Personal Finance Wellness.

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Wealth Management

What Is Wealth Management? We Will Find Out!

Do you want to know what exactly wealth management is in simple terms? How does it benefit you? How does it work? So, if you have these questions in mind, keep up reading this post.

Wealth Management

Wealth management is a holistic approach to wealth creation and sustaining wealth. If you have a wealth management plan and approach in your life, you will reach your financial goals and dreams in life much more easily; you will have better control over your money in the present and future life; you will have more financial independence and security, even in your retirement period.

Wealth management includes four components: 1. Financial life planning; 2. Building capital; 3. Managing capital; 4. Succession planning. 

1. Financial Life planning: some of the wealth management services in this area include:

  1.  Life planning gives you more control over life and its expenses.
  2. Making sure you have the rainy day fund, lifetime savings, college savings planning, retirement planning, etc.
  3. Life planning provides a roadmap to achieve the things you want. It will help you to reassure that you will reach your goals and aspirations.
  4. Life planning in wealth management focuses on planning your wealth to meet your life plan.

2. Building capital will cover a number of needs such as:

  1.  Investing intelligently, effectively, and timely.
  2. Maximizing your capital in the few years of employment and introducing investment vehicles and plans such as target-date funds (TDFs), 401(k), Roth 401(k), Roth IRAs, etc.
  3. using tax shelters
  4. Providing research-based financial advice to help you decide what to invest in. To help clients get the most from their investment plans, wealth management pros will draw on their market-leading research.
  5. Recommend the type of investment journey that suits you well according to your personality, risk tolerance, needs, goals, etc.
  6. Managing your portfolio on your behalf, freeing your time for other activities and pursuits in life. Moreover, there will be constant reporting and ongoing communication between financial advisors and their clients.

This post contains affiliate links. Please please read my Disclaimer for more information

3. Managing capital

  1. Creating a balance between your income, capital preservation, and capital growth objectives.
  2. The management of risk by using diversification strategy or insurance. Investment should be diversified across all assets –i.e., cash, stocks, bonds, equities, and so on.

Why Is Wealth Management Important?

In the lifetime, we may encounter different financial questions and dilemmas. Do I have enough money to retire? Which investing strategy is the best one for me?  How can I maximize my capital? What is the best way to minimize my taxes? And immeasurably more other questions.

If you make a wrong decision based upon false information and advice, it will cost you –and your family members- dearly. Moreover, financial management is very daunting for some people; thus, you should hire a financial advisor or wealth manager.

What do the Wealth Management Professionals do?

Generally, wealth managers take the following actions:

  • They talk to their affluent clients to gather specific information and then analyze their unique financial situation. They take the time and effort to understand your household expenses and cash flow, to help you manage your wealth effectively and appropriately. They ask about your tax situation, medical expenses, family expenses, your expectations, and even more personal questions to customize your life and wealth plan. In other words, without building personal relationships with their clients, wealth management professionals will not have an outstanding performance.
  • These professionals try to understand their client’s financial needs and goals that matter most to them. They help their clients transition from their current financial situation to where they wish to be.
  • Having had good knowledge and expertise in the financial area, they offer advice and recommendations; create a financial plan; help their clients overcome difficult monetary decisions and dilemmas.
  • They are very experienced in dealing with large sums of money and managing multiple assets over different accounts.
  • They will help you invest your money in securities and investment strategies that will enhance and protect your wealth.
  • They improve your portfolio performance by using tools and strategies that enhance your passive income and allocate your assets wisely.
  • They are in contact with you to make sure that you stay on track.
  • They offer individualized and unique financial services for their clients. To do this in the best possible way, they build long-term relationships with their clients. Wealth management professionals should be at your disposal throughout your life.

Conclusion

On the whole, the question “what is wealth management?” Can be captured by asking yourself what does it mean to live a good life and leave a good legacy? It is all about your financial needs and goals and deals with your life and wealth plan. It may sound easy at first, but the reality is that the financial world is complex and fast-changing, with a wide range of choices available for you.  Therefore, you had better seek a wealth management professional.

Finding the right and trustworthy wealth manager will require some research. In addition, you had better look at the wealth manager’s immediate past performance. You can choose to go to wealth management firms, such as Pillar Wealth Management, JARDEN, and ST. James’s Place.

You should feel comfortable with the advisor you choose; the wealth management advisors should also consider your standards and specific requirements. If you do not see eye to eye with them, this long-term process will be stressful and frustrating and probably will be doomed to failure. Additionally, receiving the best insight and advice from the right and competent wealth management advisor will motivate you to take steps to achieve your life goals and aspirations. The right wealth management advisor will ensure a better future for you and your family.

“If you have any feedback about what is wealth management that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Will and Trust

The Importance Of Will And Trust: Which Is The Best For Your Family?

Have you ever thought about the financial well-being of your beloved ones when you pass away? Do you care what will happen to your kids or assets if you die? Yeah, I know these are bitter questions, but they must be asked. Well, will and trust are two legal instruments that can provide you and your family members some peace of mind dealing with these resentful questions and issues. They can help your loved ones avoid potential financial hardship. Indeed, no one knows what the future has in store for us, so it is essential to make your estate plan.

What Is a Will?

A will is an official legal document that declares one’s wishes for his/her money and property after death. It guarantees that your money and assets will pass to your intended inheritors.

Five Reasons You Should Have a Will:

  1. If you do not have a will, the law will decide upon the distribution of your money and property; and this can be contrary to your wishes. However, if you have a will, there is a better chance of getting things to happen in the way you want.
  2.  If you don’t have a will, the distribution of your estate (money, property, possession, and all these things together called your ‘estate’) will be time-consuming, costly, burdensome, and nerve-racking.
  3.  It can reduce the amount of inheritance tax.
  4. You can also use it to tell people about your other wishes, e.g., about how and where you want to be buried.
  5.  In your will, you can choose a guardian for your minor children. Moreover, if you have a pet that you love, like your own child, you can ensure that someone takes care of your pet after your death.

