Articles by Ibrahim Zaghw - FinMasters

How to Save Money on Car Insurance

Ibrahim Zaghw — Mon, 08 Jan 2024 22:00:00 +0000

The average cost of car insurance in the US increased 17.8% from July 2022 to 2023, far outpacing the cost of inflation. With the average US policy now costing $1668 per year, drivers across the country are looking for ways to save money on car insurance.

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What Triggers an IRS Audit?

Ibrahim Zaghw — Fri, 05 Jan 2024 05:00:00 +0000

Nobody wants to be audited by the IRS. Some people are downright terrified by the thought of an audit. If you understand what an audit is and what triggers an IRS audit you can make it much less likely that you’ll ever be in the audit hot seat.

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What Is a Paid in Full Letter and How to Request One?

Ibrahim Zaghw — Tue, 19 Dec 2023 22:00:00 +0000

Congratulations! You are one step away from paying off your loan and getting rid of a financial burden. Paying off the loan isn’t always the end, though. You have to be sure that debt won’t come back at you. A paid-in-full letter is a key part of the process.

Unfortunately, The internet is littered with horrifying stories of people who paid their debts or settled them, only to be haunted by them again in the not-too-distant future^[1].

What usually happens is that the original creditor sells the debt to a collection agency or another creditor, and through some mistake, the closed account gets sold as an open one. This is known as zombie debt.

You shouldn’t give zombie debt the chance to bite you in the future. You need to get some proof from the creditor showing that you are no longer obligated to them. A paid-in-full letter is one way to do that.

What Is a Paid-in-Full Letter?

Whenever you pay off a debt in full, you should receive a paid-in-full letter from your creditor confirming the status of your debt. This letter validates that you have fulfilled your financial obligations and acts as future proof that insulates you from any collection agency coming after you. Moreover, you can use this letter to fight any inaccuracies on your credit report should the need arise.

In an ideal world, your creditor should send you this letter on their own, without any prompting from your end. However, given how important this document is, you should also be ready to send your creditor a request for the letter.

Before we look at how you can write a request, let’s answer a more fundamental question first.

Learn more: Learn how to get out of debt for good with our straightforward, five-step debt-elimination strategy.

What Does It Mean to Pay Off Your Debt?

There are different ways you can close a debt account, yet each choice has certain ramifications for your credit score and financial future:

1. Paying in Full

When you pay back everything you owe, including the principal, interest charges, and outstanding fees, then you have paid in full. This means that you don’t have to pay anymore, and your credit score will reflect the conclusion of your fiscal responsibility. Additionally, if you made all the payments on time, your debt account will be considered in “good standing,” and your credit score should increase.

2. Settled in Full

The second possibility is that you and your creditor come to an agreement of sorts, especially if you are struggling to pay off the debt in full and on time. What will usually happen is that the agreement will require you to pay a portion of the debt but not the whole thing. In return, the creditor will close your debt account and mark it as settled in full. Unfortunately, this also means that your credit score might take a hit as you couldn’t pay all of your debt.

Only unsecured debts can be settled. If your loan is secured, like a mortgage or car loan, your creditor will seize the collateral before they settle.

3. Charged Off

At the extreme end of the spectrum, if you fail to pay what is owed, your creditor might charge off your account and sell it to a debt collector. In this scenario, a charged-off account will damage your credit score and remain etched on your credit report for seven years.

What Does a Paid-in-Full Letter Contain?

The paid-in-full letter confirms that you have fulfilled your financial obligations to your creditor. To that end, it contains three important elements:

The first thing is an explicit declaration that the account has been paid off. This statement is critical and will ensure that no one pursues you later down the road for a debt that has already been satisfied.
The letter should also contain a balance statement of $0.00. Anything else means you still owe money, which is no longer the case.
Some letters might contain stipulations. You should look out for those and be sure that you aren’t agreeing to something that could harm you in the future.

If the paid-in-full letter contains any language, terms, or conditions that you do not fully understand, reach out to your creditor and ask for clarification.

Sending a Paid in Full Letter Request

Again, in a perfect world, your creditor or collection agency will send you a paid-in-full letter once you send in the final payment. But to safeguard your financial future, it is important to take the initiative, which includes being ready to send in a request.

In fact, to be fully proactive, when you are sending the final payment to your creditor, you can send along a letter that states you want written confirmation from their end regarding the status of the debt account. You could say something to the effect of:

“Please find enclosed within this letter my final payment on the above-referenced account. I request written confirmation that states this account has been {either paid in full or settled according to the agreement between you and the creditor}.”

While the above statement will be the heart of your letter request, let’s take a closer look at all of the different elements that you want to include.

The Different Elements to Include in a Paid-in-Full Letter Request

When writing up your request, here are the main components that you need to include, along with where in the request you should include them:

The date should be at the top of the page.
Your name and personal contact details should follow. Your contact details include your address and phone number, and each piece of information should occupy its own line.
After your details, your creditor’s details should follow, details such as their name and contact details. Again, each piece of information takes up a line.
Then, you want to put the letter heading, and that should contain your account number.
Past the heading, you should write a brief introduction that just grabs attention. You don’t need to add anything fancy here as a simple “Dear Sir/ Madam” or “To whom it may concern” will do the trick.

Now, we arrive at the body of the letter:

Explain why you are sending them this letter: describe how much debt you have left, the date on which you are making your final payment, and the nature of any agreement (if there is any) between you and the creditor.
Assuming that you are sending the payment and the request together, you should highlight that the payment is enclosed and that you want the creditor to send you back a written confirmation that they have received the final payment and that your debt is paid in full.
If you have already sent in the payment and haven’t received a paid-in-full letter from your creditor, you can also send proof of the final payment, such as a canceled check.
You might want to mention that if the creditor doesn’t officially respond to you within a specific period of time, you will consider the request along with the acceptance of the enclosed payment as evidence that you have paid your account in full.
You can also ask your creditor to let credit reporting agencies know that your account has been paid in full.

Make sure to keep a copy of the letter. After all, keeping a meticulous record is one of the best ways to make sure that you are protected from any mistakes on your creditor’s end.

Paid in Full Letter Request Sample

With the above elements laid out, let’s take a look at what a letter might look like:

[Date] [Your name] [Your address] [Creditor’s name] [Creditor’s address]

Re: [Account number for the debt]

Dear Sir/ Madam,

Enclosed with this letter is the final payment for the account referenced above. With this payment, my account has been [paid in full or settled] on [current date], and I have met all of my repayment obligations.

Accordingly, I request that you send written confirmation that indicates that I have made the final payment, that my account has been paid in full, and that my account [account number] is at zero balance. If I do not receive this written confirmation from your end within 30 days of [date], then the acceptance of the enclosed payment will be considered as proof that I have fully paid my account.

Also, I ask that my account be updated as “paid in full” and that this status be shared with the credit reporting agencies to which you report my account activity.

Sincerely,

[Your name]

Dealing with Aggressive Collection Agencies

In some cases, you might have been hounded by collection agencies, in which case you want to let them know that not only have you paid off your debt but that any further communication from their end is also unwelcome.

Here is something you can add to the body of your request to make sure they don’t reach out again:

“Having fully paid my debt, I do not expect to hear from you again once I receive my written confirmation from you. Should you contact me in the future, this contact will be regarded as harassment, which I will immediately report to both my State Attorney General and the Federal Trade Commission. Additionally, I will pursue legal action should the need arise. To ensure that I will not be harassed by you, I request that you remove my account along with any and all references to my personal information from your records.”

What to Do After Paying in Full and Sending a Request?

Once you’ve sent in your request, you should confirm that the new status of your account is reflected on your credit report. Lenders typically report to credit reporting agencies every 30 to 45 days, so it will take a little while for your final payment to reflect on your credit score.

If your debt is not reported as paid after a reasonable time, or if you find inaccurate information in your report, you can dispute this information.

Need to confirm your #debt is cleared? Learn how to request a #paid-in-full-letter with our guide. #DebtFree

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Be Prepared for Your Credit Score to Take a Temporary Dip

There is a caveat worth mentioning here: closing a debt account could temporarily lower your score. In other words, you shouldn’t be surprised if your credit score takes a slight dip at first.

There are a few reasons your credit score could drop. If the debt account is an old one in good standing, then closing it will shorten the length of your credit history, which affects your credit score. Closing the account might also affect your credit mix, which is just another reason your score might drop.

Learn more: Stay on top of your financial standing by following our tips on getting your free credit report.

Tips to Bear in Mind When Closing out Your Debt

The purpose of the paid-in-full letter is to provide proof that you are no longer financially obligated to your creditor. There are additional safety measures you can take to protect yourself against any future mishaps.

Use certified mail, which will verify that your creditor received your letter. If you want further verification, use a return receipt.
Keep bank statements, receipts, and records of payment. Keeping a meticulous record is your best safeguard against the future.
Always send copies rather than originals when possible. Keep the original documents.

If you are paying a collection agency, you might want to try removing collection marks from your credit report by sending your creditor a goodwill letter asking them to do so. The letter may or may not work, but it can’t hurt to send one.

Putting It All Together

It’s easy to think that when you make the last payment on a debt, it’s gone. That’s certainly the way it should be. It doesn’t always work that way, though, and a paid-in-full letter is a useful insurance policy against a “zombie debt” incident or a credit bureau refusing to list a debt as paid.

A paid-in-full letter is usually easy to get (you should get one without asking), and it can be very useful down the line, so it’s always good to have one on hand for every debt you pay off.

The post What Is a Paid in Full Letter and How to Request One? appeared first on FinMasters.

Best Apps for Freelancers: Boost Your Efficiency

Ibrahim Zaghw — Wed, 22 Nov 2023 23:00:00 +0000

Freelancers have to worry about more than just doing their jobs. If you’re freelancing, you need to schedule your work, maintain your books, budget, save for a rainy day, and invest for retirement, all on your own. The best apps for freelancers can help.

