

I think that a classic example of our relationship to both Islam and
money is characterized in the various projects Ammi (mother) got
us involved in to raise funds for the masjid. Each and every one of
those projects involved a lot of hard work and sacrifice of our time
and energy, and none of them resulted in financial compensation
or too much recognition. [Our parents] taught us that we shouldn’t
expect compensation when we were “giving for the sake of Allah
(swt).*”
They also taught us that the money that we were raising was
sacred in some way because we had to be very careful with this
amaana (trust) that we were holding on to, because it didn’t belong
to us, it belonged to God.
My father was incredibly careful about being honest and not tak-
ing favors for several reasons: (1) you don’t want to feel indebted to
others, (2) we shouldn’t take advantage of people’s generosity, (3)
the organization’s money is an amaana (trust) that we were respon-
sible for and would answer for to Allah (swt), and, an extension of
this, (4) multiple relationships with an organization have to be care-
fully monitored so that things are always 100 percent transparent
and honest.
—Fatima Y. Mirza, Ph.D. candidate

*Subhanahu wa ta'ala, "Glory to Him, the Exalted."

 Pillar Five: Giving I 101

Table 5.1 Zakah Calculation Form

Schedule 1
Items Subject to 2.58%* on Income and Assets
1. Any cash on hand kept for one Gregorian year $
2. Annual earned income before any deductions of taxes, $
social security, etc.
3. Value of jewelry kept for a year that is in excess of $
what is customarily used
ADD LINES 1, 2, and 3. $
4. Less pro-rata Nisab (please see example below) $
5. Income subject to Zakah $
6. Multiply line 5 by 2.58%. $
SCHEDULE 1 ZAKAH DUE $

Schedule 2
Items Subject to 10.3%* Zakah on Yield
1. Realized capital gain on sales of stocks and mutual funds $
and the like
2. Dividends and rents from real estate, less expenses of debt $
and any other direct expenses, but not depreciation or reserves
or taxes
3. The profits of shares in partnership, before deducting any $
depreciation or reserves or taxes
4. The net profit (revenue minus direct expenses such as wages, $
maintenance, taxes, debts, etc. and not considering reserves)
of trade, business or rented property
ADD LINES 1 through 4. $
5. Less pro-rata Nisab (please see example below) $
6. Income subject to Zakah $
7. Multiply line 6 by 10.3%. $
SCHEDULE 2 ZAKAH DUE $

ZAKAH DUE (Add schedule 1 and 2.) TOTAL: $

* Gregorian year is 11 days longer than lunar year; hence the adjusted rates are
2.58% (rather than 2.5%) and 10.3% (rather than 10%) per year.
102 I FIVE PILLARS OF PROSPERITY

Table 5.1 Continued

REMARK: If the income subject to zakah is composed of items subject to 2.58%

(schedule 1) and others whose yield is subject to 10.3% (schedule 2), nisab has to
be divided in the same proportion of the two items. The nisab proportion is sub-
tracted from each category, and the result is to be multiplied by the related rate,
2.58% or 10.3%.
EXAMPLE:
Total income from Schedule 1, subject to 2.58% $50,000
Total income from Schedule 2, subject to 10.3% $10,000
TOTAL YEARLY INCOME $60,000
For a family/household size of 5
Nisab (Poverty Limit) = $27,000 to be divided into $22,500 and $4,500. Thus
Zakah on Schedule (1) = $50,000 – (50,000–22,500) = 27,500 x 2.58% $710
Zakah on Schedule (2) = $10,00 – 4,500 = $5,500 x 10.3% $567
TOTAL ZAKAH DUE $1,277

Combined Zakah
Total Zakah (due for the year) $
Less Zakah already paid (during the year) $
ZAKAH DUE $

Hanafis say any delay in paying 2012 Poverty Income Guidelines

Zakah which is due (now owed
ANNUAL INCOME
to others), without valid reason, HOUSEHOLD Gregorian Year
even for a day or two is sinful SIZE (up to)
and not permitted.
1 11,170
Please send your tax-deductible 2 15,130
Zakah contribution to: 3 19,090
FAITH 4 23,050
795 Center Street, Suite 2 5 27,000
Herndon, VA 20170 USA
6 30,970
www.faithus.org
Ph: (571) 323-2198 7 34,930
8 38,890
9 42,850
10 46,810
6 I Key Wealth-Building and
Wealth-Preserving Strategies
“If you can’t measure it, it doesn’t exist.”–Anonymous

This chapter discusses some of the basic strategies for building and
preserving the wealth you have earned, saved, and invested. These
strategies can support and supplement your efforts with the five pillars
of prosperity.
In building your financial future, a long-term, consistent approach
is very important. Fundamental to this approach is determining your
financial goals and charting out a plan to reach them. The following is
an example of how to think through and establish financial goals. You
can adapt this thinking to suit your own situation and goals.

I want to use my wealth to do the following:

Buy a car
Buy a house
Put kids through college
Go on pilgrimage (hajj)
Buy a business
Retire comfortably
Help others

To accomplish these purposes my short-term goals are

the following:
Accumulate one year’s worth of savings to go on pilgrimage
Accumulate three years’ worth of savings to purchase a car
Accumulate five years’ worth of savings for a down payment on
a house

103
104 I FIVE PILLARS OF PROSPERITY

My long-term goals are the following:

Accumulate $15,000 savings in eight years to help a child with
college
Accumulate twenty years’ worth of savings for a comfortable
retirement

My strategies for building wealth are the following:

Save each month
Budget to save and invest
Invest and use compound returns
Invest in a house
Fully use tax-deferred investments: IRA, SEP-IRA, 401(K) plan,
education IRA

My strategies for controlling debt are the following:

Set debt-management goals
Avoid accumulating debt
Pay off any debt I have quickly
 Key Wealth-Building and Wealth-Preserving Strategies I 105

Growing Your Assets

When you want to build a sizable estate, you should start early. In fact,
you should start today. The sooner you invest, the sooner your money
can start to grow.
You do not need a lot of money to start. Many mutual funds, includ-
ing Amana Mutual Fund (www.amanafunds.com), allow you to start
an account with as little as $250. You may also open a brokerage ac-
count if you have enough money to make investments of your choice.
It is best to open an investment account that is separate from your
checking and savings accounts. This allows you to follow your invest-
ment money and also reduces the temptation to spend it. Once the
account is open, you can add money on a regular basis—at least 10
percent of your paycheck, suggest Brian Ingram and Virginia Morris
in Guide to Understanding Islamic Investing.1
There are two great ways to invest. One way is to buy things of
value whose value you expect to increase over time, such as real estate,
stocks, art, or collectibles (a growth investment). Another way is to
buy things that you expect will provide regular income, for example,
in the form of rents or dividends.
When you are deciding to make an investment, the following fac-
tors should be considered:
n The rate of return for investing in stocks averages 10 percent
over periods of fifteen years or longer. (I know of funds that
have averaged returns of over 11% per year.)
n After inflation, expected annual rates of return are around 7
percent for stocks, 2 percent for long-term bonds, and 0.5 per-
cent for T-bills.
n While the effect of taxes is to reduce your income, the effect of
tax breaks (deductions) is to let you keep more of your income.
n The longer the investment period (“time horizon”), the better
the expected results (“higher investment return”). This is a
compelling reason to start saving early for education, hajj, and
retirement. If you want to retire early, you may have to pass on
that Porsche in favor of a Toyota.
106 I FIVE PILLARS OF PROSPERITY

n Diversification is an excellent strategy, especially if you are in

midcareer. Do not risk all your extra dollars in one kind of
stock or one type of investment. Invest in stocks in different
industry groups and stocks with varying potentials for growth
and return. A mutual fund may be a good choice.
n Reduce risk by investing a portion of your funds in a profit-
sharing money market account or in CDs (certificates of depos-
it) offered by banks such as University Bank (www.university-
bank.com).
n Your asset allocation should take into account factors like age,
cash reserves, health, income, career, and other familial needs.

What kind of investor are you? It depends on your tolerance level.

