Early Bird Hajj Financial Planning
by Dr. M. Yaqub Mirza
Islam mandates that all Muslims who are financially and physically capable perform a pilgrimage to Mecca — the Hajj — once in a lifetime. Besides commanding his companions to perform it, the Prophet (Salla Allahu Alayhi wa Sallam) advised them to financially prepare for it, and delineated the specific way in which each of the rituals involved was to be performed. The Sunnah raised the religious and ethical value of pilgrimage to such an extent that it has become the ultimate worldly hope of a Muslim's life.
The Hajj should be undertaken as an affirmative response to Allah's (Subhanahu wa Ta'ala) calling. The verse that the pilgrim chants throughout the pilgrimage is an expression of his acquiescence to Allah's (Subhanahu wa Ta'ala) call. The Hajj is an act of presenting one's self before Allah (Subhanahu wa Ta'ala). Muslims prepare for it as if they were leaving this world altogether. First, they must pay off their debts including any zakah due on their wealth. They must also return whatever was given to them in trust and have enough savings to bear the expenses of the journey — expenses such as travel, Hajj tax, lodging, and the procurement of an animal (or sacrifice voucher) for slaughter. In additon, they must also provide for their families and dependents during their absence. Since no Hajj is valid if it is performed "on credit," the pilgrim must have previously earned and saved enough to cover these expenses.
Every Muslim must make Hajj a priority and plan to perform it as soon as possible at least once in a lifetime. The cost of performing Hajj the second time may be contributed to Islamic charities.
The Cost of Hajj
What would be the cost of Hajj for someone living in the United States? How much should be invested? To assist in this process, Saturna Capital developed a simple worksheet that can help determine the savings goal. The worksheet assumes Hajj costs rising on the average due to inflation of 5% per year in the United States and pretax average return of 8% per year. Provision should also be made for taxes that will have to be paid on income from the investment.
For example, if a person plans to perform Hajj in 5 years, assuming Hajj costs today of $6,500 per person, then the person would need to put aside and invest $6,163 immediately. Alternately, they may invest an equivalent amount over an extended period of time: annually $1,465, quarterly $366, or monthly $122. The prospective pilgrim may consider investing a bit more than these amounts to cover rising costs or lower investment return. For a husband and wife, simply multiply these amounts by two.
As Muslims are strongly discouraged to incur debt, this approach of saving, investing, and spending on future needs can also be used for other purposes such as saving for a vehicle, college education, a child's marriage, and Umrah. The same worksheet can be printed and used for each such expenditure.
According to a hadith (related by al-Nisai and al-Hakim), The Prophet (Salla Allahu Alayhi wa Sallam) is reported to have said: "O Allah, I seek refuge in Thee from unbelief and debt." A man asked him, "Do you equate debt with unbelief?" He replied, "Yes." In another well known hadith (reported by al-Bukhari), the Prophet (Salla Allahu Alayhi wa Sallam), who often said, "O Allah, I seek refuge in Thee from sin and debt," 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."
Borrowing cannot be taken lightly and it is clear that borrowing can endanger one's morals. After calculating how much a person needs to save and invest the next task is to find a place where to invest.
Amana Mutual Funds: A Solution for Muslim Investors
In 1984, the North American Islamic Trust (NAIT) approached Nick Kaiser, an experienced mutual fund manager in Indianapolis with the idea that Islamic investors had needs that were not being met. Kaiser, Chairman and Director of Saturna Capital, worked with NAIT to start the first fund in North America specifically designed to meet the needs of the Muslim investor — the Amana Income Fund. A second portfolio, the Amana Growth Fund, began operations in 1994. A third portfolio, the Amana Developing World Fund, began operations in 2009. The Amana Participation Fund began in 2015.
Today, the three Amana Funds represent over $3.5 Billion invested according to the principles of sharia. Saturna Capital is the investment adviser of the Fund and makes the daily investment selections. Six Amana trustees make the major decisions about operations of the Fund, review actions of the investment adviser, and set investment policies.
The Fund's Investment Adviser, Saturna Capital Corporation, selects investments. To ensure that investments meet the requirements of the Islamic faith, the Adviser follows guidelines established by the Fiqh Council of North America (FCNA), a non-profit organization serving the Muslim community.
Saturna Capital offers many investment options, such as special accounts for children (ideal for building education funds), health savings accounts, and retirement accounts (IRAs and corporate pension plans). A few shareholders even use the Income Fund to hold cash between other investments.
It is suggested that a special account designated for Hajj be opened in Amana Growth (just as one would open an account for education, or retirement) to help minimize the impact of taxes and to invest for Hajj.
Dr. M. Yaqub Mirza helped establish Amana Mutual Funds Trust. He currently serves on its Board of Trustees as the Independent Chairman.