With 30,000 fintech startups and counting, you have a lot of options to choose from, and you don’t want to make the wrong choice. Let’s review some possibilities and look at some of the best apps for freelancers.

Best Apps for Freelancers

Freelancers can use a wide range of apps for different purposes. Here are the main categories we focused on:

Bookkeeping/Accounting
Budgeting
Time tracking
Invoices
Taxes
Payment Processors
Banking
Investing
Loans
Working With Partners

Let’s delve into each category:

Bookkeeping/Accounting

Bookkeeping and accounting apps tend to be in the jack-of-all-trades bracket. They usually provide invoicing, time-tracking, and sometimes even budgeting, making them a one-stop shop for all of your financial needs.

1. Freshbooks

Freshbooks is one of the best apps for freelancers who are looking for an easy-to-use accounting tool. It tracks your incoming and outgoing money, invoices your clients, and manages all of your business expenses. It is an ideal tool for any freelancer who feels that accounting isn’t their strongest suit.

Freshbooks also has several powerful features that are well-suited to freelance users. It allows you to track your time, which can help streamline your project management and payment collection efforts, and it lets you personalize your invoices.

You can start with a 14-day free trial to see how you like it. Afterward, you will have to pay something between $17 and $55 a month, depending on the plan you choose.

2. Wave

Wave is one of my personal favorites, and it’s the tool I personally use for my freelance business. It helps you manage cash flow, create reports, collect payments, invoice clients (and send them automatic reminders), and oversee sales tax. It’s a highly intuitive application that’s easy to learn and use.

Other cool features include scanning receipts, offering budgeting tools, and examining profits and losses. Over and above, it lets you export any important documents, such as receivables and account balances, making it one of the best apps for freelancers when it comes to accounting.

Wave is free, but if you want to use it to collect payments or to manage payroll, then you will have to pay a little. Unless your freelance business includes more than just you, the free version should be plenty.

3. Quickbooks

Quickbooks is one of the biggest names in the accounting space. It comes with all the features that you would expect from a big-name brand: invoicing, tax preparation, receipt scanning, and many more.

The company behind Quickbooks, Intuit, is the same company behind TurboTax, so the two applications integrate together seamlessly. As a result, you can use Quickbooks to separate your personal expenses from your business expenses and do the taxes for both through TurboTax.

Quickbooks is among the best apps for freelancers who are managing more complex businesses and looking for a comprehensive financial management solution.

Quickbooks is not free, and the cheapest plan costs $15 per month.

Budgeting

There are several different budgeting strategies, and each budgeting app usually specializes in one of them. For example, you have the envelope method, which splits your income into different categories or envelopes, and these envelopes limit how much you can spend within any given budget category. So, if your envelope for date night is empty, that means no more date nights for you till next month.

Another popular budgeting strategy that you should know is zero-based budgeting. Simply, zero-based budgeting assigns every penny you make to a budget category, making sure that your budget exhausts your income and that you don’t make any impulse purchases.

Learn more: Our comprehensive guide breaks down the essentials of how to budget, providing you with the tools you need to take control of your finances.

1. Mint

Mint is one of the most popular fintech apps on our list. While part of the acclaim is due to the app’s age (it was founded back in 2007), a big part of the fame is owed to how user-friendly the app is.

Mint is perfect for all of your budgeting needs, both personal and professional. It centralizes all of your finances into one app and allows you to track your spending across different categories, hence managing your expenses and finding areas where you can save. With full visibility of your income and expenses, you should have no problem doing your taxes.

Mint has a host of other features:

Subscription Monitoring
Time tracking
Credit score checking
Credit card management
Bill negotiation
Advice from Mintsights

And, to top it all off, Mint is free, making it one of the best apps for freelancers who want an affordable budgeting solution for both personal and business needs.

Learn more: Take the guesswork out of your financial planning with our easy-to-use budget calculator.

2. Flow

Flow, one of the best apps for freelancers, helps you budget your incoming cash flow using the envelope method. You will split your income into different categories when you set up the app. At the end of every month, you will see your income go into various flows, such as taxes, savings, investments, bills, rent, and so on.

If you connect your different bank accounts to Flow, you can control all of them through the app. You can also enjoy some of Flow’s smart capabilities.

Flow has plans for both individuals and businesses. The company is based in the Netherlands, and prices are in Euros.

Flow Free is (naturally) free.
Flow+ costs 1.99 euros per month.
Flow+ Pro costs 6.99 euros per month.

The main difference between these plans is in the degree of automation you can set up. In other words, the Flow+ Pro allows you to automate transfers and payments far more than the Flow Free plan permits.

Learn more: Discover the significant advantages of budgeting and how it can positively impact your financial future.

3. You Need A Budget (YNAB)

The founders of YNAB decided to cut to the chase when they named their application. And, as you might have surmised, their application is dedicated to serious budgeters, those who want to stay at least a month ahead of their expenses and have some wiggle room just in case.

With YNAB, you designate a job for each dollar of your income, which is the zero-based budgeting method we mentioned above.

It all starts with you connecting your bank accounts to YNAB and setting your financial goals. Afterward, your income goes to either your expenses or your goals.

YNAB provides users with a 34-day free trial, after which they have to purchase either their monthly plan for $14.99/ month or their annual plan for $8.25/ month.

YNAB is one of the best apps for freelancers who prefer the zero-based budgeting method for their personal and business finances.

Learn more: Whether you’re new to managing money or looking to refine your approach, these budgeting tips can provide valuable guidance.

4. Goodbudget

Goodbudget is another one of the best apps for freelancers out there. This app is ideal for envelope budgeting. Most of their marketing is directed towards families and households, but you can still use them for your freelance business.

Goodbudget lets you coordinate your business’s budget along with a business partner. In other words, Goodbudget can sync your business’s budget across all devices, giving you and your business partners full visibility into what gets spent and where it goes.

Goodbudget has two main pricing tiers: free and the plus account, which costs $8/ month.

Time Tracking

As a freelancer, your most valuable asset is your time, especially when you are still starting out. You need to track it diligently and make sure that you are being efficient with how you spend it. Here are some of the best apps for freelancers to track time efficiently.

1. Harvest

Harvest is a user-friendly app that tracks your time and helps you manage your expenses. It’s one of the best apps for freelancers who invoice on an hourly basis and need to track time carefully.

You can either input your time manually or use the app’s built-in timer to keep track of your hours. You can highlight how many hours you’ve worked for each client or on each project. You can also split your time between billable and non-billable hours.

This makes invoicing clients on hourly projects much simpler.

You can use Harvest’s analytic tools to take a closer look at how you are spending your time and how you could be more efficient with the way you work.

Harvest offers a bevy of integrations, making the process of time tracking even more effortless for you.

So, how much does this cost?

Harvest has two plans. There is the free plan, and there is the Harvest Pro, which costs $10.80/user/month. As a freelancer, the free plan should be enough unless you have team members working with you, and you need to track their time as well.

2. TimeCamp

TimeCamp tracks your time through its built-in timer and then attributes this time to a specific project or client. You can also fill in your timesheet manually if you prefer.

Aside from the beautiful UI, TimeCamp boasts a few other neat features.

The app lets you track your employees’ time as well, ensuring that they are paid fairly. TimeCamp also issues reports that can point out unprofitable projects or ones whose performance could be improved.

TimeCamp allows your team to budget their time so that they can allocate the required hours to each project. The app also lets you invoice your clients based on the number of hours worked.

TimeCamp integrates with over 100 other apps, so your workflow can be seamless.

TimeCamp has four plans to offer:

The Free plan.
The Starter plan costs $2.99 per user per month.
The Basic plan costs $5.99 per user per month.
The Pro plan costs $7.99 per user per month.

There is also an enterprise plan, where the company will tailor a solution for your business.

3. Bonsai

Bonsai is a perfect tool for freelancers. It helps with time tracking, facilitates task creation and creation, and offers ready-made templates. Bonsai also lets you invoice your clients for work done.

Another nice feature of Bonsai is that it lets you track your expenses: If you take a photo of a receipt, you can add that receipt to one of your invoices and bill your client.

Other products offered by Bonsai include the following:

CRM
Bookkeeping
Taxes
Banking (Yes, Bonsai offers freelancers a banking solution)

To enjoy all of those products and features, you can purchase Bonsai’s Starter plan at $17 per month.

Invoicing

When you’re a freelancer, getting paid on time is the difference between a growing business and struggling to pay your bills. You are probably no stranger to chasing down clients, sending them repeat reminders, and just wasting a ton of time getting what you’re owed.

The right invoicing tools make collections much easier and faster. Here are some of the best tools available.

1. Invoice2Go

As the name suggests, Invoice2Go is an app that allows you to create invoices, estimates, and reports. The app also lets you collect payments directly while offering your clients multiple payment options and allows you to bill your clients for the time spent during appointments.

Invoice2Go also has some other intriguing features. It offers banking solutions, helps you manage your payroll, and automates the process of asking for customer feedback. All of these processes can be integrated into a system that you build to meet your needs.

You have three plans to choose from. The Starter plan costs $59.99 a year, the Professional plan costs $99.99 a year, and the Premium plan costs $399.99 a year. The main differences between these plans are the number of invoices you can send annually, the card payment fees, and the available integrations.

2. Solna Invoicing

Solna has one objective in mind: making sure you get paid on time, every time.

To achieve that objective, Solna comes equipped with several bells and whistles, starting with what they call smart invoicing. Simply, this app lets you customize your invoices, autofill your clients’ details to avoid mistakes, send automated reminders, track who has opened and seen your invoices, and accept online payments.

Over and above, Solna has a credit check facility, which tells you a lot about the people you are in business with and gives you invaluable information when you’re setting payment terms.

Well, Solna is actually free. The company is clear on its mission to help and empower SMEs. They don’t even sell your data. Their plan is to eventually charge for more advanced features used by bigger businesses.

3. Invoice Ninja

Invoice Ninja is another popular invoice app. Even the name is cool.