What Is a Trust?

A trust is a legal relationship in which one party (known as a trustor or grantor) gives another party (a trustee) the right to the ownership of a property or assets for the benefit of a third party (i.e., the beneficiary).

Two Basic Types of Trust:

  1.  Revocable (or living) Trusts can be changed by the grantor. Usually, a revocable trust turns into an irrevocable trust after the death of the grantor.
  2.  Irrevocable Trusts cannot be changed or modified.

What Is the Difference Between a Will and Trust?

  1.  The most important difference between will and trust is the way the estate is held. When you write a will, you mention the name of heirs or beneficiaries together with the property that they will receive. In a trust, you also name your beneficiaries along with the property they are to receive, but the property must be transferred into the trust for their benefit.

*Now, you may ask that what is the difference between an heir and a beneficiary? Though people use these two terms interchangeably, there are differences between them:

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 An heir: a person who is related to the deceased by blood; it also includes a spouse.

A beneficiary: one whose name is explicitly mentioned in a will, trust, or insurance policy to receive property or financial assets. A beneficiary can be not an heir; for example, a friend, a long-term but unmarried partner, ex-spouse, a stepchild, a charity, or even a pet can be a beneficiary.

If a person dies with no will or trust, it is usually heirs who inherit assets, including one’s spouse and children, and in some cases, his/her parents or siblings.

2. The second difference between will and trust is probate. Probate is the official and legal proving of a will. This process varies according to place and situation, but generally, it is very time-consuming, expensive, and controversial. A living trust does not pass through probate, while a will can. In other words, trust helps avoid probate.

3. A will can be contested and challenged in the court, but a trust can not. In other words, will have a contentious nature.

4. Unlike a will, a living trust goes into effect once you create and sign it; while you are still alive. But, a will can be effective only after your death.

5. In a trust, you can not choose a guardian for your minor children, but in a will, you can do this.

6.  Trust gives you more control over the distribution of assets and property.
Put differently, trusts give more control over when and how your assets are distributed.

7.  There are different forms and types of trust.

8. Creating a will is much easier and less expensive than a trust.

Should I have a Will or Trust? Which One Is Better?

Choosing between a will and trust is a personal choice, and it depends on many personal factors (though some attorneys recommend having both; because each one has a different and separate function). Overall, to answer this question correctly and appropriately, you have to assess your situation, your goals, and needs at the very beginning of this process.

If you have minor kids and want to choose a guardian for them after your death, you must have a will.

  • If you have an heir or beneficiary who is underage or has a mental disability (i.e., one who is unable to manage finances), setting up a trust is a good choice.
  • Four Online Legal Services for Making a Will or Trust:
  • LegalZoom: A simple trust done online with LegalZoom costs less than $300
  • Nolo’s Quicken WillMaker & Trust
  • Trust & Will
  • Wiling

Conclusion

If you want to make an estate plan, it is a good idea to consult an attorney first. They have good expertise to offer assistance and answer your specific questions. Remember that having both a will and a trust is a true gift for your family members and friends, showing your care and love for them.

“If you have any feedback about the importance of will and trust that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Transportation

How To Save Money On Transportation

Transportation costs for many people worldwide are between the biggest expenses, maybe greater than housing and even food. Only a few people are lucky to live near to work, schools, shops, so can walk to their destination. However, your transportation costs should not squeeze your monthly budget. Fortunately, there are many ways to save money on transportation.

How to save money on your transportation costs

1. Walk

Many people use the car even for short distances, and walk only because parked their car. A study from the University of Glasgow showed that people of different ages rather drive than walk for distances greater than 15-minute by walk, specifically in the situation that they have a car and parking space is easily accessible.

Walking is free and also available to everyone in most places. Walking, besides saving money compare with automobile trips is an easy way and the cheapest one to achieve good health. While walking people can see the circumstances and can also think.

2. Replace Cars with Bicycles

Many countries encourage people to ride a bicycle and open certain lanes for bicycling. Walking or pedaling a bike, in addition to saving money, creates significant notable health benefits. Although, regarding the costs, time, and safety considerations of biking, ride a bike is not possible for everyone.

3. Public Transportation

The expenses of operating a small car, including maintenance, fuel, and parking, can be more than the food budget of many families. In case you do not want to give away the automobile completely, you can replace it with public transportation. Small cities often provide scheduled bus services, and big cities combine bus services, rapid light rail, and commuter rail systems that are vast and cheap. Many of the public transportation systems set space for passengers to load their bikes for short-distance trips.

The average travelers can save $770 each month while self-serve, regular gasoline costs $2.75 per gallon and the monthly reserved parking space in a city center is about $155, the American Public Transportation Association said.

4. Share Rides

Before owning two cars in the same family become universal, sharing rides between neighbors was common. When people are traveling to or from the same place, carpooling is a great choice. Even in a location where using a car is necessary, you do not have to ride your car. Parents who pick up kids at school can manage to share the trip with other parents. The expenses will be split by drivers and cars or by passengers giving an agreed amount of money for travel.

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5.  Rent a Car Only for Special Occasions

Renting is often the most inexpensive way when you need a car just temporarily. Many people who are living in big cities rent cars for vacation trips or weekends away from the city. Rental companies often suggest special deals to attract more customers. Attention to their tricks in adding extra costs for car renting without customer recognition.