Conservative (low risk) investors want to safeguard their current assets
and minimize the chance of losing any invested money (principal).
Moderate investors seek growth (which is higher risk) from a substan-
tial portion of their portfolio while investing the balance to protect
their principal and gain income (which is lower risk). Aggressive (high
risk) investors increase their risk of losing principal in exchange for
significant growth.2

Wealth Preservation Strategies

Perhaps equally as important as building wealth is establishing the
means to preserve that wealth both during one’s lifetime and after
death. There are numerous ways of achieving this—too numerous to
discuss at length here. What follows are the basic methods that should
be considered.
A major aspect of preserving wealth is knowing how to preserve it
after one’s death for descendents and other beneficiaries. Thus having
some familiarity with inheritance laws, both religious and secular, is
useful. This is particularly true for Muslims, since Islam has specific
laws about inheritance.
 Key Wealth-Building and Wealth-Preserving Strategies I 107

Inheritance Laws
Among the three religions of the book, Islam may have the most to say
about rules of inheritance. Judaism also has a considerable number of
inheritance laws, many of them complex. However, the basic laws of
inheritance within the Jewish community are described in Numbers
27:5–11.3
Christianity does not have detailed inheritance laws. Geoffrey St.
Marie writes: “As Christianity is subject to many denominations, there
is no legal authority which covers inheritance for all Christians, other
than those statements found in scripture. Instead, focus on the idea of
inheritance within Christianity is of a spiritual character.” 4
In the Gospels, Jesus addresses the issue of inheritance on one par-
ticular occasion (Luke, 12:13-59). When asked by a man how he was
to divide his wealth, Jesus responds by condemning earthly wealth as a
fleeting phenomenon and of little concern compared to the well-being
of the soul. This has caused some Christian thinkers to assert that
Christianity has no laws of inheritance, since such laws would govern
material affairs (money), not spiritual affairs. The prevalent concept
of inheritance in Christianity, then, pertains not to earthly property
but to a spiritual inheritance stemming from Abraham to Jesus. This
inheritance is believed by Christians to be exemplified by the death of
Jesus and his resurrection: a promise of eternal life for believers.
Islam spells out specific rules of inheritance (irth or mirath) that
apply to all Muslim men and women. Every Muslim must follow the
rules of inheritance unless the heirs voluntarily give up their rights to
the inheritance.
The rules of inheritance are specified by the Qur’an and sunnah
(the way of life prescribed as normative for Muslims on the basis of
the teachings and practices of Muhammad and of the Qur’an). While
living, Muslims are free to give to whomever they want. After death,
everything must be given out according to the schedule of distribution
outlined in the Qur’an.
108 I FIVE PILLARS OF PROSPERITY

The rules of inheritance are mentioned in several places in the

Qur’an. For example, there are “settled portions ordained by Allah;
and Allah is All-knowing, All-Wise” (Q 4:11–14). There are shares for
ascendants, descendants, and other family members (Q 2:180, 2:240;
4:7–9, 4:11–12, 4:33, 4:176; 5:106–108). The Qur’an also encourages
the sharing of wealth with the needy (Q 4:8–9).
Islamic law ensures a wide distribution of inherited wealth through-
out society. M. Umer Chapra says,
Islam has instituted a unique inheritance system designed to
bring about a more equitable and wide distribution of wealth. The
rules for inheritance are defined by the Shari‘ah on the basis of its
socio-economic objectives. No one can deprive a genuine Shari
inheritor except when he is an apostate or guilty of murdering the
deceased. Again, no one can make a will for more than one-third
of his estate. This one-third has to be for charitable objectives or
for persons not already entitled to a share in the estate (unless the
other heirs agree).5

The Prophet said, “A man or woman may worship Allah for sixty
years, but when their death comes they hurt someone in the will and
thus entitle themselves for the punishment in hell.”6
All outstanding loans or debts, taxes, unpaid dowry (mahr), atone-
ment (kaffarah), and money for one year’s maintenance for the widow
and the residence must be paid before wealth is distributed (Q 2: 240).
In the will a person may give up to one-third of his or her wealth to a
person (or persons) who is a noninheritor or to one or more charities.
The Prophet allowed a person who insisted on giving virtually all his
wealth to the poor to bequeath only one-third of his wealth to them,
thus establishing the upper limit of what one can give via a will to
noninheritors. At least two-thirds was to be left for the dependents.
The Prophet said, “Leaving your dependents well off is better than
leaving them poor as they are looking up not to the mercy of others.
Every expenditure which you expend on your dependents is a sadaqah
(charitable expenditure), and therefore meritorious.”7
 Key Wealth-Building and Wealth-Preserving Strategies I 109

The remaining estate must be distributed to inheritors according to

Shari‘ah. All shares are distributed according to the specific percent-
ages defined in the Qur’an. Administrators should keep in mind the
following:
n Only a Muslim can inherit from a Muslim. Non-Muslim rela-
tives cannot inherit from Muslims and vice versa. If a Muslim
has a non-Muslim spouse (such as a Jewish or Christian wife),
he may will up to one-third of the estate to his non-Muslim
spouse. A non-Muslim may accept something as a gift from
a Muslim but not as an inheritance right. On the other hand,
many prominent scholars such as Dr. Kamli take into consider-
ation maqasidi (higher intent or purpose), where he concludes
that “many prominent Companions permitted that a ‘Muslim
may inherit from his non-Muslim relative and vice versa’ (as
the Prophet himself had allowed this in some cases), as long as
the non-Muslim relative is not engaged in active hostility with
Muslims. Muslims to inherit from their non-Muslim relatives
would encourage conversion (converting to Islam should not
result in loss of inheritance).”8
n According to fiqh opinion, illegitimate or adopted children
cannot inherit.
n A murderer does not inherit.

In the United States, most states protect heirs, especially the spouse
and children, from being disinherited through a will. For instance: if
the husband dies leaving a will that gives his wife only 12.5 percent of
his estate, within six months the wife may choose to bypass the will
and take a statutory amount known as her “elective share.” In Virginia,
for example, the elective share is calculated as one-third or one-half
of the “augmented estate,” depending on whether the deceased has
surviving children or grandchildren.9
Notably, these legal statutes pertain only to probate law and prop-
erty that passes under a will. They do not pertain to property passing
110 I FIVE PILLARS OF PROSPERITY

under a trust (such as a living trust), or something in joint tenancy,

or where a designated beneficiary is named—as with life insurance, a
401(k), an IRA, or a POD (payable upon delivery) or TOD (transfer
on death) account. The probate court protects a surviving spouse from
being “defrauded” by the other spouse. However, with the popular-
ity of nonprobate assets and the use of trusts, such protections do not
cover all situations.

Common Questions about

Islamic Inheritance Law
The Qur’anic rules about distribution of inheritance are clear and can-
not be disputed. However, once in a while, questions are raised about
one or another rule. One such question is: Why does the wife receive
only a one-eighth share, while his son receives twice the amount that
his daughter will receive in inheritance? To understand this rule, it
must be looked at within the framework of Islamic law and not in
isolation. For example: should anyone feel that the wife needs a place
to stay after her husband’s death, while in good health he could gift a
house (and anything else, for that matter) to her. Inheritance laws and
distribution schedules are applied only after death.
Mazen Hashem, professor of political science at the University of
Southern California, has pointed out that a girl who receives mahr (a
marriage gift given by her husband as a required part of the marriage
contract)10 and invests it over time is better off than a boy, who receives
no dowry.
In addition, a female owns and controls not only her mahr but also
her inheritance and her lifetime earnings (which can be substantial).
She has no obligation to pay for her living expenses; that is her hus-
band’s responsibility. Upon the death of her husband, that responsibil-
ity is transferred to her children, her siblings, and other members of
the extended family. Thus the wife has other assets she can rely upon.
The son has more responsibilities than a daughter, entitling him to a
higher share of the inheritance.
 Key Wealth-Building and Wealth-Preserving Strategies I 111

There appears to be a lot of confusion within the Muslim commu-

nity on the distribution of wealth among one’s children. To begin with,
while living, we must treat all of our children equally in every respect
(i.e., upbringing, clothing, education, cars, marriage, and travel), and
without discrimination between male and female. A child, whether
male or female, has a right to sustenance, education, proper care,
and being treated equally while the parents are alive. (An exception
is if one child is handicapped and has special needs.) This principle is
supported by Hadith. “The Prophet asked, ‘Have you other children
besides this one?’ He said, ‘Yes.’ The Prophet asked, ‘Have you awarded
a gift like this to all of them.’ He said, ‘No.’ The Prophet said, ‘I am not
going to bear witness to this act of injustice.’’’11
The Prophet also said, “It is obligatory for a father to treat all his
children equally, especially in the matter of giving gifts.”12 This Hadith
is also advanced by those scholars in support of their contention that
if a person wants to distribute his property among his children during
his lifetime, he should not make any discrimination among his male
and female children and should give an equal share to all of them.
“Each one of you is a caretaker (ra’iy), and is responsible for those un-
der his care. Wasting the sustenance of his dependents is sufficient sin
for man.”13
While you are living, you can freely give equally among your chil-
dren, irrespective of their gender. It is only upon one’s death that the
Shari‘ah schedule of distribution applies.
While living, we may want to give to charity, or give to deserving
noninheritors, and distribute the rest equally to our children, leaving
little to nothing for the inheritance.
Also, if a person wants to give more than one-third of the inheri-
tance to noninheritors or to a charity (or charities) of his or her choice,
he or she can do so after getting consent from the inheritors. A child
with special needs can also be taken care of this way. Additionally, an
inheritor can gift or forego his or her share in favor of someone else.
112 I FIVE PILLARS OF PROSPERITY