Invoice Ninja comes with all the features you’d want from an invoicing tool. It offers different invoice templates, which you can use depending on the nature of your business. You can accept online payments and link your bank and financial accounts, facilitating the movement of your money.

Invoice Ninja provides time-tracking features. All you have to do is create projects and tasks within those projects, and once you’re finished, the app will automatically add all the necessary details to the outgoing invoice.

The app also helps you track your expenses and inventory. It’s among the best apps for freelancers who have multiple clients and need to keep their billing accurate and consistent.

You have three subscription plans to choose from. The first one is free. The Ninja Pro plan will set you back $100 a year, whereas the Enterprise plan costs $140 per year for 1-2 users.

Taxes

If you live and work in the United States, you know just how complex the tax system can be. Many Americans have to pay both federal and state taxes, figuring out each of them separately.

Also, depending on where your business is located as well as its structure, your taxes can vary greatly. An LLC that has employees and operates out of Detroit, Michigan, will pay very different taxes than a freelancer living in Miami and operating as a sole proprietor.

So, is it any wonder that tax season can be a nightmare for every freelancer out there?

With the following apps, you needn’t worry about tax season anymore.

Learn more: Demystify the complexities of your tax obligations by exploring our informative article on how do taxes work.

1. IRS2GO

Coming to you courtesy of the United States Internal Revenue Service, IRS2GO is only available to people working in the U.S.

This app is a godsend to every freelancer who ever struggled with their taxes. For starters, it grants you access to your tax records. It also has features that assist you with tax preparations and that help you track the status of your tax refunds. Over and above, the app enables you to pay securely through your bank account.

Best of all, IRS2GO is free, making it one of the best apps for freelancers who need basic tax assistance and don’t want to spend heavily on it.

Learn more: Take the stress out of tax season by finding the best tax software for your situation with our helpful review.

2. TurboTax

TurboTax is one of the biggest names in the tax preparation business.

Why is it so popular?

First off, the app is super user-friendly. Its interface and UI are so simple that you can literally file your taxes from your phone with little to no hassle. All you have to do is take pictures of your forms, and the app will help you maximize your deductions. In fact, the app will guide you step-by-step through the process of filing your taxes.

Because all of it is happening online, TurboTax will send you a notification when the IRS accepts your filed returns.

TurboTax is developed by Intuit, the same company behind Quickbooks, so both products integrate together. So, if you already use Quickbooks, you can just import your information from there and automatically send it to TurboTax.

The only catch here is the cost. You will have to pay when you file with TurboTax. If you want to do your taxes yourself, you will pay around $129, and this is not taking into consideration any state returns you need to file. You could also have someone from TurboTax help, and that would set you back somewhere between $100 and $219. Or you could just let TurboTax handle the whole thing for you, which would cost $219-$409.

TurboTax is undoubtedly one of the best apps for freelancers who use Quickbooks, and others will want to take a close look as well.

Learn more: Stay updated and plan your finances accordingly by checking out the latest information on tax brackets and federal income tax rates.

Payment Processors

So far, we’ve been talking about how to invoice your customers, how to budget your money, and how to balance your books, which is critical when tax season comes around. However, we haven’t talked about the most important part of the entire equation: actually receiving your money.

For most freelancers, this isn’t much of a problem because they get paid via ACH bank transfers. Some of you might want to provide your customers with more payment options. After all, more payment options mean you can accommodate more clients.

To that end, you need a secure payment processor, and here are some of the best apps for freelancers to consider.

1. PayPal

Unless you’ve been living under a rock for the past two decades, you’ve probably heard of PayPal and might have even used it once or twice. And if you don’t already use the service for your business, you might want to start considering doing so.

By setting up a merchant account on PayPal, you will be able to receive online and in-person payments. Throughout the process, you will have the peace of mind that can only come with using a secure payment processor, one that protects you and the buyer at the same time.

You can accept an enormous range of payment methods, including credit cards, debit cards, Venmo, and cryptocurrencies. You can set up global payment methods or even pay-later options. There’s even an in-person payment option that you can process through PayPal’s card reader or their QR code, which links directly to the app.

PayPal lets you create and send customizable invoices to your customers as well as payment reminders should they drag their feet.

Once you receive your money, you can do one of two things. You can keep the money in your PayPal account and use it to make online payments. Or, you can link your bank account to your PayPal account and just transfer the money to your bank.

At the other end of that spectrum, buyers will also be more likely to do business with you because of the added sense of security. For instance, many of them might feel more comfortable with PayPal’s refund policy that makes sure you get paid only when they are satisfied with their purchase.

You can sign up for free. However, you will have to pay for every online transaction made, and the fees will differ depending on the situation. For instance, when receiving a domestic transaction, i.e., both the payer and the receiver are located in the US, you will have to pay 3.49% of the amount paid, as well as a fixed fee of $0.49 for every transaction.

2. Stripe

Stripe is another big payment processor, one that is the backbone of millions of businesses.

What makes Stripe so popular?

It is extremely easy to use, both for you and for your customers. It enables you to accept both in-person and online payments. It works all over the world.

Additionally, Stripe can be integrated into your website if you have one. So, if you sell courses or even your services through your website, Stripe is your best friend: It will process the payment and put the money into your bank account.

And, of course, Stripe lets you create your own invoices and send them to your clients.

In return for their services, Stripe takes a percentage from each transaction. The benefit here is that Stripe is probably one of the cheapest payment processors out there, as they only charge you 2.9% per transaction, along with a fixed fee of $0.30.

Learn more: Dive into the numbers and trends with our detailed analysis of Stripe statistics for this year.

Banking

One common freelance mistake is depositing funds directly into personal bank accounts. This makes managing your finances, both personal and professional, a hassle.

Ideally, you should have a business bank account that receives payments from your customers, and then you can pay yourself from this account. This will streamline your accounting and will help you avoid countless problems later down the line. This is not to mention how a good business account can be integral for you taking out a loan should your business ever need one.

With this in mind, here are some of the best apps for freelancers who wish to establish a business account.

Learn more: Get a clearer picture of your financial interactions by exploring our detailed explanation of how banking works.

1. Wise Business

Founded in 2011, Wise is renowned as a top international money transfer company. Their business bank account is tailored for those who need reliable international transactions, which is why Wise is one of the best apps for freelancers who work internationally.

So, what can you do with a Wise Business bank account?

To begin with, you can facilitate your business’s finances by managing your cash flow, making bulk payments to your vendors, and managing your invoices, just to name a few features.

Moreover, if you pay a one-time fee of $31, Wise Business will provide you with international bank account details. So, the platform will give you a European IBAN and a UK sort code, making it much easier to receive different currencies such as GBP and Euro.

And best of all, it is completely free for freelancers in the US to open a bank account with Wise Business. There are no monthly or maintenance fees, and you don’t even need to have a minimum balance requirement.

Learn more: Explore our essential guide for practical advice on how to choose a bank that aligns perfectly with your financial needs and goals.

2. Novo

Novo is another popular option for freelancers.

Novo offers a free online business checking account, one that integrates directly with Wise, Stripe, Quickbooks, Square, and countless other apps.

Aside from having no fees, this banking solution has no minimum balance requirements yet provides numerous transfer options built in. To top it all off, Novo doesn’t charge for incoming domestic wires, ATM withdrawals that are out-of-network, or even ACH payments, whether they are incoming or outgoing.

Novo allows you to send and track invoices from your dashboard and provides teams with multi-user access.

The application process is short, taking around 10 minutes.

Learn more: Discover your ideal banking experience with our objective roundup of the best online banks available today.

Investing

When you’re a freelancer, you have to prepare for your retirement on your own; after all, you don’t have an employer to provide a 401(k) and match your contributions.

There are so many apps in the investment space that it would be overwhelming if we tried to cover them here. Instead, we will focus on just a couple to highlight the possibilities.

Learn more: From choosing assets to understanding risk, our guide covers all the essentials of investing for beginners.

1. Empower

One of the best apps for freelancers who want to prepare for retirement is Empower. This is one of the largest retirement planning companies, and they recently acquired Personal Capital, which was a two-in-one app: a budgeting tool and investing platform. Empower has become a sort of Swiss army knife for your investment and retirement planning endeavors.

Empower gives you access to some of the best financial tools out there. It enables you to monitor your investments and compare how they are doing against other standard indices. And the company does all of this through a beautiful dashboard that is remarkably easy to use.

Empower also helps with your budgeting, providing full visibility over your expenses and spending.

Empower offers a robo-advisor platform as well as help from qualified financial advisors, who come cheaper than traditional advisors. Empower provides both of these options through its wealth management services. The only caveat here, which can be a big barrier for most, is that you need to have $100,000 in assets under management to qualify for wealth management services.

Empower doesn’t charge you for either their financial tools or their budgeting platform. However, when it comes to their investment services and robo-advisor platform, Empower charges a steep 0.89%, which is a bit more than what most other robo-advisors might charge.

Maximize your #freelance potential with these must-have apps. Find out which are the best apps for freelancers now! #FreelanceTools #Efficiency

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2. Betterment

If you want to start investing but still haven’t built enough wealth for something like Empower, then Betterment might be the better option for you. Not only does it offer a robo-advisor platform, but the account minimum and fees fees are quite friendly.

All you have to do is sign up, decide how much you want to invest, and lay out your financial goals. In return, Betterment will highlight the best options for you.

There are multiple investment options to choose from. Left to its own devices, the app will auto-invest in cheap, diversified ETFs. Alternatively, you can choose one of Betterment’s curated portfolios, where each portfolio follows a unique investment strategy, such as investing in innovative technology or in companies that are combating climate change. A third option is to customize your own portfolio, but you need to be an experienced investor to do this.

Betterment has three plans. The cheapest one is for free. The second costs 0.25% of assets managed annually. The third one costs 0.4% annually.

Overall, Betterment is one of the best apps for freelancers who want to build their own equivalent to a 401(k).

