Being money smart is about more than having a budget and eliminating dumb purchases. It means creating a financial foundation that will carry you and your family comfortably through whatever life throws your way.
To create that foundation and find lasting financial security, you need these nine products:
1. High-yield savings account
Savings rates are still low in historical terms, but they are improving. If you park money in a high-yield savings account, it will generate far more than the current national average of just one-tenth of a percent.
Some of the best rates are being offered by online banks, such as CIT Bank, which is offering up to 2.20% APY as of publication.
2. Checking account
You need a centralized place for your money so you can manage and monitor it. Prepaid debit cards are an option, but they can come saddled with fees. Plus, disclosures for these cards can be spotty, making it hard to know exactly how much your card is costing you.
Instead, look for a free checking account. Many institutions have scaled back their offerings, but some banks and credit unions still offer them.
Along with your checking account, sign up for a debit card. Make sure it has a Visa or Mastercard logo and can be used as a credit card.
Having a debit card can eliminate the need to rack up credit card debt for purchases, particularly purchases for which it is impossible to use cash or a check.
3. Health insurance
Health care can come with an enormous price tag, especially if you develop a serious health condition.
You may think you’re young or healthy, but even the most robust people get in car accidents and can be struck down by devastating illnesses. Unless you’re worth millions and can easily pay your own medical bills, going without health insurance is just plain dumb.
Another way to help manage medical costs — and lessen tax woes — is to start a health savings account. Learn about how they work here.
4. Homeowners or renters insurance
If your home burns down, will you be left out on the street? That’s what happens to some people who fail to insure their property.
Homeowners insurance policies are relatively inexpensive for the coverage they provide, so there is little reason not to have one. These policies typically pay to rebuild your house in the event of a total loss, such as from a fire. They also generally give you the funding to repair storm damage and vandalism.
However, don’t expect your policy to cover damage from flooding. You’ll need a separate policy for that.
If you’re renting, don’t think your landlord’s insurance policy will pay for your stuff. Instead, cover yourself with some cheap renters insurance.
5. Auto insurance
Aside from your home, your car may be your most valuable asset.
While many states require you to carry a minimum level of coverage, you may want to consider getting additional car insurance coverage, depending on your assets and income.
Technology startups have made the process of getting the best new car insurance policy easier than ever. Our favorites for comparing quotes without the traditional hassle are The Zebra and Gabi. They can get you competitive quotes in just minutes.
6. Disability insurance
Not having disability insurance can trip up some otherwise money-savvy individuals.
Disability insurance provides money in the event you are unable to work for an extended period. The details may vary by insurer and policy, but one way to simplify the process is to get quotes here, through our partners at Policy Genius.
If you’re on the fence about whether to buy disability insurance, consider whether you have a big enough emergency fund to pay the bills if you are unable to work.
Social Security disability benefits provide payments if you are unable to work due to a medical condition that is expected to last at least one year or result in death, and if you meet other requirements. But even if you’re approved, there is a five-month waiting period before benefits begin.
7. Life insurance
If you were to die tomorrow, could your family pay the bills? Do they even have the money to bury you?
Unless you have plenty of cash in your coffers, you need to at least consider whether you or your loved ones would benefit from life insurance. Even if you’re wealthy, you might want a policy to help your family pay off estate taxes.
If you have no dependents, however, you might not need life insurance. Money Talks News breaks down this exception in “Ask Stacy: Should I Drop My Life Insurance Policy?”
Getting life insurance traditionally has been a bit of a hassle, but apps are changing everything. Two of our partners, Policy Genius and Haven Life, can provide you with online quotes for term life insurance in just minutes — and a medical exam may not be required to get insured.
8. Retirement fund
Someday you’ll want to retire, and God help you if you plan to live off Social Security alone. It was never meant to be the sole source of retirement funds. So, make sure you have another source of income for your golden years.
Your first stop for retirement savings should be a 401(k) plan, if your employer provides a match of any kind. After that, look for a tax-sheltered plan such as an individual retirement account.
For more information, check out “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”
9. College savings account
If you’re childless and plan to keep it that way, you can take a pass on this must-have financial product. Almost everyone else should start planning for college costs now.
Even if you intend to have your children pay their own way, you never know what the future may hold, or how your views may evolve over time. It is best to put some money aside in savings now just in case.
Two common ways to get tax benefits for your kid’s college fund are 529 college savings plans and Coverdell Education Savings Accounts. However, you must use the money for educational purposes or you’ll get hit with a tax penalty.
If you aren’t confident you’ll actually be paying college expenses for your children, you may want to put money aside in an investment fund. Then, if they get a full-ride scholarship or burn out in the first semester, you’ll have a nice chunk of money invested for retirement.
10. Emergency savings
Every household should have an emergency fund — it’s your own personal form of insurance.
Typically, you’ll want your fund to be large enough to pay at least three to six months’ worth of expenses.
Would you add any tools to this list or remove any from it? Sound off in a comment below or on our Facebook page.
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