6. Reduce the Retail Price of an Automobile Purchase

While cutting the costs of automobile ownership, notice the following:

  • One car ends up cheaper than two. Besides savings on the operating expenses such as maintenance and fuel, there are saving on insurance, licensing, depreciation, and interest charges on each loan to buy a car. There are advantages and disadvantages of having one car in a family, including the feasibility of saving hundreds or thousands of dollars each year.
  • Small models are cheaper than large models. The expenses of owning a Ford Focus or Honda Civic are $4,548 per year, while the expenses of owning a larger Buick LaCrosse or Ford Taurus is $7,620 annually, the American Automobile Association (AAA) calculated.
  •  Purchasing and operating a second-hand car is cheaper than a brand new one. The car that we drive, for some people, is satisfying some needs more than a safe, reliable, and inexpensive ride. Some individuals consider an automobile as a personal brand. Financial executives, for instance, often drive Cadillacs or expensive foreign cars. However, for many people car is just a vehicle to transport them from a place to another. For such people purchasing a used car in good condition can be a better option rather than buying a brand new car.
  • Finding a car at a fair price. Some people use a car buying online service to buy a car; in this way, in addition to saving money and time, they will avoid bargaining with an aggressive car salesperson.

7. Save on Auto Insurance

One of the biggest costs for car owners is automobile insurance. According to the rules of most states, all drivers need to carry liability insurance to protect the public, and most lenders need comprehensive and collision insurance until their loan is repaid. The following steps help you to reduce your insurance expense without breaking the law or notably elevating your financial exposure:

  • Choose your car make and model wisely. Insurance premiums for those models with high horsepower, high repair costs, and most possibly to be stolen are higher than the premium for a car with moderate horsepowers like a sedan or station wagon.
  • Knowing the factors that impact your premium rate. Several factors affect car insurance. Try to manage those factors to reduce your premium and pay less.
  • Review the insurance coverage. Various automobile insurance coverages are available including collision, comprehensive, gap, and liability. Sometimes you do not need all the coverages; for instance, comprehensive and collision insurance might be necessary on an old car.
  • Pick higher deductibles. In case of a car accident, a higher deductible means a higher out-of-pocket cost. Good drivers select a $500 deductible over a $200 deductible and will save 15-30% in the collision and comprehensive insurance premium each year.
  • Request discounts. Remember to utilize car insurance discounts for good drivers. Drivers who take courses in defensive driving or refresher driver training course qualify for a discount.

Conclusion

Overall, transportation expenses are among the most expensive things that families have to pay for. By reading this article you learn a lot of ways to save money around transportation costs. Take care of small or big changes that you can make in your transportation methods to keep more money in your bank account.

“If you have any feedback about how to save money on transportation that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

how to roll over 401k

How To Roll Over An Old 401K?

 

401(k)

401(k) plan is one of the greatest ways for employees to save for retirement. The government allows companies to offer retirement saving accounts -such as 401(K) accounts- indeed with some advantages to encourage people to save for retirement. However, if you are self-employed, you can also have a similar account for your retirement, known as a solo 401(k) or solo Roth 401(K).

What are 401(k) plan advantages?

  1. It is a tax-advantaged retirement account.
  2. It is a company-sponsored account.
  3. Federal law protects 401(k) retirement plans.
  4. You can get matching funds that I will explain below.

Two Basic Types of 401(k) Accounts:

  1. Traditional or Regular 401(k) is a pre-tax retirement investment. Meaning you will later pay tax on that money when you withdraw it in retirement.
  2. Roth 401(k) is a post-tax investment. This means that you have already paid your taxes; therefore, when you withdraw your fund, it is all yours –tax-free!

How does 401(k) work?

When you sign up for a 401(k) account, you set an amount or percentage that automatically will be taken out of your paycheck to fund the account.

Suppose you receive 100,000$ per year and contribute 10,000$ to your 401(k) account. With traditional 401(k), the amount you contribute to your 401(k) fund is deducted from your taxable income. For example, in this case, your total taxable income for the year would 99,000$. The money that you put into a 401(K) account is tax-deferred; meaning you don’t pay taxes on it until you withdraw it in retirement. Therefore, your money in your 401(k) account can grow without being taxed. However, with traditional or regular 401(k), you eventually have to pay taxes on your withdrawals.

On the other hand, some companies offer Roth 401(k) for their employees. With the Roth 401(k), your contributions are not tax-deferred. It means that whenever you get your paycheck, first, the taxes will get taken out from your salary or wages check, and then you will fund your Roth 401(k) with whatever is left. In other words, your contributions are made with after-taxed money. The bottom line is that your contributions are made with post-taxed money. So while Roth 401(k) does not give you any tax benefits today, it will give you huge tax benefits later on; because your withdrawals will be tax-free, and all will belong to you.

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Matching funds

Many employers offer to match your 401(k) contributions. It means that if an employee puts some of his/her money into a retirement account, the employer will put some extra money in there too. Therefore, if your company offers you a matching contribution program, you must accept it; because it is like free money or a pay raise. Companies have different formulas and calculations to do that. The most common way is to match a percentage of an employee’s contribution, up to a certain limit. For example, an employer may match 25% of your contribution. It means that if you put 10,000$ in your retirement account, the company will match 25% of that (i.e., it will put 2,500$ there). It is like free money or a pay raise, and not taking advantage of that means you leave “free money” on the table and say: no, I do not want that.

 401(k) Rollover

What is 401(k) rollover? The question may arise if you have an old 401(k) from your previous employer; or if you have changed a job and are wondering what to do with your 401(k) account. In that case, you will have three options:

  1. 401(k) Rollover: a 401(k) rollover is a transfer of money from an old 401(k) to a new 401(k) account or IRA (Individual retirement account).
  2. Keep your 401(k) with your former employer.
  3. Cash it out. Casing out a 401(k) is not usually a very good idea. Because if you withdraw your money before its due time, there are penalties for early withdrawals.

*if you don’t know which choice is best for you, depending on your unique situation, you may want to consult with a tax professional to make sure that you are making the right decision. Sometimes the wrong and unthought decision can cost you dearly.