Loans

For many freelancers, the only way you can fund your business is either through cash generated from work or through loans or investments from the three F’s (family, friends, and fools). To sustain your business or possibly even expand it, you might need to look beyond those sources.

To that end, you might want to consider fintech apps that are specifically designed for small business loans.

1. American Express

American Express used to have a specific brand, Kabbage, for small business loans. Not too long ago, American Express decided to retire the brand when it launched American Express Business Blueprint.

Today, you can take out a loan from American Express Business Blueprint if you meet these conditions:

You are 18 years or older.
Your business is more than a year old.
Your business has a credit score of 660 or more
Your business brings in a revenue of $3,000 or more every month

If you have been an American Express customer for a while, the above conditions may change.

American Express can provide you with a loan ranging from $2,000 to $250,000, and the approval process is usually fast. Both the website and the American Express app are user-friendly, so the entire interaction should be manageable.

The only issue is that the fees can be a tad exorbitant. While you won’t pay loan application or origination fees, your interest rate can reach 27% monthly. Obviously, the rate you will pay is determined largely by your business’s credit score, so it can be much lower than 27%. You should still be aware of the worst-case scenario.

Working With Partners

Earlier, we saw how an app like Goodbudget can help you and your business partner manage your finances together. However, to round out our list of the best apps for freelancers, it is worth looking at an app that is dedicated specifically to managing money with a partner.

Learn more: Learn about common money mistakes couples make and find practical advice on how to sidestep them in our post.

1. Honeydue

Honeydue is an app designed for couples. However, it can also be one of the best apps for freelancers with a business partner, especially if the financial responsibilities are split between the two of you equally.

Depending on your preferences, Honeydue can give you visibility into your business partner’s bank accounts, taken-out loans, and even investments. Your partner will get to peer into your finances as well, of course.

You will also be able to share your money with the help of the newly launched Joint Cash feature. Your shared cash is accessible in the real world through ATMs or online through Google Pay and Apple Pay.

Honeydue is one of the best apps for freelancers out there, as it makes it easy to manage your business’s bills and coordinate your expenses together. It makes your bills visible to both of you and sends you consistent reminders so you never have to worry about late penalties. The app offers a chat feature that lets you centralize all financial conversations.

Honeydue offers most of its features for free.

Putting It All Together…

Financial management tools are crucial for running a successful freelance business. Whether you need a single app or a combination, choosing the best apps for freelancers can streamline your operations. Consider these options to build an effective financial tech stack tailored to your needs.

If your business is large enough to warrant the latter option, then you would do well to make sure that the different apps you choose integrate with one another, assuring that your workflow is smooth and nothing falls between the cracks.

The post Best Apps for Freelancers: Boost Your Efficiency appeared first on FinMasters.

Should I Rent or Buy? The Great Housing Debate

Ibrahim Zaghw — Tue, 21 Nov 2023 10:00:32 +0000

When asking the question “should I buy or rent?”, someone will come up with this claim: “Renting makes no sense. You’re throwing money away by paying a landlord to live in a place when you could build equity by buying a home”.

Things are never that simple. When you take out a long-term mortgage, your first few years are spent paying off the mortgage interest rather than investing in equity. Buying a home can tie you down to a specific city, barring you from exploring better economic opportunities elsewhere. Buying a home comes with countless costs that renters don’t have to deal with.

So should I buy or rent? Well, the debate is more nuanced than just building equity vs. throwing away money. You need to consider the economics of buying and renting as well as the psychological and financial impacts each choice will have on you.

The Economics of Buying vs. Renting

When asking yourself the question “should I buy or rent?”, it’s crucial to weigh the costs involved in both options. This process involves considering the housing market, which not only looks at current home prices and rental costs but also factors in the mortgage rates.

During the pandemic, we had record-low mortgage rates. The average 30-year fixed-rate mortgage went under 3%, something we hadn’t seen since Freddie Mac began keeping records back in 1971^[1]. As a result, people tried to take advantage, and everyone and their mother tried to take out a mortgage and buy a property or two.

This surge in demand caused both home prices and rental prices to spike upwards, but the impact varied for different cities.

Learn more: Understanding the different types of interest rates is crucial for making informed decisions on borrowing, saving, and investing.

Cities Where Renting Is Cheaper Than Buying

When we analyze the numbers in the “should I buy or rent” debate, we find that renting is usually cheaper than buying, at least on the basis of monthly cost.

In December 2021, renting was cheaper than buying in 30 of the largest 50 metropolitan areas. Fast forward to December 2022, and that number goes up to 45 of the 50 largest cities.

According to a report by Realtor.com, an average renter in December 2022 paid 41.4% less per month than a first-time homeowner across those 50 largest American cities. That 41.4% came down to around $792 a month^[2].

To bring things into perspective, in the 45 metros where buying was more expensive than renting, first-time homeowners paid $906 more every month than renters. While the average cost of buying was $2,657 a month, the average monthly rent during that same time period was $1,751.

Zooming into the 10 cities that were most favorable to renters, we find that the gap between renting and buying widens to $1,920 a month. Here are those 10 cities, along with the difference between average rent prices and average mortgage payments:

City	Difference Between Renting and Buying (Percentage)	Difference Between Renting and Buying (Amount)
Austin, Texas	121.3%	$2,013
San Francisco, CA	97%	$2,855
Seattle, WA	86.1%	$1,772
San Jose, CA	83%	$2,621
San Diego, CA	77.2%	$2,085
Los Angeles, CA	74.9%	$2,150
Boston, MA	73.1%	$2,097
Portland, OR	71.2%	$1,246
Phoenix, AZ	70.1%	$1,116
Sacramento, CA	67.7%	$$1,241

What does this mean? Here is what Danielle Hale, the chief economist at Realtor.com, has to say:

Despite the fact that renting will likely be cheaper than buying in 2023, rental affordability will remain a key issue throughout the year. We expect rents will keep hitting new highs, driven by factors including still-low vacancy rates, lagging new construction, and demand from would-be first-time buyers.

Why Has the Gap Between Buying and Renting Widened Over the Past Year?

Over the past year, the cost of buying a first home increased by 37.4% YoY, while the cost of renting just went up 3.2%.

The main reason for that widening chasm is a dramatic escalation in interest rates imposed by the Federal Reserve in an effort to rein in post-pandemic inflation. Mortgage rates shot up to over 7% within a single year.

Rising mortgage rates pushed home costs higher, and it also dramatically reduced the supply of homes on the market. Homeowners carrying mortgages at 3% were not about to change houses, with new mortgages over 7%, so sales dried up. Reduced demand drove prices even higher.

Cities Where Buying Is Cheaper Than Renting

What about those 5 cities that favored buying over renting?

In those 5 metro areas, buying a home could save you $235 a month. Those five cities are as follows:

Memphis, Tennessee, where buying a home could save you around $400
Pittsburgh, Pennsylvania, where buying a home could save you around $350
Birmingham, Alabama, where buying a home could save you around $300
St. Louis, Missouri, where buying a home could save you around $100
Baltimore, Maryland, where buying a home could save you around $70

Not too long ago, Cleveland was at the top of that list, but over the past year, renting has become cheaper than buying there by a relatively small margin.

Learn more: Explore our guide to find out when should you refinance your mortgage to maximize your financial benefits.

The True Costs of Renting and Buying

When considering whether to buy or rent, it’s crucial to compare the ongoing costs of a monthly mortgage against the expenses of monthly rent. In the “should I buy or rent” debate, you have to take into account that buying a house involves additional costs beyond the mortgage, such as insurance, property taxes, maintenance, and repairs. There are also closing costs, which can also represent a significant portion of a property’s value.

Learn more: Dive into our comprehensive guide to unravel the complexities and understand exactly how taxes work for individuals.

You also have to consider the opportunity cost. Purchasing a home involves substantial upfront costs, including a downpayment and closing costs. If you choose to rent, you can invest that money and get some return on that investment.

Over and above, there might be some ancillary fees to consider that come with home ownership, such as monthly HOA fees.

So, as a homebuyer, here are some of the variables that go into your calculus:

The home price
The mortgage rate
The rate of home price appreciation
The property taxes
The opportunity cost
The expected maintenance fees
The closing costs
The homeowner’s insurance
The monthly utilities

As a renter, you don’t need to worry about maintenance, but there are a few extra costs that you need to take into account: the 1-month security deposit, the broker’s fee, and annual renter’s insurance. You also have to deal with annual rent increases, which could be exorbitant.

If you crunch the numbers and consider all relevant variables when wondering “should I buy or rent?”, you’ll find that the most crucial factor is how long you plan to stay in the property. The longer you intend to stay at a single property, the more it makes sense to buy it.

Danielle Hale, the chief economist for Realtor.com, says:

For prospective first-time buyers, the key consideration when figuring out whether to buy or rent is how long you plan to live in your next home. If you’re looking for flexibility to move in the shorter term, renting may be your best bet, and still offer opportunities to save if you’re able to compromise on factors like proximity to the downtown area. Whereas buying could be the better option if you’re planning to stay put for at least five years. Market conditions will play a role, but ultimately the timing comes down to your personal situation.

The Breakeven Point

As we’ve just seen, the biggest economic determinant of whether you should buy or rent is the number of years you plan to spend in that home.

To make things more concrete, let’s assume that you are looking at two similar properties, equal in all the ways that matter to you. One is for sale, and the other is up for rent. The cost of the mortgage payments for one is equal to the rental costs of the other. In this scenario, how long do you need to stay till buying makes more sense than renting?

Well, to answer that question, we need to look at all of the aforementioned variables and to make some assumptions:

The property tax rate = 1.35%
Homeowner’s insurance = 0.46%
Home repairs = 0.5%
Renovations = 0.5%
Marginal income tax rate= 25%
Renter’s insurance = 1.32%
Buying closing costs = 4%
Selling closing costs = 10%
Rent security deposit = 1 month rent
Home value appreciation = 3%
Rent appreciation = 2%
General inflation = 2%
Annual return on cash = 4%
Capital gains tax rate = 15%

Under these conditions, your breakeven number is 3 years. In other words, if you plan to stay at the property for more than 3 years, then buying is cheaper than renting after all relevant factors and costs have been taken into consideration.