Wills
Everyone who is at least eighteen years old should have a will.15 If you
do not have a will, the state you live in has one for you. However, you
may not like how this state-determined will divides your assets and how
it selects a guardian for your children if they are underage. Moreover,
the way the state law says a person’s wealth should be distributed may
not be according to the Islamic distribution schedule. However, every
state will recognize a properly written and executed will, if it exists.
It is especially crucial that a will be written by parents of young
children. If both parents pass away, if there is no will, the court will
appoint a guardian over the children—quite possibly a person they did
not even know and maybe of another faith. The wealth of a deceased
single person without a will may go to government institutions that
may serve purposes not consistent with the person’s beliefs.
The Qur’an says, “It is prescribed for you, when one of you ap-
proacheth death, if he leave wealth, that he bequeath unto parents and
near relatives in kindness. [This is] a duty for all those who ward off
[evil]” (Q 2:180; see also 2:181–2 and 4:12). The Prophet said, “It is not
right for a Muslim who has property to bequeath, that he should pass
two nights without having a Will.”16
The purpose of a will is to distribute assets after one’s death in an
orderly fashion to inheritors, including gifts to individuals or to one or
more charities. When you write your will, keep in mind the following:
n You, the testator (the person making the will), must be at least
eighteen years old and of sound mind.
n You must be able to differentiate between good and bad. Other-
wise the will is not valid.
n The executor is a person appointed to carry out the provisions
and directions in the testator’s will.
n A guardian is a person or persons legally placed in charge of the
affairs of the testator’s minor children.
n The will allows you to will but not to negate willing. Thus one
cannot will to disinherit a child.
 Key Wealth-Building and Wealth-Preserving Strategies I 113

n A will can be oral or written. However, under most state laws, a

will must be in writing. It must be signed before a notary public
and in the presence of two or three adult witnesses (depending
on the state’s requirements), present at the same time, who will
see and sign in the conscious presence of the testator.
n The testator must sign willingly. The signature must be free and
voluntary (not coerced by a family member, friend, or lawyer).
n No particular language is necessary to constitute a valid will. It
can be handwritten. However, using the primary language of
the country—in this case, in English—is preferred.
n The testator can revoke, change, or replace the will before he or
she is on his or her death bed.
n The will should be kept in a safe place. For a small fee, the
original can be deposited with the county court clerk or with
probate court. Also, leave a copy with your lawyer and with the
administrator of your will.

As mentioned earlier, in Islam, up to one-third of the net estate can be

willed to noninheritors, i.e., relatives, nonrelatives, and charities, after
all liabilities have been paid (i.e., debt, unpaid dowry (mahr), unpaid
zakah, taxes, and maintenance payments for one year for the widow
and residence).17 The Qur’an says: “If any of you die and leave widows,
make a bequest for them: a year’s maintenance and no expulsion from
their homes [for that time]. But if they leave of their own accord, you
will not be blamed for what they may reasonably choose to do with
themselves: God is the Almighty, the Wise” (Q 2:240).
The person making the will should be intending to do good and not
to deprive anyone of his or her due rights, while obeying Allah.

Estate Planning Mistakes to Avoid

Writing a will and planning an estate are complex, detailed processes,
and it is easy to make mistakes that can be regretted later. The follow-
ing eight points, based on Herbert Nass’s book, The 101 Biggest Estate
Planning Mistakes, are key mistakes that can easily be avoided.18
114 I FIVE PILLARS OF PROSPERITY

1. Dying without a will. As discussed earlier, in the absence of a

will, the court will appoint an administrator to administer your
estate. If you die and leave behind young children, the court will
appoint a guardian for them. The administrator and the guard-
ian appointed by the court may not always make decisions ac-
cording to your faith requirements. Distribution of your estate
will be governed by the statutes of the state you live in, which
most likely will not follow Islamic prescriptions. By not having
a will, you are giving up your rights. Someone else will decide
for you. It may also result in additional expenses (such as taxes
and legal fees), not to mention aggravation and delays in the
distribution of your estate.
2. Improper execution of the will. The will must be properly ex-
ecuted—not in a rush while you are leaving for umrah or hajj
or when you are making an overseas trip. Proper execution of a
will requires two or three (depending on your state) witnesses
and a notary public. All witnesses must be present and see you
sign your will according to state requirements; otherwise the
will can be rejected and probate may be refused.19
3. Not properly documenting the delivery of a gift. To avoid this
problem, physically take possession of the gift with a deed of
gift, a written instrument that is signed and delivered by the
donor to the donee (recipient) of the gift.
4. Not specifying lease termination. If you own rental property,
add the following clause to the lease: “Lease will terminate on
reasonable terms after the death of the owner of the property.”
This will allow the administrator of your will to sign a new lease
or sell the property.
5. Owning property in other countries. According to Herbert Nass,
it is probably a mistake to own real estate or residential property
in another country, since it can cause numerous problems for
the executor, administrator, and/or beneficiaries of your estate.
 Key Wealth-Building and Wealth-Preserving Strategies I 115

6. Not discussing the will with your spouse. Discuss the contents of
your will with your spouse, since he or she may be the executor
of your will. If your spouse does not like the contents, he or she
may not implement them!
7. Removing the staples. DO NOT REMOVE staples from an origi-
nal will. Photocopy the will with the staples. If you have to re-
move the staples, get an affidavit from the person who removed
the staples, explaining the presence of the staple holes.
8. Not properly protecting your document(s). Do not keep your
original will in a safe deposit box. Very often, after a person
dies, the safe deposit box is sealed by the bank until someone
is appointed the executor of the will. A person cannot be ap-
pointed executor of a will without having a copy of the will in
hand. Perhaps the best place to keep your will is with your at-
torney or a government official, such as the county clerk.

Revocable Living Trusts

Why should someone establish a revocable living trust? Without
a revocable living trust, the estate may have to go through probate
proceedings, which could be costly and may prevent inheritors from
receiving assets, or a decision on assets, in a timely manner. Instead,
consider transferring ownership of your assets to a revocable living
trust while you are alive. A revocable living trust is like a wakf al-ahli
(family trust), which preserves the family’s assets.
During your lifetime, as the sole trustee, you retain control of the
trust and avoid trust management fees. You can alter the document or
revoke it at any time. Assets in a living trust can be distributed right
away, at any time, if desired. After your death, the trust continues to
exist and to serve the purpose for which it was established, as if noth-
ing has happened—except that it is now irrevocable, since the person
with the power to revoke it has died. A successor trustee manages or
distributes the assets according to your instructions as outlined in the
trust document.
116 I FIVE PILLARS OF PROSPERITY

You can also set up a trust if you become disabled, with a trustee
whom you appoint. However, remember that avoiding probate by ap-
pointing a trustee means you usually forfeit court supervision of your
estate. Be cautious about whom—you appoint as a trustee. You can,
however, remove a trustee if you wish.
What is the problem with probate? If an inheritance is handled by
a probate court, the costs are higher, and the decisions are made by
“strangers” rather than family members. Estates go into probate when
there is no will or when there are disputes over the will, even if the will
is valid.
A living trust can be especially helpful in the following cases:
n If you live in a state with costly and lengthy probate procedures.
The procedure can take anywhere from a few months to a year
in some states and consume between 3 and 5 percent (and
sometimes 10 percent) of your estate.
n When your estate is large or complex and/or holds several liq-
uid assets, such as real estate holdings in more than one state.
n If you fear a battle over the provisions of your will. Living trusts
are more difficult to contest, with the exception of the statutory
rights of a spouse and children.
n If you want privacy for your heirs. While assets passing through
probate become public record, living trusts are much more
private.