Guide to 401(k) Rollover

  1. You may roll over your old 401(k) to a new retirement account when you leave your job. There are two types of rollovers: direct and indirect. In a direct rollover, your previous money account is transferred electronically to your new account. In an indirect rollover, you receive the money in your fund to redeposit it. If you receive the money in cash or check instead of transferring it directly to the new account, you only have 60 days to deposit the fund into your new retirement account. And once more, remember that this must be done within 60 days. If you miss the deadline, you will be subject to withholding taxes and other penalties. Between direct and indirect rollover, the direct one (with no check) is the best.
  2. Decide what kind of account you want and then open it; that is to say, decide which type of new retirement account suits you well. Note that your age –how old are you and how far you are from approximate retirement age- and your risk tolerance are among the important factors that should be taken into account in this decision.
  3. You have to choose a financial institution, such as a bank, brokerage, or online investing platform to open a new retirement account.
  4. See what is needed to begin the 401(k) rollover process.

Conclusion

Now you know that if your company offers a 401(k) plan or any contribution matching program, you have to accept it definitely and undoubtedly. The best way to reassure that your organization offers you this retirement plan is to go to your human resource department. If you work for a small company that does not have an HR representative, the next best person to talk about would be your boss or employer.

“If you have any feedback about how to roll over an old 401k that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Target date funds

What Are Target-Date Funds? How Do They Work?

What Are Target-Date Funds?

When we are young, we tend to take more risks. However, as we grow older, we become more conservative and take lower-risk options. Target-date funds (TDFs) –also known as a lifecycle, dynamic-risk, or age-based fund- exactly do just that; they mix several investment strategies to help you take financial risks when you are young and use your target-date fund when you reach retirement age.

Let me explain with an example. Suppose you are a 25-year-old employee and intend to retire at the age of 66. Therefore, you start to invest in a target date 2060 fund (or if you plan to retire in or near 2035, you pick a fund with 2035 in its name). This target date in the name of the fund (i.e., 2060 fund) is the approximate date that you -as an investor- plan to retire and withdraw your money. At that time, you will use that money (or target-date fund) to cover your retirement expenses, such as your child’s college tuition, bills, healthcare services, etc.

How Do Target-Date Funds Work?

TDFs Work Through Glide path and Diversification.

If you want to invest in a target-date fund, you probably hear the word glide path. It is an investment roadmap; It will take you all along the way (i.e., from the beginning of your career until retirement), mapping out a mix of bonds, stocks, and other investments that are appropriate based on the target date. Like an airplane coming for landing, the glide path allows your savings to make a gentle landing into retirement by reducing the market risk (moving from aggressive to conservative investments over time).

When we are young and new at our job, retirement sounds very far away. That is why the glide path starts with a diversified mix of stocks and lower portions of bonds. As time passes, the glide path reduces the stock mix and adds to conservative and safe investments (such as bonds, cash, and cash equivalents). In another way, a target-date fund’s gradual shift to more conservative investments is called the glide path.

What Is Diversification?

Diversification is an investment strategy. If one kind of investment (e.g., stocks) has a bad year, other types of investments (e.g., cash and bonds) might have a good year. Put differently, diversification is another word for the expression “do not put all your eggs in one basket.”    Target-date funds use a diversification strategy. They consist of a mix of investments and change investment strategies over time. For example, they invest heavily in stocks in the early years but getting more conservative as time goes on.

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Benefits and Risks of Target-Date Funds:

Pros Cons
It has a very simple and straightforward process: to put it more simply, it means that when you are young, you pick a fund and put it in it as much as you can. But, you can’t withdraw your money till you reach retirement age.  Therefore, TDFs can help people who are less financially literate. TDFs do not provide guaranteed income; The principal value is not guaranteed at any time, including at the target date. (Remember that like all investments, target-date funds can lose money if the stocks and bonds owned by the fund drop in value). Therefore, it is very important to monitor your investments and do a little research for better outputs.
It is a good way for long-term investments. Investors have to make appropriate decisions based upon their personality, needs, goals, credible research, and information, related expenses, etc. Therefore, TDFs may not be as simple as they appear.
It uses a diversification strategy (has a very diversified portfolio). TDFs hold a mix of stocks, bonds, and other investments. TDFs have related expenses that investors should take into account.
TDFs have a diversified portfolio; generally, investors have three choices according to their risk tolerance. People naturally have different features; they can be conservative, aggressive, or moderate risk-takers. These features and tendencies change as time goes on. As mentioned earlier, people usually become more conservative or moderate risk-takers when they grow older. TDFs provide this option for investors to switch to a different risk level. Sometimes only one fund company offers different TDFs. In this regard, it is very risky; investors have to know that they are entrusting all of their assets to a single fund company! Remember that target-date funds are not risk-free.

Several Tips to Know about Target-Date Funds:

  • In addition to choosing the right target-date fund, you should put the right amount of money into it. An under-funded nest egg will not cover your retirement expenses.
  • You have to practice and improve your trading and investment skills before entering a real market.
  • TDFs are not guaranteed against losses. However, they use diversification strategies. Thus, they are less risky than investing in individual stocks or bonds.
  • Take care to select a TDF that aligns most closely with the date you plan to retire.
  • Choose an investment strategy that best matches your risk tolerance.
  • Check related fees and expenses. Compare different target-date fund fees and expenses using FINRA’s Fund Analyzer.

Conclusion

Retirement is a new stage of your life that needs preparedness and planning. Planning for retirement starts with thinking about your retirement goals and retirement expenses. For this, you should have enough money to meet your needs at that time. TDFs are increasingly one popular investment option for your retirement period. They are structured to help individuals invest in low risky, well-diversified portfolios that rebalance over time for retirement goals. In fact, you are trading savings today for security tomorrow.

Target-date funds are one of the good ways for investing your money; there is no doubt that they are better than not investing at all. But, you have other investment options that may work better for you than TDFs. Therefore, it is a good idea to consult with an investing professional you trust. An investing pro can help you in choosing the right path for you. However, remember that the final decision should always be yours.

“If you have any feedback about what are target-date funds that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Money Market

What Are Money Market Funds?

A money market fund is an open-ended mutual fund that invests in cash and low-risk, short-time debt securities like commercial paper and US Treasury bills. The aim of a money market fund is to preserve money while obtaining a nominal yield. Companies and institutions often use a money market fund to manage their short-term cash needs.