However, if any of the above factors change, this could alter your math. For instance, let’s assume that home value appreciation was 5% instead of 3%. In that case, you need to stay less than 2 years to justify your purchase decision. Alternatively, if the property tax rate goes up to 2% rather than 1.35%, you need to stay a little under 4 years for the purchase decision to make fiscal sense.

Other Pros and Cons of Renting and Buying

We have been dealing with the question “should I buy or rent?” as a purely economic issue, looking at it the same way an investor looks at a company they’re considering buying.

Buying a home, or even renting one for that matter, is much more than just an investment. It is an emotional decision, one that can influence our lives and our self-image.

Considering your living situation? Weigh the pros and cons of whether to #buy-or-rent in our latest guide.

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The Pros and Cons of Buying a Home

Owning a home is a source of pride for many Americans. After all, part of the American dream is owning your own property. Better yet, once you have bought it, you can do what you wish with the home: change its design, alter the look, and do whatever else it takes to make the place feel like a home.

You will also have a sense of stability that few renters enjoy, and you will be part of a community.

Buying a home ties you to a certain location for a few years. When we were crunching the numbers, we assumed that you would have no trouble selling your place, but that may not be the case.

Depending on the housing market and the mortgage rates, you might have a hard time offloading your property should you decide to change geographies. And, if the market is in a downturn, but you need to sell, then you may have to sell your property at a loss.

We also talked about the costs of repairs, renovations, and maintenance, but we failed to discuss the required time commitment. For instance, if your plumbing breaks, you need to spend time finding the right plumber, waiting for them to show up, standing with them as they replace your worn-out pipes, and paying them.

Learn more: Before you start your next renovation project, check out our list of home improvements that surprisingly don’t add value to your property.

The Pros and Cons of Renting

One of the best things about renting is the predictability of your monthly costs. As a homeowner, you need to be prepared to lay out some cash and potentially go into debt if the roof caves in tomorrow. As a renter, you don’t have to pay an extra cent if the roof caves because it is your landlord’s responsibility.

Renters also enjoy a sense of freedom in the sense that they can just pick up and leave the minute their lease is up.

The flip side to that coin is that renters have to live with instability. If the landlord increases the rent, there is nothing you can do about it. Obviously, this might not be the case if there are rent ceilings and rent controls, but very few of us are so lucky. Additionally, a landlord could still kick you out should they decide to sell their property or transform their apartment complex into condos.

Learn more: Simplify your monthly payments by exploring these 10 reliable methods to pay rent online, compiled in our latest post.

Putting It All Together…

So, should I buy or rent?

The answer is it depends on your finances, your living situation, and your priorities. If you plan to stay in the same place for more than 5 years, and you value stability and community, then buying a home might make sense for you. If you know that you’re only staying for a year or two, then renting might make more fiscal sense.

The post Should I Rent or Buy? The Great Housing Debate appeared first on FinMasters.

What to Do After Paying Off Your Mortgage

Ibrahim Zaghw — Thu, 09 Nov 2023 13:23:11 +0000

A mortgage can seem eternal, but all things do end. If you are approaching the end of your mortgage, you are coming up with a huge relief and a new level of financial freedom. Knowing what to do after paying off your mortgage will help you make the most of it!

Let’s take a look at what to do as you are making your last payment and what to look for after the payment has been made.

What to Do as You Are Making Your Last Payment

Your last mortgage payment will be a bit different than every other payment done so far. Here are a few things you should be ready for.

Learn more: Navigating the mortgage process as a self-employed individual? Here’s a guide on getting a mortgage when self-employed.

1. Ask Your Bank/Lender for a Payoff Quote

To make that final payment, you will need to get a payoff quote from whoever is servicing your loan. You will contact your mortgage company, provide your loan number (it’s on your mortgage statement), and inform them that you want to make your final payment and you need a payoff quote.

You don’t have to show up physically; you can either call them or notify them through their website.

The payoff quote will detail exactly how much money you have left on your mortgage, both principal and interest. It will also tell you when you need to make that payment. If you fail to pay by that date, you may be assessed an additional interest charge.

2. Be Prepared for a Few Extra Fees

When paying off your mortgage, you will likely have to pay a few extra fees that vary depending on the state you are in as well as on the particulars of your situation. These fees can range between $40-$260.

Here are some of the fees that you might come across:

Recording Fee
Statement Fee
Calculated Interest
Reconvey/ Release Prep Fee
Expedite Fee
County Recording Fee

If you don’t want to be surprised when you receive your payoff quote, you could ask your mortgage lender ahead of time about the fees that will most likely pop up. You could even ask them about these fees months before you actually make that final payment.

3. Follow Your Lender’s Specific Instructions

Even though you might have been making your mortgage payments online so far, that final payment will probably be a bit different: Some lenders insist that you send in that final payment through a certified check or a wire transfer.

In that case, just follow your lender’s instructions so that you can pay what you owe and get it over with.

What to Do After Paying Off Your Mortgage

Now that you have made the final payment, the real fun begins. You can tell the world that your home is 100% yours. Let’s see what to do after paying off your mortgage.

1. Cancel Any Automated Payments

After automating your payments for years, you might wonder what to do after paying off your mortgage. Such automation offers convenience, reduces the burden, and guarantees that mortgage payments are always timely and never missed.

So, if you had also set up automatic payments, then the first thing you want to do is to cancel them. You will feel an immense sense of satisfaction as you hit that “cancel” button. Do this immediately so don’t have to go through the hassle of asking your lender for a refund.

2. Let Your Homeowner’s Insurance Provider Know That You Have Paid Off Your Mortgage

The next step you can take when you’re wondering what to do after paying off your mortgage is to let the homeowner’s insurance provider know of it. Your loan servicer has probably been paying your homeowner’s insurance from an escrow account. This escrow account was funded through premiums that were tacked onto your monthly payments.

Now that you have paid off your mortgage, you will be responsible for paying and maintaining your homeowner’s insurance.

Lenders require homeowner’s insurance because they have a financial stake in the home. Once you fully own your home, you don’t need to keep your homeowner’s insurance. It is still a good idea to maintain it as it can protect you should your property get damaged in the future.

If you decide to keep your insurance, call the insurance company and let them know that you have paid off your mortgage and that you plan to keep your coverage. After that, you will pay the monthly premiums on your own.

Learn more: Buying a home soon? Get clarity on what closing costs are and who usually pays them.

3. Contact Your Local Taxing Authority

The third step you can take when deciding what to do after paying off your mortgage is to contact the local taxing authority. The escrow account held by your mortgage lender probably paid your property taxes just as it did your homeowner’s insurance. And, again, as the escrow account has been closed, you need to start paying your property taxes.

You should contact your local taxing authority, let them know that you have paid off your mortgage, and inform them that you will be making the payments from now on.

In return, the taxing authority will send you a bill for your property taxes. You can pay that bill monthly, quarterly, or annually.

Learn more: Navigating your taxes? Get a better grasp on how taxes work with our latest article.

4. Check Up on Your Escrow Account and See if There Is Anything Left

Once you’ve made the final payment, it’s important to consider what to do after paying off your mortgage regarding your escrow account. This is the account used to pay your insurance and taxes, and it might still have some remaining funds. If so, then these funds should find their way back into your bank account a month after making that last mortgage payment.

If your bank account isn’t fatter within a month, you need to reach out to your mortgage lender and ask them about the remaining balance.

5. Make Sure You Receive a Satisfaction of Mortgage Statement

Another important aspect to keep in mind when considering what to do after paying off your mortgage is to receive a letter from your lender about a month later declaring that you’re loan is paid in full, along with a Satisfaction of Mortgage Statement. This document acts as physical proof that you’ve fully met your debt obligations and that the property is fully yours now.

6. File the Satisfaction of Mortgage Statement

Armed with your Satisfaction of Mortgage Statement, you should go to the county clerk’s office and let them know that you own your property with no outstanding debt. Once you do that, the clerk’s office will update their local records, reflecting your full ownership and removing the mortgage company from the title.

In some cases, your mortgage lender may file the statement on your behalf. In others, the responsibility rests on your shoulders. Even if the lender is supposed to file it, it is worth checking to make sure it’s done.

7. Make Sure Your Credit Report Reflects the Satisfaction of Your Mortgage

After a month to a month and a half of making that last payment, your credit report should show that you have satisfied your mortgage obligation. Get a free copy of your credit report and double-check that.

8. Find Out How Much Your Property Is Worth

Knowing what to do after paying off your mortgage includes assessing the worth of what is likely your most significant asset. If you have any future plans, such as taking out a HELOC or a home equity loan, then you need to know how much equity you have in your property.

9. Keep the Documents That Show You Have Paid Off Your Mortgage

Having gone over all the necessary steps of figuring out what to do after paying off your mortgage, we should take a moment to highlight the most important documents you need to hold on to throughout the entire process:

A. The Loan Payoff Letter and the Satisfaction of Mortgage Statement

You should always have these two on hand as they demonstrate that the mortgage company no longer has a claim to your property. These documents show that the lender has released the trust deed on your property.

B. The Title Insurance Policy

When you first buy a house, you usually pay a one-time premium for a title insurance policy. Now that your mortgage has been satisfied, that policy has become more valuable. After all, if a title issue pops up tomorrow, your title insurance will help protect all the investments and mortgage payments you have made over the past few decades.

C. The Last Loan Statement

It’s good to keep your final mortgage statement stashed along with your other documents. The reason is that the mortgage statement will contain valuable information, such as the loan number and the toll-free contact number for the lender. You never know when you might need this information.

D. Other Documents You Might Receive

In some cases, a lender may send you a canceled promissory note in addition to a canceled trust deed. This isn’t necessary, and many lenders don’t do this. If they do, keep the documents.