Distribution of assets within the living trust cannot be challenged in a

probate court, but they are subject to claim by creditors. In a revocable
living trust, you do not give up control over these assets, hence you
have full access to the trust; because of this, you do not have asset pro-
tection against potential frivolous lawsuits. Assets held in this type of
trust remain in your taxable estate, and you are taxed on income that
comes from these assets.
 Key Wealth-Building and Wealth-Preserving Strategies I 117

Irrevocable Trusts
An irrevocable trust, on the other hand, separates the assets from one’s
estate (hence it offers asset protection) and reduces estate taxes. But it
means that you must sacrifice control of the assets while you are alive,
and you cannot make any changes by amending the trust. Instead,
an independent trustee manages the assets for the benefit of all trust
beneficiaries.
Whichever type of trust or other vehicle you choose, it will protect
your hard-earned assets. To protect your residence (from personal
or professional lawsuits), an irrevocable trust can be in the form of a
Qualified Personal Residence Trust (QPRT).
A detailed discussion on the various types of irrevocable trusts is
beyond the scope of this book. Please seek the counsel of your financial
attorney or advisor for guidance suitable to your particular situation.

Family Limited Partnership (FLP)

The other crucial aspect of estate planning is asset protection, perhaps
through a family-owned limited liability partnership. A family lim-
ited partnership (FLP) is generally owned by the husband, wife, and
children. The FLP may own your share in a professional corporation,
business, or other investments.
An FLP is a limited partnership formed to hold the family business
or investments on a long-term basis, with the idea that the parents
will make equal gifts of their limited partnership interests to their chil-
dren during their lifetime. Because the limited partnership interests
are illiquid and may not control decision making, so the theory goes,
they should be subject to substantial discounts for federal gift tax and
estate tax purposes. This means that if the FLP, for example, has assets
worth $100,000, one may argue after discounts for lack of liquidity (no
readily available market) and lack of control (passive investor without
much say) that 100 percent of the FLP is worth only $70,000.
The FLP has certain unique attributes that are beneficial for both asset
protection and estate planning. Regarding asset protection, the law (in
certain states) limits a creditor to foreclosure on a partner’s interest in an
118 I FIVE PILLARS OF PROSPERITY

FLP. The creditor who demands money from an FLP partner may have
only a “charging order,” which is not useful for most creditors. However,
in some states, a creditor is permitted to “foreclose” on a partnership
interest. A “foreclosure,” a seizure of the debtor’s interest, is a powerful
weapon for the creditor (plaintiff). Every plan that involves an FLP must
therefore protect ownership interests with a trust designed for that pur-
pose. The highest level of asset protection uses an asset-protection trust
to hold the limited partnership interest in the FLP.
The limited partners of an FLP have the right to enjoy the income
upon distribution. However, the general partner cannot use the assets of
this FLP like his or her personal checkbook. The FLP is a distinct entity,
separate from the general partner personally, and this distinction should
be respected. Otherwise the benefits of forming the FLP can be lost.
My family, with the help of an attorney, formed a family limited
partnership (FLP). Each child (irrespective of gender) owns an equal
share as a limited partner, and my wife and I each own a small percent-
age while also serving as general partner. Over time, we have gifted a
portion of our investments to this FLP. Each child has a capital account
that is used to pay for his or her education and major expenses (such as
housing, maintenance, marriage, car, computers, etc.)
This has worked out even better than we had anticipated. For ex-
ample, the income of the partnership (which is mostly owned by the
children) is allocated to each limited partner, who is paying taxes at
a much lower rate than the parents. Since their capital accounts are
defined, each child has the incentive to spend less and to save for the
future, for instance, by graduating early to save tuition fees. Delaying
withdrawals keeps money invested and growing for everyone. If one
partner needs more funds, the others are willing to let him or her with-
draw them, because that is what family is all about: helping each other.
For example, the partners can agree to let the oldest one withdraw
more funds to buy a home, and later, when enough funds are available,
another child can buy a home, and so on.
 Key Wealth-Building and Wealth-Preserving Strategies I 119

Other Financial Vehicles

Other financial vehicles can be used to build or protect your wealth. A
private insurance company can be established offshore and registered
with the Internal Revenue Service (IRS) under Section 501(c)(15). The
IRS exempts some US income and capital gains, and these can be used
to write insurance policies (for example, for a medical practice). Assets
can be transferred using allowable annual gifts (in 2013, $14,000 per
year per person) or using a lifetime Unified Credit (as of 2013, $5.25
million).
Afterword

It is my hope that the ideas in this book, applied correctly, will help
you to manage your finances wisely. The book covers the financial and
moral principles that can provide you with spiritual fulfillment and
economic success. When you earn, save, invest, spend, and give based
on the advice in this book, you can live debt free, with your assets pro-
tected, and be taxed fairly. Also, your family’s needs will be taken care
of both now and in the future.
The ideas in this book are based on my experience. Now you may
benefit from them, or even improve upon them. If you have found the
book useful, please pray for me and just like me make a donation to
your favorite charity.
I’d like to end the book with the following hadith and a verse:
The Prophet (pbuh) said: “O Allah! I seek refuge with You from
worry and grief, I seek refuge with You from weakness and lazi-
ness, I seek refuge with You from cowardice and miserliness, and
I seek refuge with You from being heavily in debt and from being
overpowered by [other] men.

“Our Lord! Accept [this service] from us: for thou are the All-
Hearing, the All-Knowing.” (Q. 2:127)

121
Resources

Sterling Management Group

Sterling Management Group, Inc. (SMG) offers business development and
management consulting services to entrepreneurs in the United States and
overseas. The firm offers an array of services engineered to help its clientele
realize their goals and achieve the full potential from their business ventures.
Some of SMG’s services include (but are not limited to) the following:
n Asset management
n Accounting and financial management
n Business development services
n Raising Capital & other types of structured financing
n Investment management & advisory services
n Real Estate Acquisition, Development and Property Management
(Residential and Commercial)
n Agro-Industrial & Food Processing advisory services (poultry, fruit
juices, yeast, dairy, beef and sheep)

Sterling Management Group, Inc.

459 Herndon Parkway, Suite 22
Herndon, VA 20170 USA
Tel: (703) 471-6060
Fax: (703) 471-1211
www.sterlingmgmt.com

Sterling Charitable Gift Fund (a Donor-Advised Fund)

We encourage the spirit of helping the needy and the poor, and advancing the
causes you believe in (such as education and healthcare).
The Sterling Charitable Gift Fund (SCGF) is a 501(c)(3) trust which assists
with establishing an account in the donor’s name and allows the donation of
immediate funding of future charitable giving. Foundations serve the public
interest now and in the future. The SCGF, provides a low-cost alternative to

123
124 I FIVE PILLARS OF PROSPERITY

private “personal” foundations, and can help establish a waqf (endownment,

a sadaqa jaria) at a lower cost and with greater tax benefits relative to a private
foundation.
SMG also provides financial management, accounting and tax filing ser-
vices for non-profit and charitable, private and public foundations (includ-
ing endowment funds). SMG works with several attorneys who specialize in
the legal aspects of establishing charitable entities, and obtaining tax-exempt
status for them. For further information regarding the Sterling Charitable
Gift Fund, please e-mail: [email protected]

International Institute of Islamic Thought (IIIT)

The International Institute of Islamic Thought (IIIT) is a cultural and intel-
lectual foundation. IIIT was established in the United State of America at
the beginning of the fifteenth Hijrah century (1401/1981) with the following
objectives:
n Elucidating the principals of Islam and relating them to relevant is-
sues of contemporary thought.
n Regaining the intellectual, cultural, and civilizational identity of the
Ummah through the Islamization of the humanities and social sci-
ences.
n To rectify the methodology of contemporary Islamic thought in order
to enable it to resume its contribution to the progress of human civi-
lization and give it meaning and direction in line with the values and
objectives of Islam.

The Institute seeks to achieve its objectives by:

n Holding specialized academic conferences and seminars.
n Supporting and publishing selected works of scholars and researchers
in universities and academic research centers in the Muslim world
and the West.
n Helping university students work on issues of Islamic thought and the
Islamization of Knowledge.