The law from the US Securities and Exchange Commission (SEC) categorizes three groups of money market funds according to the investments of the fund, including prime, municipal, and government.

Types of money market funds

Federal regulation requires money market mutual funds to make the types of debt securities they hold to be very short in maturity and high in credit quality. The entire money market funds agree to industry-standard regulatory necessities concerning the maturity, quality, liquidity, and diversification of the fund’s investments. Based on the focus of the fund, investments can include short-term US Treasury securities, Eurodollar deposits, certificates of deposit, federal agency notes, repurchase agreements, corporate commercial paper, and compulsion of cities, states, or other kinds of municipal agencies.

Investors who might consider money market funds

Money market fund can be suitable for customers who:

  • Have a short term financial goal
  • Have a low acceptance for volatility, or are seeking to diversify with a more conservative investment
  • Require the extremely liquid investment

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The returns on money market funds are commonly lower than the returns on other types of fixed income funds like bond funds. The money market fund looks to provide stability, so plays a significant role in your portfolio. People who invest can utilize money market funds in some ways:

  • To compensate for the usually larger volatility of bond and equity investments.
  • As short time investments for properties, they might be required in short term.
  • In the form of a holding place for properties when waiting for other investment opportunities to appear.

Evaluating a money market fund

A money market fund is a kind of fixed income mutual fund with very strict maturity, diversification, credit quality, and liquidity requirements designated to assist it to achieve its purpose of major preservation and everyday access for investors. When customers chose a money market fund they should determine if its features are in line with their investment goals and strategy.

  • The aim of numerous money market funds is generally to supply current income consistent with major preservation.
  • US Treasury and government money market funds possibly can provide a lower credit risk and return profile compare with prime money market funds.
  • Municipal money market funds can be suitable for non-retirement accounts that are not yet tax-shielded.

Pros of money market funds

  • Stability

Money market mutual funds are among the least volatile kinds of mutual fund investments.

  • Liquidity

Settle brokerage account trades in other investments or regain funds from a money market mutual fund is easily accomplishable.

  • Security

Federal rules required the fund to invest in short-maturity and low-risk investments; it makes them less susceptible to market fluctuations than many other types of investment.

  • Short duration

Since the money market mutual fund is short-term (up to a few months), so they are normally exposed to less interest rate risk than longer-maturing bond fund investments.

  • Diversification

Money market mutual funds have several different securities; with restricted exposure outside US Treasury funds to every issuer.

  • Possible tax advantages

The interest payments of some money market funds invest in securities are usually exempt from federal, and even in some cases, exempt from state income taxes; these funds may be a possible source of stable, tax-efficient income.

Risk of money market funds

  • Credit risk

Money market mutual funds are not insured by the Federal Deposit Insurance Corporation (FDIC) unlike regular bank certificates of deposit (CDs) or saving accounts; money market mutual funds invest in high-quality securities and attempt to preserve the value of your investment, but there is the risk of losing your money without the guarantee of receiving $1 per share when you redeem your shares.

  • Inflation risk

Due to the safety and short-time nature of these types of investments, money market mutual fund returns is normally lower than the return of more volatile investments like regular stock and bond mutual funds, which is generating the risk that the rate of return might not go forward with inflation.

Prime money market funds:

Foreign exposure: Entities placed outside the countries can be influenced by adverse regulatory, political, economic, or market developments in those foreign countries.

Financial services exposure: Fluctuations in government rules, interest rates, and economic downturns have a notable negative impact on issuers in the financial services sector, such as the price of their securities or their capability to meet their payment obligations.

All prime and municipal money market funds:

Liquidity risk: in case the fund’s liquidity drops below required minimums due to the factors like market conditions, the fund can require a fee on the sale of your shares, or can suspend your ability to sell shares for a short time.

Institutional municipal and institutional prime money market funds:

Price risk: when you sell your shares, due to the fund’s share price change, they can be worth more or less than what you originally paid for them.

Conclusion

Money market funds are fixed income mutual funds that invest in securities featured by short duration and least possible credit risk. These types of funds are among those investments that have the least volatility. The money market fund’s income depends on the types of securities the fund invests in is taxable or tax-exempt.

“If you have any feedback about what are money market funds that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

social security

Social Security Benefits -What You Need To Know

Social Security payments are almost a general part of retirement; around 90% of retired Americans of age 65 and older earn these benefits. It makes up a huge part of many older Americans’ income. The SSA (Social Security Administration) pays billions of dollars each month to retirees, disabled workers, and also their family members. But first, you need to know what are social security benefits and how do you know whether you qualify for them or not.

By comprehending how social security benefits are calculated and paid out, you could be eligible for more than you imagine.

Regardless of you are receiving benefits or will receive them in the future, it is crucial to know as much as possible about social security benefits so that you know how much you need to save and when to file.

How Social Security Works?

Social security is a government program that gathers taxes from Americans who are working and distributes these funds to qualifying retirees, disabled workers, and their families to assist them to remain financially secure.

To being qualified for social security, a worker usually should earn 40 credits, however, if they die or are disabled young, they could qualify with fewer credits.

You can demand social security according to your own work record, when you have received adequate credits, or can be eligible to demand spousal benefits according to your current or ex-spouse’s work record if this credit is more than what you are entitled to, on your own. In certain situations, dependent children and family members might also qualify for family benefits.

You require filling out an application online or at your local Social Security Administration office when you are ready to apply for social security. The information in your application will be verified by a government representative to determine whether you qualify, and then you will start receiving monthly checks.

This post contains affiliate links. Please please read my Disclaimer for more information

Types of social security benefits

Three main types of social security exist:

  • Retirement benefits
  • Survivors benefits
  • Disability benefits

Retirement benefits

Workers of age 62 and older who have received at least 40 credits are eligible to receive social security retirement benefits. The amount of your benefit checks depends on your AIME over your 35 years of highest-earning, and the age when you start benefits.