Life After Paying Off Your Mortgage

Paying off your mortgage means you will have more disposable income every month. The average US mortgage payment is $1,768, so your monthly budget will probably be getting a substantial boost.

Just finished paying your #homeloan? Learn what to do after paying off your #mortgage with our new post.

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Remember to set aside a portion every month to pay your property taxes and homeowner’s insurance. Your lender is no longer paying those, remember?

Once that’s covered, there are many different ways you can put that extra money to good use:

Start by splurging on yourself a bit. Having just crossed an enormous milestone, you deserve to give yourself a treat. You can take that vacation you’ve always wanted to go on or buy that newer model car to fit the whole family.
Keep a healthy emergency fund. Almost two-thirds of Americans live paycheck to paycheck, especially with all the obligations they have to meet^[1]. This doesn’t have to apply to you. You should keep an emergency fund that covers around three to six months of living expenses.
Fatten your retirement fund. You can never have too much money when you retire. After all, whatever you don’t use will eventually make its way to your loved ones. So, why not put money into a tax-advantaged retirement account? If you’re over 50 years old, you are allowed to make catch-up contributions.
Make your home a nicer place. You can finally afford to add that patio to your backyard, or you can remodel your kitchen. If you plan to grow old in the home you’ve just paid off, then you might want to consider installing some accessibility features before you need them. For instance, wider bathroom entrances and grab bars in the showers can be a godsend.
Pay off any other debt you may have. The average American has around $5,733 in credit card debt, which typically has higher interest than other loans. Paying that off can provide another boost to your budget.
Invest in your family members. You can now help your children and grandchildren achieve their dreams. You can invest in your daughter’s business, pay off your grandson’s student loans, or help your sister pay off her mortgage.

You can spend that newfound windfall any way you want; after all, it’s yours. What’s important is to think about it and build a plan for how you want to spend it. That way, you can be sure that money is serving your needs and not your whims.

Putting It All Together…

Making the final payment on your home is a joyous occasion, but you need to have a good understanding of what to do after paying off your mortgage so that you don’t end up spoiling the occasion with extra costs or other inconveniences.

Once you have sent in that final payment, you should make sure that you hold on to all of the documents that prove your full ownership while also notifying the relevant entities of the new status of your home. After you’re finished with the entire process, you will have a chunk of extra money at the end of every month that could benefit you and your loved ones for the long haul!

The post What to Do After Paying Off Your Mortgage appeared first on FinMasters.

What Is Upper Class? Is This Still a Thing?

Ibrahim Zaghw — Tue, 26 Sep 2023 09:00:47 +0000

We all have a fascination with the upper class, be it celebrities, politicians, or tech billionaires. We scrutinize their personal lives and judge their public statements. We want to be them, enjoying the creature comforts that come with affluence. But what is upper class? And how accessible is it to ordinary people?

What Is Upper Class, Exactly?

So what is the upper class? Today, we use the socioeconomic term “upper class” to refer to any individual residing on the highest rungs of society. These individuals enjoy wealth and status, which bring along with them a degree of political and economic power.

What qualifies someone as upper class has changed over time. Not too long ago, owning plenty of land was enough to earn you elite status. Aristocrats and royalty were just born into the elite class rather than having to earn their way into it. But what is the upper class nowadays?

In the 21st century, your net worth and income are the best – or at least the simplest – gauges of whether you belong to the upper class or not. As a result, institutions like the Pew Research Center have been able to define what can be considered upper class and what can’t.

How Much Money Do You Need to Make to Be Upper Class?

According to the U.S. Bureau of Labor Statistics, the average income for an American household in 2021 was $87,432^[1]. The United States Census Bureau says that the real median income for the same fiscal year was $70,784^[2].

The Pew Research Center identifies any household earning more than double the national median as upper class. So, if you or someone you know made more than $141,568 in real income in 2021, then you or they would have qualified as upper class, according to Pew.

Based on this definition, the Pew Research Center has found that around 19% of American households are upper class. On the other hand, the middle class makes up 52% of American society, and lower-income households constitute the remaining 29%^[3].

Looking at the upper-class households on their own, their median income was around $187,872 back in 2016, whereas middle-class Americans made a median of $78,442 for the same year. If we were to go back only 6 years, we would find that upper-class households had a median income of $172,152 in 2010, while middle-class households had an income of $74,015 for the same year.

In the 6-year period between 2010 and 2016, both upper and middle-class Americans increased their median income. However, the gap between these two classes also increased, with the upper class pulling away. This points to an important attribute of the upper class: during periods of boom, upper-class individuals grow their wealth at a much faster rate than any of the other classes.

While the above numbers provide general guidelines for what constitutes the upper class, there are other factors that can affect our classification.

1. Household Size

The Pew Research Center defines “upper class” by adjusting its income threshold based on the number of individuals within a household. In other words, the larger the household, the greater the income needed to be considered upper class:

A household of one needs $78,281
A household of two needs $110,706
A household of three needs $135,586
A household of four needs $156,561
A household of five needs $175,041

As can be seen, Pew believes that to maintain the same lifestyle, a household of four needs to make almost double the income of a household of one.

2. Location

Another factor to take into consideration when trying to answer the “what is upper class” question is location. The income required to be considered upper-class changes depending on where you live. An income that would be upper-class in Brownsville, Texas, might be middle-class in New York.

These same metropolitan areas also have the largest number of upper-class individuals. While almost 19% of Americans can be considered “upper class”, that percentage is much higher in a place like New York or Los Angeles.

San Jose in California is the most affluent city in the United States, with almost 32% of its population considered upper-class.

How Much Do You Need to Be Worth to Qualify as Upper Class?

The other way to define what upper class is in terms of socioeconomic status is through an individual’s net worth.

Similar to what we did with incomes, we need to find the median net worth of the American household to define what passes as upper-class.

According to the United States Census Bureau, the median household net worth was around $166,900 back in 2021^[4].

Now, if you classify people according to quintiles, you will find that people in the top 20% have a median net worth of $805,400, which is almost five times the median household net worth. What’s more, if you were to look at the top 10%, you would find that their net worth hovers around $1,623,000.

Out of every 10 households in the USA, one at least has a net worth of $1.6M, if not more.

How Do Americans Classify Themselves?

Although the numbers show that numerous Americans are upper-class, the curious thing is that many don’t feel that way.

A Gallup survey found that almost three-quarters of Americans, 73% to be exact, classified themselves as middle or working class. Another 14% said they belonged to the upper-middle class, and only 2% saw themselves as upper-class^[5].

So, how can we explain the huge disparity between the numbers and the self-reported classifications?

There are several factors that can help explain this chasm.

For starters, when deciding where they lie on the social ladder, most people take into account more than just their income or net worth. They look at things like their education, their family history, their social and professional networks, and even their location.

Americans typically associate being upper class with a sense of economic security. So, the more financially safe an individual feels, the more likely they are to view themselves as affluent. Financial safety comes when an individual can afford their necessities along with a few extravagances, such as a vacation or a nice sports car.

The problem here is that this self-classification is not only very subjective but is also bound to change with economic cycles. As a result, it doesn’t give us anything tangible to work with. Nevertheless, there is a glimmer of truth about associating being upper-class with financial security.

What Is Upper Class: The True Meaning

No matter how you choose to identify those in the upper class, there is one thing they all have in common: They are in full control of their time. If they want to take a day or two off, they can afford to do so. If a loved one gets sick, they don’t have to work three jobs at the same time just to pay their hospital bills.

In essence, most members of the upper class choose to work rather than being forced to work. Many of them can live off of their passive income should they so choose, giving them full control over their financial destiny.

The upper class can also take risks and seize opportunities that aren’t afforded to the other classes. Entire worlds of investment are only available to accredited investors, a status requiring significant income or net worth.

How to Get Into the Upper Class

The upper-class bracket may seem completely out of reach. It’s not. It’s not easy to get there – if it was, we’d all be there – but the days when you had to be born into the upper class to get there are long gone.

The Institute for Policy Studies, a progressive think tank that has few positive things to say about billionaires, reported in 2012 that 35% of the Forbes 400 – the very peak of the upper class – came from backgrounds that offered no special advantages^[6].

In 2019, Fidelity Investments surveyed a range of millionaires, defined as those with over $1 million in investment assets other than real estate. 82% reported that they had received no inheritance or financial help from others^[7].

Of course, self-reporting is not always reliable, and many of these millionaires had less tangible privileges, including high levels of education, often without debt, and valuable networks of content. It is still very possible to move into the upper class, especially if you start young and keep focused on your goal.

These steps can help.

Focus on education. 85% of the millionaires in Fidelity’s study had an undergraduate degree or higher.
Consider entrepreneurship. Starting a business is not a guaranteed route to the upper class, and it is not the only route, but it is one of the most common ways people reach upper-class status.
Focus on saving. The millionaires in Fidelity’s survey save, on average, over 30% of their incomes.
Invest early. Investment is one of the best ways to grow money over time, and the earlier you start, the more time your gains have to compound.
Get married. 80% of the millionaires surveyed by Fidelity were married or had partners. Two incomes produce more investable resources than one.
Minimize debt. 57% of the millionaires in the Fidelity survey had no debt at all.
Learn about money. A solid base of financial knowledge will help you avoid mistakes and make the most of your opportunities.

Don’t expect to make it to the upper class overnight. The average age of the millionaires in the Fidelity survey was 67. Of course, it’s possible to make it earlier, but for most people, the reward takes time to achieve.

Let’s look at some of the obstacles that might pop up as you make your way toward generational wealth.

Be Aware of the Pitfalls

That ladder connecting the middle and upper classes is a long one, and it can take decades to scale it. So, you would do well to learn from the mistakes made by those who have gone on that journey before you:

Curious about the socio-economic indicators that define 'what is #upperclass'? Check out our latest post for an insightful analysis.