IIIT has a number of overseas offices, affiliates and academic advisors for the
purpose of coordinating and promoting its research and academic activities.
The Institute has also entered into joint academic agreements with several
universities and research centers.
 Resources I 125

International Institute of Islamic Thought

500 Grove Street
Herndon, VA 22070-4705, USA
Tel: (703) 471-1133
Fax: (703) 471-3922
Email: [email protected]
www.iiit.org

The Fairfax Institute (TFI)

The Fairfax Institute (TFI) is a Northern Virginia based center of knowledge
committed to continuing education and lifelong learning. TFI offers an in-
structional program to help students, academicians, lifelong learners, and
concerned citizens, as well as professionals in government, policymaking,
business, and information analysis, to enhance their skills through a better
understanding of the laws, traditions and culture of Islam and the Muslim
world.
Its vision is to become a platform for continuing education and lifelong
learning through an open exchange of ideas and information that enhance
religious and spiritual understanding, develop performance skills, achieve
professional growth, and enrich people’s intellectual lives
The Fairfax Institute
500 Grove Street, 2nd Floor
Herndon, VA 20170 USA
Tel: (703) 478-9222
Fax: (703) 935-1459
Email: [email protected]
www.fairfaxi.net

The Foundation for Appropriate and Immediate Temporary

Help (FAITH)
The Foundation for Appropriate and Immediate Temporary Help (FAITH).
FAITH is located in Herndon, Virginia, and was established in 1999. FAITH is
a recognized section 501(c) 3 tax exempt corporation.
FAITH’s vision is to strengthen the community by helping individuals and
families lead dignified and harmonious lives. Its mission is to provide humani-
tarian aid to individuals and families in need who are living in Northern Virgin-
ia. FAITH serves people of all faiths and ethnicities, and the majority of FAITH
clients are from Muslim-based cultures. In addition to providing humanitarian
aid to the local community, for the last ten years FAITH has led a pioneering
126 I FIVE PILLARS OF PROSPERITY

effort to help women who have been the victims of domestic violence.
FAITH provides a variety of services to the Northern Virginia community,
which includes direct services to domestic violence victims and their children
through the following programs:
n Safe and Peaceful Families Program
n Food Pantry
n Thrift Store
n Self-Sufficiency Program

FAITH Social Services

795 Center Street, Unit 2
Herndon, VA 20170-4685
Tel: (571) 323-2198
Web: www.faithus.org

Amana Mutual Fund

Amana Mutual Funds Trust (Ticker symbols: AMANX, AMAGX, and AM-
DWX), headquartered in Bellingham, Washington, USA, is a mutual fund
company offering investment products consistent with Islamic banking prin-
ciples.
The Amana Income Fund, founded by Unified Management Corporation,
Indianapolis, IN, in 1986, was the Trust’s first fund. The Amana Growth Fund
was created in 1994. The Amana Developing World Fund was created in 2009.
All three funds are managed according to Islamic principles.
Traditional mutual funds are off-limits to Muslims, because they typically
contain securities that are forbidden by Shari’ah law. Accordingly, the Amana
Funds are managed under strict guidelines to comply with Islamic principles.
Examples of forbidden (haram) investments are companies that:
n Produce or sell alcohol, tobacco or pornography
n Process or sell pork products
n Generate revenue from gambling or interest (riba)
n Maintain a debt ratio of greater than one-third of assets

These funds were created and are still managed under the value investment
style. Mr. Nicholas Kaiser has been portfolio manager of the funds since 1990.
Saturna Capital advises Amana on its funds and investments.
 Resources I 127

Amana Mutual Funds Trust

P.O. Box N
Bellingham, WA 98227
www.amanafunds.com

Saturna Capital Headquarters

1300 N. State St.
Bellingham, WA 98225
Ph: (360) 734-9900
Fx: (360) 734-0755

University Bank
University Bank is a community bank based in Ann Arbor, Michigan, USA,
serving the diverse needs of all consumers. University Bank is proud to have
formed University Islamic Financial Corporation, the first Islamic Banking
subsidiary run entirely on Shari‘ah principles. UIFC serves the needs of the
Muslim community by offering Shari‘ah-compliant deposit accounts through
University Bank and Mortgage Alternative (MALT™) products.
University Bank’s subsidiary, University Insurance & Investment Services,
makes Shari‘ah-compliant Mutual Funds available to its customers. The bank’s
goals are to provide more Shari‘ah-compliant products in order to be a single
point of contact for all of their customers financial services needs.

University Bank
Headquarters:
2015 Washtenaw Avenue
Ann Arbor MI 48104
www.university-bank.com

Toll Free: 1-800-916-UIFC

Fax: 1-800-215-5207 / 734-822-0016

University Islamic Financial

Headquarters:
30500 Northwestern Highway, Suite #315
Farmington Hills, MI 48334
wwww.universityislamicfinancial.com

Telephone: (248) 254-7054

Fax: (248) 254-7055
Notes

Introduction
1. Irfan Ul Haq, Economic Doctrines of Islam: A Study in the Doctrines of
Islam and Their Implications for Poverty, Employment and Economic
Growth (Herndon, VA: International Institute of Islamic Thought, 1996),
p. 245.
2. Gary A. Moore, Faithful Finances 101: From Poverty of Fear and Greed to the
Riches of Spiritual Investing (Radnor, PA: Templeton Press, 2005), pp. 3–4.
3 Ibid., p. 32.
4. Ibid., p. 2.
5. Ibid., p. 44.
6. Ibid., p. 15.
7. Shaykh Yusuf Talal DeLorenzo, “Preface” in Virginia Morris and Brian
D. Ingram, Guide to Understanding Islamic Investing in Accordance with
Islamic Shariah (New York: Lightbulb Press, 2001), p. 3.
8. Lynnette Khalfani, Zero Debt—The Ultimate Guide to Financial Freedom
(New Jersey: Advantage World Press, 2004), p. 8.
9. Sahih al Bukhari 2:292, cited in Irfan Ul Haq, Economic Doctrines of
Islam, p. 114.
10. Also see Suze Orman, The 9 Steps to Financial Freedom: Practical and
Spiritual Steps so You Can Stop Worrying (New York: Three Rivers Press,
2006).
11. Hadith of the Prophet Muhammad, reported by Abu Daoud.
12. Hadith, reported by al-Nisai and al-Hakim.
13. Hadith, reported by al-Bukhari.
14. Ul Haq, Economic Doctrines of Islam, p. 114.
15. Hadith, reported by Muslim.
16. Hadith, reported by al-Bukhari.
17. Portions of this chapter reference Yusuf al-Qaradawi, Halal and Haram
in Islam (Indianapolis, IN: American Trust Publications, 1987), pp.
268–269, concerning the Prophet seeking refuge with God from debt.

129
130 I FIVE PILLARS OF PROSPERITY

18. Tarek El Diwany, ed., Islamic Banking and Finance: What It Is and What It
Could Be (London: 1st Ethical Charitable Trust, U.K, 2010), p. 99.
19. M. Umer Chapra, Towards a Just Monetary System: A Discussion of Money,
Banking and Monetary Policy in the Light of Islamic Teachings (London:
The Islamic Foundation, 1995).
20. Morris and Ingram, Guide to Understanding Islamic Investing, p. 10.
21. Excerpted from Jerald F. Dirks, The Abrahamic Faiths: Judaism,
Christianity, and Islam: Similarities and Contrasts (Beltsville, MD: Amana
Publications, 2004), p. 29.
22. William W. Baker, More In Common Than You Think: The Bridge Between
Islam and Christianity. (Crane, MO: Defender Publications, 1998).
23. “Oneness of Humanity,” Los Angeles Chinese Learning Center, http://
chinese-school.netfirms.com.
24. Muhammad Ali al-Hashimi, The Ideal Muslim Society as Defined in
the Qur’an and Sunnah (Riyadh, Saudi Arabia: International Islamic
Publishing House, 2010), p. 180.
25. al-Hashimi, Ideal Muslim Society, p. 180 (taken from Hadith as recorded
by Bukhari and Muslim).
26. Ibid, p. 419.
27. Hadith narrated by Tabarâni and al-Bazzâr.
28. Ibrahim Abdul-Matin, Green Deen: What Islam Teaches about Protecting
the Planet (San Francisco: Berrett-Koehler Publishers, 2010).
29. Remarks from a discussion I had with Joseph Montville, Chair, Center
for World Religions, Diplomacy, and Conflict Resolution, George Mason
University.
30. The shahadah is the first pillar of Islam. The shahadah is the declaration
that “there is no god but Allah and Muhammad is the Prophet of God.”
31. Fathi Osman, Concepts of the Qur’an (Los Angeles MVI Publications,
1997), p. 936.
32. Jessica Dulong, “The Imam of Bedford-Stuyvesant,” Aramco World, May-
June 2005.