To claim your standard benefit based on your AIME, you need to wait until your full retirement age (FRA). If you were born between 1943 and 1954, your full retirement age is 66 and is 67 for those born in 1960 or later.

In case you start claiming at 62 while your FRA is 67, you will receive only 70% of your standard benefit and in case your FRA is 66 you will get only 75%. Your checks will increase slightly by every month you delay benefits until you reach the maximum benefit at 70. If your FRA is 67 and you wait until 70 you will receive 124% of your standard benefit and if your FRA is 66 you will receive 132%.

Certain family members could demand benefits on your work record, in case doing so would give them more money than they are eligible for on their own work record. Eligible family members are as follows:

  • Spouses
  • Ex-spouses, if the marriage lasted for a minimum of 10 years and they did not married again
  • Children under 18, or up to 19 if they are still enrolled in high school
  • Children of any age who were disabled under 22

Spouses and ex-spouses should be at the age of at least 62 in order to demand benefits.

Survivors benefits

Survivor benefits are for the qualified deceased workers’ family members.

Surviving spouses in the age of 60 or older (50 or older if disabled) can demand benefits. Also, surviving spouses of any age can claim benefits if they are caring for the deceased worker’s child who is disabled or under 16. It is also applied to the ex-spouses of the deceased worker if their marriage lasts at least 10 years and the ex-spouse did not married again.

Disability benefits

Adults in the age of 18 or older who are unable to work because of a mental or physical disability that is anticipated to last at least 12 months or cause death are eligible to receive social security disability benefits. Depends on your age at the time of your disability, if you have not earned 40 credits, you are still eligible. The benefits will be calculated based on the person’s average lifetime earnings; therefore a disabled person who earned more when they were working would get large disability checks.

While applying, you need to provide the government with information about your medical condition and your working history, containing related documents. In order to decide on your eligibility, the Social Security Administration will review your case. You will get a disability check for the rest of your life or as long as your disability lasts, in case you are nominated as eligible. Otherwise, you can request reconsideration or appeal to an administrative law judge.

Following family members can demand benefits on a disabled worker’s work record:

  • A spouse 62 or older; a spouse of any age in case of caring for a disabled worker’s disabled child or child 16 or younger
  • Ex-spouses who were married to the disabled worker for a minimum of 10 years and did not married again
  • Children of any age who were disabled under 22
  • Unmarried children up to 18, or 19 if still attending high school.

Conclusion

Social Security provides benefits to almost 65 million people, and the monthly checks it paid out to retirees or disabled people aid them to maintain healthy finance.

It is crucial to calculate how much you will receive, which benefits you are eligible for, the best time to claim your benefits, and how much money you will need each month to live, in case you think Social Security benefits will be an important part of your retirement plans. Preparing yourself with knowledge is a great step to making smart decisions about your benefits.

“If you have any feedback about social security benefits – what you need to know that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Estate planning

What Is Estate Planning And How Do I Get Started?

What is estate planning?

An estate plan is a fundamental part of your finances, however many people do not establish one. Researches have shown that people do not have a will because they have not intended to do it or do not think they have adequate assets to leave to anyone. Estate plans are not only for wealthy old people, but every mature individual needs an estate plan.

The word ‘estate’ refers to the properties you own such as your house/houses, land, vehicle, jewelry, antique collection, bank accounts, investments, etc. In your estate plan, you will clearly delegate authority to the person you trust to hold the power of making decisions on your medical, financial, and legal subjects. If you pass away without an established plan, the state will decide on what happens to your assets. It causes your family to spend months or years in probate court, instead of simply weeks.

Estate planning contains various legal documents:

Will

A will is your written wishes about what you want to happen to your assets after you perish, also if you have small kids, you can name a guardian for them.

The difference between will and trust:

* Will is typically considered the basis for an estate plan since it documents the distribution of assets and property.

* Trust is a fiduciary arrangement that enables a third party to hold and manage certain assets on behalf of beneficiaries and make sure properties go in the hand of designated beneficiaries.

A living will or advance medical directive

This document speaks out your wishes about your medical situation in case you are unable to speak for yourself.

Healthcare power of attorney

This document nominates a representative and enables it to make healthcare decisions on behalf of you in case you are unavailable or cannot speak for yourself.

Financial power of attorney

This document nominates a representative and enables it to make financial decisions on behalf of you in case you are unavailable or incapacitated.

HIPAA (Health Insurance Portability and Accountability Act) authorization

HIPAA limits who can access your medical records. Some healthcare power of attorney documents includes a HIPAA release section that enables your nominated representative to access your medical records. You might also wish to give access to other persons as required.

This post contains affiliate links. Please please read my Disclaimer for more information

How to get started with state planning?

1. Make a list of all your assets

Your assets are the things you own with monetary value. They can be tangible and intangible and are as follow:

  • Homes, lands, and real estate properties
  • Vehicles include cars, motorcycles, boats, etc.
  • Investment and retirement accounts
  • Businesses
  • Mutual fund, bonds, and stocks
  • Valuable possessions, such as antiques, art, jewelry, and furniture

Whether you are wealthy or not, if your wealth reaches $250 or $25 million, keep in mind that having an estate plan is essential for everyone older than the age of 18. In case of your death, an estate plan or at least a will can make things easier for your family.

2. Collect the document you will require

The second step, after making an inventory, is collecting corresponding paperwork and important documents related to your assets. It is including:

  • Long-term care insurance policy
  • Life insurance policy
  • Vehicle titles
  • Housing or land certificates
  • Military discharge papers
  • Marriage license
  • Divorce papers
  • Partnerships or business agreements

In case existing usernames and passwords connect to any of these accounts or documents, write that information too. Accumulate all of these documents in a safe place, like a legacy drawer or a safe deposit box. When you prepared your estate plan documents, you will attach these top drawers too. Assure to inform the executor of your will and also important family members about where to find it.