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Comparing yourself to others is one of the biggest mistakes you can make. It doesn’t matter where you are relative to others. The only thing that matters is how close you are to your own goal. As one of my favorite songs says, “Don’t waste your time on jealousy; sometimes you’re ahead; sometimes you’re behind. The race is long, and in the end, it’s only with yourself.”
Don’t invest in trends. Instead, follow solid, fundamental advice. For instance, if you don’t want to put too much effort into stock analysis and selection, then investing in a good stock index that tracks the market could be a good idea.
Don’t over-save. Even though saving your money for a rainy day can be a good idea, you don’t want to get into the habit of saving just to save. Instead, once you have enough money to cover 3-6 months of living expenses, you should be investing everything else you can.
Don’t show off. Another mistake to avoid is trying to give off the image of wealth to impress others. When was the last time you saw Bill Gates rocking the latest Armani suit? Even Mark Zuckerburg wears almost the same outfit day in and day out. Jeff Bezos refused to give up his 1996 Honda Accord despite being worth $10 billion at the time.
Don’t sell yourself short. The biggest mistake that might stop you is the limiting effect of your own beliefs. Many people just can’t imagine themselves being wealthy. They think that they need extraordinary luck or that they need to be born into money. However, the simple fact of the matter is that the most important tool you will need is the right mindset. And to cultivate that mindset, you should surround yourself with similar individuals who don’t let limiting beliefs stop them from living a full life.

Now, although you might be aware of these pitfalls, this won’t necessarily stop you from stumbling over them despite your best efforts. The trick is to spot bad behaviors early on and correct them.

What Is Upper Class?

The idea of the upper class is not new. What is new is how accessible that class has become to everyone. A thousand years ago, you had to be born to the right family if you wanted a decent chance at being part of society’s elite class. Today, the right investment portfolio, financial education, and mindset can all propel you and your loved ones to a better future and a tomorrow filled with free time and financial security.

The post What Is Upper Class? Is This Still a Thing? appeared first on FinMasters.

What Is an Accredited Investor? Your Answer in Plain English

Ibrahim Zaghw — Thu, 14 Sep 2023 16:00:04 +0000

Accredited investors have access to special investments, like private placements, hedge funds, and private real estate funds But what is an accredited investor, and why do they have these special opportunities?

Let’s find out.

So, What Is an Accredited Investor?

An accredited investor is an individual or entity that can invest or trade speculative, unregulated financial assets that are not available to your average retail investor. Accredited investors need to need to meet certain criteria involving wealth, income, or professional experience.

Now that we have an answer to the “What is an accredited investor?” question, let’s see what those criteria are.

The Criteria for Individuals

The Securities and Exchange Commission (SEC) has established several criteria to select accredited investors. If you meet only one of the following criteria, then that should be enough for you to qualify:

Income. You will qualify if your annual take-home income has been at least $200,000 for the past two years, and you can expect the same income for this year. You and your spouse could qualify as accredited investors if your combined annual incomes exceed $300,000 for the same time duration.
Wealth. If you can prove that your net worth, without taking into consideration the value of your primary residence, is more than $1M, you are good to go. This $1M figure can either be your personal net worth or the combined net worth of you and your spouse together.
Professional expertise. If you are a director, executive officer, or a general partner from the company selling its securities, then the SEC would consider you an accredited investor as far as that company is concerned, i.e., you are allowed to buy shares from that company directly. But, when it comes to other unregistered companies besides your own, you might not qualify as an accredited investor. If you are a “knowledgeable employee” working at a private fund, then that might also be enough.
Securities licenses. If you are a financial professional who has any of the following financial securities licenses: Series 7, Series 65, and Series 82, you will qualify as an accredited investor.

It is worth noting that you don’t get any document or other evidence proving your accredited status. When you try to buy an investment from an unregistered company, it is the company’s responsibility to do its due diligence and make sure that you are accredited. Consequently, the company in question will most likely ask you to release some of your financial statements, such as your W-2s, tax returns, bank statements, or other evidence to demonstrate that you qualify.

The Criteria for Entities

These are some of the criteria the SEC uses to decide whether an entity counts as an accredited investor or not (again, a company needs to meet only one of the following to qualify):

The entity has more than $5M in assets or investments.
If the owners of the entity are accredited investors, the entity is an accredited investor in its own right.
Certain financial entities automatically qualify as accredited investors: Banks, savings and loan associations, insurance companies, certain types of investment companies, and business development companies.

The SEC doesn’t allow the creation of organizations with the sole objective of buying particular securities, so the entity needs to have a purpose other than the investments to be purchased with the accredited investor status.

What Is an Accredited Investor: What Role Do They Play in the Economy?

Companies of all sizes need to raise funds, be it to expand or to survive a tough time like the pandemic.

Not all companies are able to stage an IPO and go public. That process is costly and requires extensive financial statements, which would place the company under public scrutiny. Many startups remain private for extended periods.

Accredited investors can be a much-needed lifeline for private companies. Through what is termed a private placement, an accredited investor can directly buy a piece of the company from the company itself. There are usually no intermediaries involved.

On the other side of that coin, seeing as accredited investors don’t have access to the public financial statements that are available for public or IPO companies, they have to do their due diligence, study the company, and make sure that the potential reward is worth the risk.

In addition to private placements, accredited investors can put their money in any of the following alternative investments:

Venture capital firms
Hedge funds
Angel Investments
Complicated financial transactions, such as structured products.

Accredited investors are a necessary component of the economy, feeding the more speculative investments that are necessary to propel the market forward.

Why Are Some Investments Restricted to Accredited Investors?

Investors who don’t meet these criteria may wonder why they are blocked out of investments that may seem potentially highly profitable.

The main reason behind the classification is to protect the investors themselves. The idea is that someone who qualifies as an accredited investor will:

Be sophisticated enough to understand the risk they are taking when investing in speculative and unregistered assets.
Be wealthy enough to withstand the potential losses that come with investing in these risky assets.

At the end of the day, the SEC is working hard to maintain a balancing act. On the one hand, they want to promote investments in entrepreneurial and speculative ventures. On the other hand, they want to protect the investors, especially if the investors in question aren’t financially sophisticated or don’t have enough of a financial cushion to take these risks.

What Is an Accredited Investor: Changes Over Time

The SEC created the category of accredited investors back in 1933 as a response to the Great Depression.

The intention was to improve the requirements surrounding financial disclosures, enabling retail investors to be better informed about the public companies they were putting their money into. Any company that was exempt from these financial disclosure requirements became accessible only to accredited investors.

90 years later, things have changed a bit.

How Has the Definition of an Accredited Investor Changed?

One of the biggest changes to the definition of what constitutes an accredited investor came back in 2010 with the Dodd-Frank Act. The change dictated that when calculating their net worth, investors needed to exclude the value of their primary residence.

On June 5, 2023, the Fair Investment Opportunities for Professional Experts Act expanded on what it means to be an accredited investor. It dictated that people with “professional knowledge through educational or professional experience” should qualify as accredited investors. This means that investment advisors and brokers have access to and can invest in unregulated financial assets.

Another law, the Accredited Investor Definition Review Act, enables the SEC to decide which certifications are enough to qualify as an accredited investor. The caveat is that the SEC has to revise its list of accepted credentials every five years and change or amend the list if needed.

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How Does the JOBS Act Affect Accredited and Non-accredited Investors?

Another big factor that affected the investing world was the JOBS Act, which came into effect back in 2016.

The JOBS Act changed equity crowdfunding rules, giving retail investors access to unregulated and unregistered companies through online crowdfunding platforms.

That said, there are still limitations curtailing how involved your average Joe can be with a start-up:

To begin with, the non-accredited investor who either makes less than $100,000 annually or has a net worth of less than $100,000 can only invest 5% of the lower figure of their net worth and annual income. However, if 5% of both their net worth and their income is less than $2,000, then their limit becomes $2,000.
Alternatively, the non-accredited investor making more than $100,000 or with a net worth exceeding that number can invest up to 10% of the lesser of these two numbers.

Again, these limitations exist to protect investors while still giving them the chance to get on the ground floor and invest in the next Google or Apple. Another form of protection is that these shares need to be sold through a regulated funding portal, like a crowdfunding portal, that will do the required due diligence on behalf of the average investor.

What Is an Accredited Investor: Conclusion

The criteria used to define an accredited investor are there to protect us all from excessive risks. This definition is an ever-changing one. For instance, the SEC is considering increasing the required thresholds for qualification to keep up with inflation.

If you don’t qualify as an accredited investor, this should not discourage you. There are numerous public stocks that offer attractive returns, and even if you were to invest in the overall market itself, i.e. through something like the S&P 500, you can still expect an average annual return of 10%.

The thought of exponential returns from an early investment in an obscure company is attractive, but the truth is that these investments are extremely risky. The accredited investor rule is there to protect investors with a bit too much enthusiasm – sometimes whipped up by an unscrupulous promoter – from making decisions they will regret down the line.

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What Is Prop Trading? In Plain English

Ibrahim Zaghw — Tue, 12 Sep 2023 16:00:26 +0000

Prop trading is getting attention: search volume on the term has nearly tripled in five years. But what is prop trading, and why are people so curious about it? Could you have a future as a prop trader?

Let’s take a closer look.

What Is Prop Trading?

“Prop trading” is short for “proprietary trading”. This occurs when a financial institution invests in the market directly for its own benefit rather than for the benefit of its clients. In other words, the financial institution will invest using its own money, and instead of receiving a commission or a piece of the profits, it keeps all of the profits.

Now, the assets the firm invests in could be anything; it doesn’t have to be the stock market in particular. It could put its money in commodities, currencies, bonds, or even crypto derivatives. If the firm is investing using its own funds, not its clients’, it is considered prop trading.

In recent years, firms devoted exclusively to prop trading have emerged. That is a consequence of a legal change dating back to the 2008 financial crisis.

Learn more: If you’re new to the world of investing, our latest post offers a comprehensive guide to get you started on the right foot.