Chapter 1
1. Adapted from Ul Haq, Economic Doctrines of Islam, pp. 92–95.
2. Sayings of Muhammad, cited in Siddiqi, Economic Enterprise in Islam
(Lahore: Islamic Publications, 1972), pp. 12–13.
3. This section draws upon the pioneering work of Muhammad Nejatullah
Siddiqi, The Economic Enterprise in Islam (Lahore: Islamic Publications,
1972).
 Notes I 131

4. Ul Haq, Economic Doctrines of Islam, pp.92–95.

5. Sahīh al Bukhārī 3:349.
6. Siddiqi, Economic Enterprise, p.28.
7. Wayne Grudem, “How Business in Itself Can Glorify God,” in Tetsunao
Yamamori and Kenneth Eldred, On Kingdom Business: Transforming
Missions through Entrepreneurial Strategies (Wheaton, IL: Crossway
Books, 2003), p. 127.
8. Wayne Grudem, Business for the Glory of God: The Bible’s Teaching on the
Moral Goodness of Business (Wheaton, IL: Crossway Books, 2003), p.23.
9. Ibid., p. 37.
10. Muhammad Muhsin Khan, Summarized Sahīh al Bukhārī, (Riyadh,
Saudi Arabia: Darussalam, 1996), p. 17.
11. Ul Haq, Economic Doctrines of Islam, pp. 92–95.
12. The Fairfax Institute, located in Herndon, Virginia, offers a course on
faith-based entrepreneurship. Those interested in pursuing and/or
exploring entrepreneurship are encouraged to take this course. For more
information on the course, contact the Institute at www.fairfaxi.net.
13. Stephen Owens, “Biblical Entrepreneurship: The Purpose of a Christian
Entrepreneur,”http://ezinearticles.com/?Biblical-Entrepreneurship---
The-Purpose-of-a-Christian-Entrepreneur&id=1222706

Chapter 2
1. Ul Haq, Economic Doctrines of Islam, pp.92–95.
2. Ibid., p.24.
3. Dwight Nichols, God’s Plans for Your Finances (New Kensington, PA:
Whitaker House, 1998), p. 55.
4. Scottrade, 2011 American Retirement Survey (St. Louis: Scottrade, 2011).
5. Moore, Faithful Finances 101, p. 44.
6. Omar Clark Fisher, Islamic Wealth Guide: Guide to Wealth Building, Risk
Management and Wealth Distribution in Accordance with Islamic Shariah
(Oakton, VA: Self-published, 2007), p. 42.
7. Reported by al-Nisai and al-Hakim.
8. Hadith reported by al-Bukhari.
9. From website: http://www.fbcsomerset.com/dfree.php.
10. Deforest Soaries, “Debt-free Living is the Key to Power,” CNN wesbite,
November 14, 2010, http://www.cnn.com/2010/OPINION/10/17/inam.
soaries.dfree.pulpit/index.html.
11. Gary Moore, Faithful Finances 101, p. 42.
132 I FIVE PILLARS OF PROSPERITY

12. Michelle Singletary, 7 Money Mantras for a Richer Life: How to Live Well
with the Money You Have (New York: Random House, 2003).
13. Starbuck Investor Relations, Financial Release (Seattle: Starbucks Coffee
Company, 2011).
14. CNBC 1-hour interview, http://richmanramblings.blogspotcom/2008/11/
warren-buffet.html.
15. Warren Buffet and Lawerence Cunningham, The Essays of Warren Buffet:
Lessons for Corporate America (New York: The Cunningham Group,
2008).

Chapter 3
1. Ul Haq, Economic Doctrines of Islam, p. 158.
2. Ibid.
3. “Warren Buffett, The Billionaire Next Door,” May 7, 2007, http://www.
cnbc.com/id/17595710.
4. Statements made in this chapter are for educational purposes only, and
are not be taken as investment advice. Please consult your financial
advisors before implementing any of these suggestions.
5. Michael Mauboussin, “Why Smart People Make Dumb Decisions,” The
Futurist 44:2 (March 6, 2010).
6. Virginia Morris, A Muslim’s Guide to Investing and Personal Finance (New
York: Lighthouse Press, 2009).
7. Ramit Sethi, I Will Teach You to Be Rich (New York: Workman, 2009).
In my opinion, Sethi’s book is a fine read. The section on house buying
begins on p. 250.
8. Robert Shiller, quoted in ibid., p. 253.
9. These charts are available at www.econ.yale.edu/~shiller/data/Fig2-1
.xlsSimilar.
10. Sethi, I Will Teach You, p. 253.
11. Morningstar: www.morningstar.com; Lipper: www.lipperweb.com
12. Ruthie Ackerman, “God’s My Investment Advisor: Faith-Based Funds
Doing Well,” American Banker, December 21, 2009, p. 6.
13. Jay Peroni, cited in ibid., p.15.
14. Daren Fonda, “Faith & Finance,” Smart Money, January 2010, pp. 62–67.
15. Mufti Muhammad Taqi Usmani, “Looking for New Steps in Islamic
Finance,” www.muftitaqiusmani.com.
16. Office of the Comptroller of the Currency Interpretive Letters 806 and
867 (issued December 1997 and November 1999, respectively) provide
 Notes I 133

exceptions to the National Bank Act of 1864, which states that banks
cannot hold legal title or possess any real estate to secure any debt to it
for a period exceeding five years. We expect permission to be granted
soon on itisna‘a contracts.
17. Ibrahim Warde, quoted in Elizabeth Ferruelo, “Why Socially Responsible
Investing and Islamic Finance is on the Rise,” Forbes.com, November 1,
2012, http://www.forbes.com/sites/ashoka/2012/11/01/why-there-is-high-
growth-potential-in-the-nexus-between-socially-responsible-investing-
and-islamic-finance/.
18. See the University Islamic Financial website: www.myuif.com. “FDIC
insured” means that in the event of the bank’s insolvency, insurance (on
deposits up to $250,000 per account) is provided by the Federal Deposit
Insurance Corporation.

Chapter 4
1. This UGMA account description is not comprehensive and you may
want to do more research.
2. “Shared equity homeownership ensures that the homes remain affordable to
lower income households on a long-term basis by restricting the appreciation
that the owner can retain, preserving affordable housing in areas where
rising prices are forcing lower income households out of the market. At
the same time, by placing the owner within a community-based support
system, such as a community land trust or limited equity cooperative,
shared equity homeownership can mitigate the risks of homeownership,
potentially increasing the benefits of homeownership both for the owner
and the neighborhood in which she lives.” Preface in John E. Davis, Shared
Equity Homeownership: The Changing Landscape of Resale-Restricted
Owner-Occupied Housing (Montclair, NJ: National Housing Institute, 2006).
Available online at http://www.nhi.org/pdf/SharedEquityHome.pdf.
3. These mortgages to Fannie Mae and Freddie Mac have a financing limit of
$417,000 per mortgage transaction. These numbers do tend to change over
time; however, the general loan limits for 2013 remain unchanged from
2012 (e.g., $417,000 for a 1-unit property in the continental United States).
4. Amana has a system by which it can generate duplicate statements of
accounts, one for the recipient and the other for the donor, to know how
the investment is growing and to facilitate additional investments.
5. By withdrawing say, $12,000 each year, her retirement could last for more
than for fifteen years.
134 I FIVE PILLARS OF PROSPERITY

6. Profit-sharing CDs are offered by certain institutions, such as University

Bank (for more information, see www.University-Bank.com).