3. Talk with your family

You should inform the people you nominated to execute your will or give them the power of attorney before you pass away. Sit down with your family and assure that everyone knows about what will happen to your possessions.

Designating a trusted person or persons to execute your will and make decisions on behalf of you about financial and health care subjects is one of the most important parts of estate planning. They refer to fiduciaries in legal language. A fiduciary is someone you trust to act on your behalf.

You should talk with your family and anyone who will be influenced by your estate plan.

In case you are married, talk with your spouse about your estate. You are creating a team, so you should work for the same goal.

In case you are single, you have to talk with your family and sometimes with your close friends about your estate plan.

In the case of having children, you should think about choosing a trusted person as your children’s guardian. If your children are of an appropriate age, involve them in the conversation to prevent them from being surprised by the decision.

4. Understand if you need to consult with an estate planning attorney

If you are young, single, have a minor estate, and uncomplicated family situation, you might be able to create your will online; you do not need to consult with an attorney.

In case your properties are sizable or you have concerns about your family, then you surely need to meet with an attorney. There are some reasons you need to consult with an attorney:

  • In the complicated situation such as owning the larger estate
  • To prevent federal estate tax
  • To understand state-specific regulations

If you are seeking a good estate planning attorney, I suggest you ask around first. Use the advice from your tax professional and/or financial advisor. Talk to your parents. Search for online reviews. Then set a time to take a step forward.

Conclusion

An estate plan is different legal documents that an attorney or lawyer generally creates and you sign. You need to inform the people you have selected as your trustee and also should talk to your family about what will happen to your assets. Put the copies of your documents in a secured place and let your main family members know that.

“If you have any feedback about what is estate planning and how do I get started that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Estate Planning

Estate Planning Checklist

To do estate planning doesn’t have to be rich; in fact, everyone needs some degree of estate planning. The estate includes everything someone owns and can be in any size, which is why it can be worth taking time to plan for what happens to it. Estate plans should be created for the particular needs of the individual.

The estate plan checklist provided in the current article will explain various types of estate planning documents, and assist you to evaluate those that will be valuable to you.

Even if you plan to hire an estate planning attorney, still you need to have a basic knowledge of what is involved.

Six steps to basic estate planning

1. Inventory your stuff

Maybe you think that you do not have that many assets to justify estate planning. However, when you begin to look around, you will get astonished by all the tangible and intangible assets you have.

The tangible properties in an estate can be including:

  • Homes, lands, and other real estates
  • Cars, motorcycles, and boat as well as other vehicles
  • Collectible objects like art, coins, antiques, and trading cards
  • Other personal properties

The intangible assets in an estate can be including:

  • Bank accounts like checking and savings accounts and certificates of deposit
  • Mutual funds, bonds, and stocks
  • Health saving accounts
  • Life insurance policies
  • Retirement plans like individual retirement accounts and workplace 401(k) plans
  • Ownership in a business

At the moment that you make a list of your tangible and intangible assets, you should calculate their value. An outside valuation can help for some assets such as:

  • § Statements from your financial accounts
  • § Recent appraisals of your home

In the lack of outside valuation, value your assets based on how you expect your inheritors will value them. In this way, you will assure that your possessions are divided fairly among your loved ones.

2. Account for your family’s needs

When you are informed of what is in your estate, you will consider how to protect your assets and your family in your absence.

If you are married and your current lifestyle needs dual income, having life insurance is very important. It will be even more important in case you have kids with functional needs or college tuition bills.

While writing your will, name a guardian and a backup guardian (just in case) for your children. It helps escape from expensive family court fights.

Write your wishes for your kids’ care. Do not assume that your family members will care about your children or raise them according to your ideas and goals. In case the issue goes to court the judge will not abide by your wishes.

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3. Establish your directives

A trust can be appropriate. You can determine parts of your estate to go toward specific things while you are alive. Your selected trustee can take over, in case you become ill or incapacitated. After your death, the trust properties transfer to your designated beneficiaries.

In case you become unable to decide on your medical care, a medical care directive, also called a living will explain your wishes for medical care. Regarding your health care, you can also give a trusted person the authority to make decisions in case you cannot. These two documents sometimes merged into one, named advance health care directive.

If you are medically unable to manage your financial affairs, a durable financial power of attorney enables someone else to do so. If you cannot act in legal and financial situations, your designated agent, as directed in the document can act on behalf of you. These acts include paying your taxes and bills and also accessing and managing your assets.

If the idea of turning over everything to someone else worries you, a limited power of attorney can be useful. This legal document imposes limits on the powers of your selected representative.

Attention about who you give power of attorney. They will actually have your financial well-being in their hands.

4. Review your beneficiaries

Check out insurance and retirement accounts. Insurance products and retirement plans generally have beneficiary designations that you should follow and update as needed.

Assure the right persons receive your assets. Sometimes people forget the beneficiaries they names on policies or accounts established years ago. For instance, if your ex-spouse is yet a beneficiary on your life insurance policy, it would be bad news for your current spouse.

Do not remain any beneficiary sections empty. If so, when an account goes through probate, it can be divided according to the state’s regulation for whom gets the property.

Define persons as contingent beneficiaries. These possible beneficiaries are very important if your primary beneficiary passes away before you do and you forget to update the primary beneficiary designation.

5. Weigh the value of expert help

You need whether hire an estate tax or attorney expert to assist build your estate plan.

In case your estate is small and your wishes are simple, an online will-writing program could be adequate for your requirements.

It can be valuable to consult an estate attorney and a tax advisor if possible, in case you have doubts about the process. They can guide you to the proper estate planning path, specifically in the state with estate or inheritance taxes.

For the complicated implications like a large and complex estate includes business issues, special child care, or non-familial heirs, an estate attorney and tax professional can help.

6. Plan to reassess

Once your circumstances change, revisit your estate plan. No matter these changes are bad or good they can be including the birth of a child, marriage or divorce, perish of a loved one or getting a new job.