What Is Prop Trading: The Origins of Prop Trading Firms

In 2010, the Obama administration enacted the Dodd-Frank Act, also known as the Wall Street Reform and Consumer Protection Act. Part of the Dodd-Frank Act was the Volcker rule, named after Paul Volcker, the former chairman of the Federal Reserve.

The Volcker Rule limits the speculative investments banks and other financial institutions are able to make. The idea is that since banks should serve their customers first, proprietary trading can present a conflict of interest.

As a result of the Volcker Rule, many banks have had to either shut down their proprietary trading operations or separate these operations from the rest of their core operations with what is called a Chinese Wall.

The vacuum created by the Volcker Rule was filled by companies dedicated exclusively to prop trading.

Learn more: New to banking or just want to understand it better? Check out our comprehensive guide covering its various aspects.

What Is a Prop Trader?

Most of the people searching for information on prop trading are not financial institutions. So why are ordinary Americans so curious about big institutions trading on their own account?

When a financial institution delves into prop trading, it will establish a proprietary trading desk internally, which will usually be segregated, i.e., “roped off,” from any trading desks using clients’ money. This separation ensures that prop trading desks remain autonomous and that client-serving desks always serve the best interests of the clients.

The people working on that proprietary trading desk are called prop traders. Traditionally, these traders have been employees of the company. Lately, some companies have come up with a new strategy: engaging independent traders to trade with the company’s money. The company takes a percentage of all profits earned from the trades.

Trading with someone else’s money sounds like a great deal, and that’s where the interest comes from. But what does it take to be an independent prop trader? Could you do it?

How Independent Prop Traders Work

If you become a prop trader, you will operate as an independent trader in contract with a financial institution/ prop firm, where you agree to trade on their behalf.

Financial institutions don’t just throw money at independent traders and expect profits to come rolling in. If the prop trader isn’t an employee of the financial institution, then they often have to put in part of their own money when trading, called risk contribution.

This ensures that the outside trader not only has the firm’s best interests at heart but is also staying away from anything too risky. Additionally, if the outside trader makes any bad bets, the losses are deducted from their capital first before hitting the firm.

In return, the outside trader agrees to split any profits with the firm in a ratio that is agreed upon beforehand. Since the outside prop trader takes on most of the risk, they usually take the largest share of the profits.

You put up some money, and the firm puts up the rest. You take the bulk of the risk, but if you earn money, the company will take a cut.

What Is Prop Trading: Pros and Cons

In the world of prop trading, there are two main players: prop firms and prop traders. You’re probably not a financial institution, so let’s look at the pros and cons from the trader’s perspective.

The Pros

If you are considering becoming a prop trader, then there are a few positives you can look forward to:

1. Additional Capital

If you have $25,000 and try to become a retail investor, you will be limited in the investments you can make. Combining your capital with money from a financial institution will expand your range considerably.

Learn more: For those seeking an affordable trading experience, our latest post breaks down top discount brokers tailored for retail investors.

2. Leverage

A prop firm may not always enforce leverage limits, particularly if you have a history of success. Using that leverage (borrowed money) effectively can dramatically expand your opportunity for profit.

3. Open Orders

For some traders, open orders are a way of life, enabling them to have their fingers in several pies. So, if this applies to you, then prop trading could be a good option, as several firms will let you have a thousand-plus open orders simultaneously.

4. Increased Opportunities for Diversification

Not only does a prop firm give you some of its capital to invest with, but it also provides leverage and lets you have thousands of open orders at the same time. Consequently, you have the resources to develop a more diversified portfolio, minimizing your exposure to any particular risk.

5. Easier Shorting

Prop firms often have their own internal stockpiles of securities. One of the benefits of that is if you want to short a stock, you can borrow it directly from the prop trading firm and sell it on the market.

6. Choice of Trading Platforms

Prop firms have a technological advantage over the market, and part of that comes in the form of highly sophisticated research and trading tools. And since they want to see you win on their behalf, they are happy to share their tech platforms with you, giving you a leg up over the average retail investor.

7. Excellent Support

Seeing as a prop firm’s success is intertwined with the success of its traders, it should come as no surprise to learn that prop firms provide top-notch support. Not only is the support quick, but most issues are resolved through a phone call.

8. Flexibility

Unlike many jobs in the financial sphere, prop trading can be done remotely and from the comfort of your own home. You get to set your hours and decide how much time you are willing to put into this.

The Cons

Most of the negatives related to prop trading come from the high degree of risk and volatility involved, especially if you treat prop trading as you would day trading. That said, here are some of the biggest drawbacks you want to be aware of:

1. Less Regulation

If a prop firm provides remote trading, chances are it isn’t regulated whatsoever. Now, while no regulation translates to lower operating costs, it also means that you, the prop trader, could lose the money you put in, the risk contribution, especially if the firm in question is comprised of charlatans.

This just goes to show how important it is for you to do your own research when choosing a prop firm to work with. If you see any signs of dishonesty, you should go firm shopping somewhere else.

2. Firms May Charge High fees

Aside from the risk contribution, a prop firm may ask you to pay fees for using their software solutions, particularly if you work from home. These fees start at $200/ month and go up from there.

3. The Leverage You Get is Conditional

Earlier, we talked about how prop firms can offer you leverage and increase your liquidity. However, most of the leverage you get will be for positions that are short-term or even same-day.

If you are looking to hold a position overnight, let alone for the long haul, the prop firm may not be so generous with its credit lines.

4. Your Intellectual Property Will Always Be At Risk

As an investor, one of the most valuable assets you develop over time is your investing strategy. Your strategy becomes your intellectual property. And when you find a profitable investing strategy, you end up with an asset that a prop firm may try to steal. In fact, some firms may try to teach your strategy to AI models and have them emulate you in the market.

5. Prop Trading Can Be Very Competitive

These firms are giving you their money with the expectation of high returns, and you need to deliver if you want to stay in the firm’s good graces. If you fail to live up to their expectations, these firms know that there are hundreds of other traders out there who would love the liquidity and the increased buying power that they offer.

6. Limited Career Options

The skills you develop as a prop trader will probably not come in handy anywhere else. So, if you invest years of your life trying to become one of the best prop traders out there, you are also limiting yourself and shutting other possible career doors.

Prop trading might have its allure, but you need to consider these drawbacks before embarking on this journey. If you have weighed the pros and cons and still feel that this is for you, then let’s see how you can get started.

How to Become a Prop Trader

If your heart is set on a career in prop trading, here is the best way for you to get started.

Assess your qualifications. Prop trading firms are not out there throwing money at anyone who wants to trade. They are looking for individuals who have experience and knowledge of markets and trading techniques. If you have those, you’re good to go. If you don’t, you may have work to do before you can qualify.
Learn about the industry. It’s not enough to know what prop trading is. You want to know what skills you need to succeed, how you can best acquire those skills, and how to find the right firm for you to partner with. Fortunately, there are several online resources to help you in that endeavor.
Approach the firms that interest you. Once you have a short list of firms, approach them and negotiate. While you will bear the brunt of your losses, the general consensus is that when it comes to splitting profits, prop firms take anywhere between 10-25%, and you take the rest. Where you land exactly with your prop firm wholly relies on your ability to negotiate the best deal for yourself.
Have your contribution ready. Assuming that you and the prop firm have arrived at some kind of deal, you need to be ready to deposit your risk contribution with them. If you will be trading remotely, then you also need to be ready to pay a little extra to license the firm’s proprietary trading software.

As you might have noticed, one of the most important steps is to find the right prop firm to work with. What factors should you be choosing when fishing for firms?

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Choosing the Right Firm

Start by making sure that the firm in question has a spotless track record and is legitimate. Try scouring the internet for online reviews and talk to other traders who have either worked with the firm or are still working with it. You should also look up the managers over there just to make sure that they haven’t been involved in any scandals before.

Once you’ve done your preliminary due diligence, you should start assessing whether the prop broker will be able to meet your individual needs. Here are some of the features you can look into:

Does the firm use a demo or a real account when testing its potential traders? There are plenty of benefits to paper trading, i.e., trading through a dummy account, but succeeding with a real account lets you hit the ground running.
What markets does the prop firm invest in? How familiar are you with these markets?
What are the firm’s trading hours? Does the firm prefer day trading or. overnight trading?
What is the average profit split at the firm?
What are the required fees, including the risk contribution and the licensing fees?
Does the prop firm provide its traders with any training, online or otherwise?
What trading strategies are most used at the firm? Are there any limitations on the strategies that you can use?
What options will the firm offer you in terms of capital scaling?
Does the firm foster an open community?

The answers to these questions can help guide you toward a prop trading firm that is perfect for you.

The Latest Developments in the World of Prop Trading

After the financial crisis of 2008, the Obama administration enacted the Dodd-Frank Act, also known as the Wall Street Reform and Consumer Protection Act of 2010. Part of the Dodd-Frank Act was the Volcker rule, named after Paul Volcker, the former chairman of the Federal Reserve.

The vacuum created by the Volcker Rule that several companies dedicated exclusively to prop trading has sprouted up in the past few years.

What Is Prop Trading: Conclusion

For many, prop trading is a viable way to make good money. However, the space is fraught with problems, given how little regulation goes on there. So, if you want to start a career as a prop trader, then you need to be aware of both these positives and the negatives first. In case you are still sure that this is what you want, you should take your time and make sure that the firm you choose to partner with is legitimate and has a solid reputation.

The post What Is Prop Trading? In Plain English appeared first on FinMasters.

Is a Master’s Degree Worth It?

Ibrahim Zaghw — Mon, 04 Sep 2023 09:00:55 +0000

A Master’s degree requires a significant investment in time and money. But does the gain in earning capacity match that investment? Is a Master’s degree worth it?

The question matters to many Americans. The number of people with master’s degrees went up by 50.2% during the 10 years from 2011 to 2021. By 2021, there were around 24.1 million Americans with a master’s, making up around 13% of the US workforce^[1]. More than 8 million Americans are expected to finish their postgraduate studies between 2023 and 2030^[2].

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