Chapter 5
1. Sahih Al-Bukhari, Volume 2, Hadith 524.
2. Fiqh-us-Sunnnah, Volume 3, Number 98.
3. Vijay Mahajan, The Arab World Unbound (San Francisco: Jossey-Bass,
2009), p. 108.
4. M. Umer Chapra, Islam and the Economic Challenge (Nairobi: The Islamic
Foundation, 1982), p. 271.
5. Hadith reported by al-Tabarani
6. Author’s note: To my understanding, the Qur’an does not distinguish
between zakah and sadaqah. However, scholars have deemed zakah
as mandatory, whereas voluntary contributions (more than zakah) are
called sadaqah.
7. A dirham is an Arab coin, worth about 25 cents of buying power at the
time of the Prophet.
8. Muhammad Ali al-Hashimi, The Ideal Muslim Society as Defined in
the Qur’an and Sunnah (Riyad, Saudi Arabia: International Islamic
Publishing House, 2010), p. 196.
9. Working draft opinion of Fiqh Council of North America, p. 16.
10. Benson Tesdahl, correspondence with the author, June 2010.
11. Yusuf al-Qardawi, Fiqh az-Zakah: A Comparative Study (London: Dar
al-Taqwa Ltd., 1999). p. 353.
12. Mahmoud Abu Saud, Contemporary Zakah (Cincinnati, OH: Zakat and
Research Foundation, 1988), p. 176.
13. Shaykh Safiur Rahman Al-Mubarakpuri, Tafsir Ibn Kathir, vol. 4, p. 349.
(Riyad: Maktaba Dar-us-Salam, 2003).
14. Chapra, Islam and the Economic Challenge, pp. 272–273.
15. Abu-Saud, Contemporary Zakah, p. 72.
16. Hadith cited at http://www.amanafunds.com/retail/zakah/zakah2.shtml
17. Hadith reported by al-Tirmidhi.
18. Abu-Saud, M. Contemporary Zakat, p. 164.
19. Hadith, reported by al-Tirmidhi.
20. M. Siddiqi, “Zakah: Questions and Answers,” Islamic Horizons, Nov.-
Dec. 2000, p. 60.
21. Yusuf al-Qaradawi, Fiqh az-Zakah (London: Dar al-Taqwa, 1999), p. 333.
22. FAITH is a nonprofit organization providing humanitarian aid to the
 Notes I 135

needy in northern Virginia: the elderly, divorced, homeless, and victims

of domestic violence.
23. Bukhari, Book 2 (vol. 24), hadith 500.
24. Readings on Charity and Kindness in Islam (Plainfield, IN: ISNA
Development Foundation, 2002), p. 19.
25. “Giving While Living: Do Muslim Americans know why giving while
living is more worthwhile?,” M.Yaqub Mirza and Firas Barzinji, Islamic
Horizons magazine, Nov/Dec 2003, p. 39.
26. Carnegie, Andrew, “The Gospel of Wealth, and other timely essays,” (The
De Vinne Press, New York, 1901), p. 10.

Chapter 6
1. Brian D. Ingram and Virginia B. Morris, Guide to Understanding Islamic
Investing (New York: Lightbulb Press, 2001), p. 18.
2. Ibid., p. 19.
3. “Shaul Elnadav, “Estate Planning, Halacha and the Jewish Law of Inheritance,”
http://jlperspectives.org/2010/01/15/estate-planning-halacha-and-the-
jewish-law-of-inheritance/.
4. Geoffrey St. Marie, “Christian Inheritance Law,” www.ehow.com
/facts_6831123/Christian-inheritance-law.html.
5. Chapra, Islam and the Economic Challenge, p. 275.
6. Ahmad, al-Tirmidhi, ibn Majah, and Abu Da’ud.
7. Ibid.
8. Mohammad Hashim Kamali, Maqasid Al-Shariah: Ijtihad And
Civilisational Renewal (London: The International Institute of Islamic
Thought, 2012), pp. 13-14.
9. Virginia Code § 64.1-13; § 64.1-16.
10. Mahr is treated as a liability within a will. Presentation made by Mazen
Hashemi at IIIT, Herndon, VA, Summer 2011.
11. Riyad-us-Saliheen, Hadith: 353.
12. Hadith, reported by Al-Bukhari
13. Hadith, reported by Al-Bukhari.
14. Hadith, reported by Al-Tirmidhi.
15. Wills, trusts, asset protection, and estate planning are specialized and
complex subjects, and providing complete, detailed information about
each one is beyond the scope of this book. Before implementing any of
these ideas, please consult an attorney who specializes in these matters.
16. Hadith, reported by Al-Tirmidhi.
136 I FIVE PILLARS OF PROSPERITY

17. Commentary by Abdullah Yusuf Ali—“Opinions differ whether the

provision [of a year’s maintenance, with residence], for a widow, is put
aside by the share which the widow gets (one-eighth or one-fourth) as an
heir (4:12). I do not think it is. The bequest (where made) takes effect as a
charge on the property, but the widow can leave the house before the year
is out, and presumably maintenance then ceases.” Confirmed via email
correspondence with author and Dr. Muzzamil Siddiqi, Chairman, Fiqh
Council of North America, October 7, 2010.
18. This advice is taken from Herbert Nass, The 101 Biggest Estate Planning
Mistakes (Hoboken, NJ: John Wiley and Sons, 2010), p. 42.
19. Probate is the process by which a probate Judge transfers assets to your
heirs as provided in your will or, lacking a will, in accordance with state
law.
Glossary

Abrahamic faiths—The monotheistic faiths that trace their common origin

to Abraham or recognize a spiritual tradition identified with him. The three
major Abrahamic religions are, in chronological order of founding, Judaism,
Christianity, and Islam. All three conceive God to be a transcendent Creator-
figure and the source of moral law, and their sacred narratives feature many of
the same figures, histories, and places, although they often present these with
different roles, perspectives, and meanings.

ahl al-kitab—“People of the book,” that is, adherents to faiths that have a
revealed scripture. The Qur’an mentions as people of the book: Jews, Sabians,
Christians, and Muslims.

bay al-dayn—The Arabic term for trading debt. The majority of scholars
consider the trading of debt similar to the trading of money. In general, this
means that a debt can be transferred only at face value, not at market value, as
many conventional bonds are traded.

charitable remainder trust (CRT)—A charitable giving vehicle in which as-

sets (property or money) are donated to the CRT while the donor continues
to use the property and/or receive income from it while living. Upon the
donor’s death or after a specified period the asset goes to the named charity.

da‘wah—Propagation of faith; to invite to something. When this term is used

in conjunction with Islam, it means “inviting to the Way of submission and
surrender to Allah.”

dollar-cost averaging—An investment of a fixed amount of money at regular

intervals, usually each month. This results in the purchase of extra shares dur-
ing market downturns and fewer shares during market upturns. Dollar-cost
averaging is a way to avoid trying to time the market and usually results in a
lower average cost per share.

137
138 I FIVE PILLARS OF PROSPERITY

donor-advised fund (DAF)—A charitable giving vehicle administered by a

public charity and created for the purpose of managing charitable donations
on behalf of an organization, family, or individual. A donor-advised fund is
an easy-to-establish, low-cost, flexible vehicle for charitable giving and an
alternative to direct giving or creating a private foundation. Donors enjoy
administrative convenience, cost savings, and tax advantages by conducting
their grant making through the fund without the pressure of time to make
ultimate gifts.

education savings account (ESA)—An account into which one may deposit
funds on a tax-deferred basis to pay for the education of the account holder.
Formerly called an education IRA, the account’s funds are invested in a port-
folio, much like an IRA or other retirement account. If the funds are in fact
used for education, withdrawals from the ESA are tax-exempt up to the total
cost of education.

family foundation—A legal entity whose purpose is to fulfill the family’s

wishes and vision by giving charitable grants. A foundation gives monetary
gifts for designated purposes, from its own funds and investment earnings to
organizations engaged in religious, charitable, scientific, literary, or educa-
tional work, within the meaning of Internal Revenue Code 501(c)3.

family limited partnership (FLP)—A sophisticated financial planning tech-

nique that, when implemented properly, enables a family to hold and manage
its wealth, including the family business, with several generations of family
members as partners. It may also provide asset protection.

faqih—Islamic legal expert; Islamic jurisprudence.

fard al-‘ayn—An individual obligation.

fard al-kifayah—A communal obligation.

financial inventory—A master listing of all of one’s personal assets and debts,
including but not limited to cash, retirement accounts, life insurance policies,
real estate, taxes owed, debt, credit card balances, and home equity loans.

fiqh—Islamic jurisprudence.

hadith—Narrative report of the sayings and actions of the Prophet Muham-

mad.
 Glossary I 139

hadith qudsi—Sacred hadith; a hadith containing words of Allah narrated by

the Prophet apart from the Qur’an.

hajj—The ritual pilgrimage to Mecca, Saudi Arabia. As the fifth pillar of Is-
lam, the hajj is a religious duty that must be carried out at least once in the
lifetime of every able-bodied Muslim who can afford to do so. One of the
largest pilgrimages in the world (usually around 3 million people), the hajj is
a demonstration of the solidarity of the Muslim people and of their submis-
sion to Allah.

halal—Islamically lawful, good, and permitted. An animal slaughtered Isl-

amically, i.e., while calling, “In the name of Allah—Allah is great.”

haram—Islamically unlawful or forbidden.

ijarah—Leasing. A contract in which the financier purchases an asset on

behalf of the lessee and allows him or her to use it for a rental payment. The
lessee may eventually opt to buy the assets at a previously agreed-upon price.

imam—Leader of a mosque/community; one who may lead prayer.

iman—Faith; religious belief or conviction in the fundamental doctrines of

Islam.

interfaith movement—Cooperative and constructive interaction among

people of different religious traditions and/or spiritual or humanistic
beliefs, at both the individual and institutional levels. Such interactions
build on commonalities without focusing on differences.

investment portfolio—Consists of various investments, such as stocks,

money market funds and cash equivalents, mutual funds, exchange-traded
funds, and closed-end funds, selected on the basis of an investor’s short-term
or long-term investment goals. Generally, portfolios are held directly by in-
vestors and/or managed by financial professionals.