Considering that laws may have changed, you need to revisit your estate plan periodically, even in non-changed circumstances.

Never drafting a plan at all, this is the biggest mistake in estate planning.

Conclusion

Making delays in estate planning can be very harmful. Although no one likes to think about dying, no planning and not being prepared can cause family disputes, assets getting into the wrong hands, long legal disputes, and extra money paid in estate taxes. So set a time to get started.

“If you have any feedback about the estate planning checklist that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.

Municipal bond

What Is A Backdoor Roth IRA? How Does It Work In 2021?

Do you remember what are Roth IRAs and Roth 401(k)s? Before going into details about “what is Backdoor Roth IRA?” let’s first review them very quickly and briefly.

A Roth IRA or Roth 401(k) allows taxpayers to put aside a few thousand dollars a year into their retirement savings account. As we mentioned earlier, they are post-tax
retirement accounts, meaning that when you withdraw your fund at retirement age, it is tax-free, and all belongs to you. Why? Because you have already paid your taxes. To put it in other words, these Roth accounts are different from traditional (or regular) 401(K) or IRA retirement funds that are pre-tax. It means that such retirement plans give taxpayers immediate tax advantages (i.e., they are tax-deferred), meaning that in IRA or 401(k) plans, investors will later pay the tax on that money when they withdraw it in their retirement.

Why Roth IRA is so wanted?

Well, the answer is very simple. It has so many advantages, including:

  1. Roth IRA plan offers tax-free growth and tax-free withdrawals in your retirement.
  2. There is no age limit. You even can transfer your Roth IRA to your beneficiaries, and their withdrawals will be tax-free too.
  3. Roth IRAs don’t have required minimum distributions (RDMs), meaning that you can take out as much or as little as you want, and whenever you want, or leave it all for your beneficiaries. By the way, many investors intend to use their Roth as a legacy or an inheritance. Furthermore, you can keep your money in your Roth IRA account as long as you want; Thus, your fund can surely keep up growing there.

The problem is that people who earn above a specific amount are not entitled to open or fund Roth IRAs –indeed under regular rules, anyway. Now this question may arise that what are Roth IRA income limits. In 2021, the income limit for singles is $140,000, and for married couples, the limit is $208,000. Moreover, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000. Note that Roth IRA income limits are indexed to inflation and change annually, meaning that the higher the inflation rate, the more likely you are to see limits will go up. On the whole, your Modified Adjusted Gross Income (MAGI) must be less than the annual limit set by the IRS.

Okay, now let’s get back to our main question, What Is a Backdoor Roth IRA?

If your income is too high for a Roth IRA, you can get to a Roth through the “back door,” called Backdoor Roth IRA alternatively. Backdoor Roth IRAs are traditional IRA or 401(K) accounts that have been converted to Roth IRAs. Say differently Backdoor Roth IRA provides an option for higher-income investors who ordinarily couldn’t contribute to a Roth. Interesting ha? Okay, let’s see how we can set up a Backdoor Roth IRA?

This post contains affiliate links. Please please read my Disclaimer for more information

How Does It work?

In this part, we will explain how to create a Backdoor Roth IRA. Actually, you can do that in different ways.

  1. You can create a traditional IRA account and then roll over the fund to a Roth IRA account. Do this account conversion as soon as possible. If you delay your conversion, everything will become too complicated. So keep life simple and stay out of trouble.
  2. You can create a 401(k) account and then roll it over to Roth IRA.

Is Backdoor Roth IRA Right for You? What You Need to Know?

  1. You have to know that this conversion to a Roth IRA account is not a tax dodge. Suppose you have $7,000 in your traditional 401(k) or IRA account and then convert your account to Roth IRA account. In this case, you still owe taxes on $7,000.
  2.  Be aware that income limits do not apply to Roth IRA Backdoor conversions.
  3. Aside from getting around the limits, Backdoor Roth IRA will have significant tax savings over the decades for you; because Roth IRAs, unlike traditional IRAs, are not taxable when you withdraw the money at your retirement. In general, it is the most advantageous point of Roth accounts, whether Roth IRA or Roth 401(k), that you pay taxes upfront on your contributions and everything after that is tax-free, and all accumulated money in the fund belongs to you at retirement. It will be a very beneficial option for your retirement savings; because tax rates will go up in the future, and your taxable income will be higher after you retire than it is now. So if your employer offers you a Roth plan, never refuse it.
  4. The Backdoor Roth IRA is not a good idea for those who think that will need to withdraw the money they are contributing in the next five years. In this case, you will have to pay a penalty when you withdraw it.

5. Ask a financial or tax advisor for help to carry out this conversion process correctly and avoid costly tax errors. There are very subtle points in this process that if you do not know them very well, they may incur costs chargeable to you. For example, suppose you’ve rolled a 401(k) balance from an old employer into an IRA this year. In this case, if you also do a Backdoor Roth, you will wrap up owing taxes.

Conclusion

Backdoor Roth IRA allows high earners to have Roth IRA accounts indirectly. This situation illustrates a significant tax loophole. High-income taxpayers can not open Roth IRA accounts directly because of Roth IRA income limits. But, traditional IRA doesn’t have such limits and does not prevent people with higher incomes from contributing.

The Backdoor Roth IRA takes advantage of this fact and helps you maximize your retirement savings. Keep in mind that it is not a simple and straightforward process, but it is very complicated and twisty. For help in fulfilling your Backdoor Roth IRA correctly and avoiding costly mistakes, please consult a financial planner or tax advisor.

“If you have any feedback about what is a backdoor Roth IRA that you have tried out or any questions about the ones that I have recommended, please leave your comments below!”

NB: The purpose of this website is to provide a general understanding of personal finance, basic financial concepts, and information. It’s not intended to advise on tax, insurance, investment, or any product and service. Since each of us has our own unique situation, you should have all the appropriate information to understand and make the right decision to fit with your needs and your financial goals. I hope that you will succeed in building your financial future.