Islam—Submission or surrender to the will of God.

istisna‘a—A contract of exchange with deferred delivery applied to specified

made-to-order items. Istisna‘a differs from ijarah in that the manufacturer
must procure his own raw materials.

jurist—Islamic scholar trained in Islamic law.

140 I FIVE PILLARS OF PROSPERITY

kufr—Rejection of God’s teachings; disbelief.

mahr—Bridal money given by the husband to his wife at the time of marriage;
dower.

mudarabah—A contract under which the supplier of capital and the en-
trepreneur (general partner) share the profits according to an agreed-upon
profit loss sharing (PLS) ratio.

murabahah—A cost-plus-profit margin contract whereby the financier pur-

chases an asset on behalf of an entrepreneur and sells it (usually at a higher
price) to the entrepreneur at a predetermined price, paid over time.

musharakah—A partnership contract between two or more parties, each of

which contributes investment capital.

mutual fund—A pool of liquidity that an investment company places in vari-

ous securities and/or derivatives with the goal of producing a certain return.
Mutual funds may carry greater or lesser risk, depending on their particular
investment goals. Mutual funds are actively managed by the company to
maintain the investment goals. The company issues shares that represent a
portion of ownership in each of the securities underlying the fund. Mutual
funds are designed for investors who wish to take advantage of a highly diver-
sified portfolio with a small amount of capital.

nisab—An amount a family needs to live a simple but decent life for one year;
minimum amount of wealth or income subject to Zakah.

peace be upon him (pbuh)—Peace be upon him (“pbuh”) is a phrase that

Muslims often say after saying (or hearing) the name of one of the Abrahamic
prophets, including Muhammad.

Prophet Muhammad—Muslims believe the Prophet Muhammad was the

last and the final messenger of God, who received the Qur’an, the final book.

qard al-hasan—Benevolence loan; a zero-return loan (a negative invest-

ment). A great vehicle for community development, this is not a profit-mak-
ing transaction; it is a social service vehicle that provides an interest-free loan
to individual or institution.

Qur’an—The central religious text of Islam, which Muslims consider the

verbatim word of God. The Qur’an is composed of verses (ayah) that make
 Glossary I 141

up 114 chapters (surah) of unequal length, classified as either Meccan or

Medinan depending upon the place and time of their revelation. Muslims
believe the Qur’an was verbally revealed through the angel Gabriel from God
to Muhammad over a period of twenty-three years beginning in 610 CE,
when Muhammad was forty, and concluding in 632 CE, the year of his death.

rainy day fund—An emergency fund equal to approximately six months’

expenses.

riba—Literally, increase, addition, expansion, or growth. In Shari‘ah, riba

refers to the interest or usury or “premium” that a borrower must pay to a
lender along with the principal amount for postponing, deferring, or waiting
for payment of a loan.

risk tolerance—The extent to which an investor is comfortable with the risk

of losing money on an investment in exchange for a possibly higher return.
An investor with a high risk tolerance is likely to invest in securities, such as
stocks in startup companies, and is willing to accept the possibility that the
value of his or her portfolio may decline, at least in the short-term. An investor
with a low risk tolerance, on the other hand, tends to invest predominantly in
stable stocks of well-established companies. One’s risk tolerance is subjective
and may vary according to age, needs, goals, and even personal dispositions.

Roth-IRA—An IRA (individual retirement account) that differs from most

other tax-advantaged retirement plans in that the tax break is granted not
when money is placed into the plan but on the money withdrawn from the
plan during retirement.

sadaqah—Charity, the right of the poor; also used for zakah.

shahadah—The first pillar of Islam. Shahadah is the declaration that “there is

no God but Allah and Prophet Muhammad is the Messenger of Allah.”

Shari‘ah—The moral code and religious law of Islam. Islamic law.

Shari‘ah-compliant—A system following Islamic principles.

sunnah—The sayings and teachings of the Prophet Muhammad—his specific

words, habits, practices, and silent approvals.

swt—An abbreviation for the expression of respect at the mention of God’s

name: subhanahu wa ta‘ala, or “Glory to Him, the Exalted.”
142 I FIVE PILLARS OF PROSPERITY

takaful—Pooled money for emergencies. Like a cooperative, this is a type of

Islamic insurance in which members contribute money to a pooling system
in order to guarantee each other against loss or damage. An alternative to
conventional life and car insurance.

Talmud—The foundational document of Rabbinic Judaism. A vast compila-

tion of Jewish oral law divided into six orders and sixty-three tractates.

Torah—Narrowly, the Five Books of Moses (Pentateuch); broadly, the whole

body of Jewish learning and literature, written and oral.

tzedakah—Righteous giving. The obligation of Jews to give 10 percent of

their net income to those in need.

ummah—Islamic community; the worldwide Muslim community.

umrah—A visit to Mecca, Saudi Arabia, performed by Muslims at any time

of the year. It is sometimes called the mini pilgrimage or lesser pilgrimage,
the hajj being the major pilgrimage and compulsory for every able-bodied
Muslim who can afford it. The umrah is not compulsory but highly recom-
mended.

waqf—An endowment, trust, or institution of ongoing charity. Principal to

be held in trust; only the income can be used for a specified charitable or
religious purpose.

zakah—Literally, to increase or cleanse. A fixed portion of one’s wealth given

to charity, generally to the poor and needy and others, as prescribed by the
Qur’an and explained in hadith. An annual alms tithe of 2½ percent levied on
wealth and distributed to the poor.
Bibliography

Abdul-Matin, Ibrahim. Green Deen: What Islam Teaches about Protecting the
Planet. San Francisco: Berrett-Koehler Publishers, 2010.
Abu Saud, Mahmoud. Contemporary Zakah. Cincinnati, OH: Zakat and
Research Foundation, 1988.
Ackerman, Ruthie. “God’s My Investment Advisor: Faith-Based Funds Doing
Well.” American Banker (December 21, 2009).
Baker, William W. More In Common Than You Think: The Bridge Between
Islam and Christianity. Crane, MO: Defendant Publications, 1998.
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About the Author

DR. M. YAQUB MIRZA is president and chief executive

officer of Sterling Management Group, Inc. Sterling negoti-
ates mergers, acquisitions, and sales of various-sized com-
panies located in different parts of the world. Sterling and
its affiliates operate in the United States, Canada, Chile,
Egypt, Malaysia, Turkey, and Zimbabwe. In addition, Dr.
Mirza has more than thirty years of experience in stock
investments and portfolio management.
Dr. Mirza serves as the vice chairman of the board of trustees and chair-
man of the executive committee of Amana Mutual Funds, which is registered
with the Securities and Exchange Commission. In addition, Dr. Mirza cur-
rently serves as chairman of Sterling Agricola, S.A., a Chilean company. He
also serves on the boards of numerous other organizations, including several
for-profit and not-for-profit, as well as academic institutions.
Dr. Mirza is a member of the Boards of Advisors for the College of
Humanities and Social Sciences, George Mason University in Fairfax, Virginia,
and the Board of Advisors, Byrd School of Business, Shenandoah University,
Winchester, Virginia. He is a trustee on the George Mason University
Foundation. He is also a member of the board’s Investment and Endowment
committee Shenandoah University.
He has received numerous awards and much recognition for his work in
entrepreneurship and community service, including the 2002 Entrepreneur
Award by the Islamic Chamber of Commerce and Industry (San Jose,
California); 2006 Award Recipient—Byrd Distinguished Entrepreneur Speaker
Series, Byrd School of Business at Shenandoah University; 2012 Recognition
Award for Community Service by the American Muslim Alliance and 2013
Award from the Muslim American Coalition Council and Public Affairs
Council. Most notably, Dr. Mirza was featured in an article on faith-based
entrepreneurship, published in the 2010 spring edition of the New England
Journal of Entrepreneurship.
Dr. Mirza holds a MSc from the University of Karachi (1969), a PhD in
physics (1974) and an MA in teaching science (1975) from the University of
Texas at Dallas.