Being money smart is about more than having a budget and eliminating dumb purchases. It means creating a financial foundation that will carry your family comfortably through whatever life throws your way.
To create that foundation and find lasting financial security, you need these 10 products:
1. Checking account
Let’s start with the basics. 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.
2. Debit card
Along with your checking account, sign up for a debit card. Make sure it has a Visa or MasterCard logo and can be used like a credit card.
Having a debit card can eliminate the need to rack up debt for purchases, particularly purchases for which it is impossible to use cash or a check.
Although I know that some people are fans of credit cards, my personal experience has shown that the temptation to overspend when using credit negates a credit card’s benefits for many people. If you can’t bear the thought of giving up your credit card rewards, look for a bank that offers a debit card rewards program.
3. High-yield savings account
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. Since that can be a fairly significant amount of money, you don’t want the cash languishing in a typical savings account, where it will earn next to nothing.
Savings rates aren’t great right now, but if you park money in a high-yield savings account, it could generate around 1 percent interest.
4. Health insurance
Health care can come with an enormous price tag, especially if you develop a serious health condition.
You may think you’re healthy or young, 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. (Plus, unless Congress repeals Obamacare, the Affordable Care Act’s mandate sets financial penalties for anyone who fails to buy health insurance.)
5. Homeowners or renters insurance
If your home burns down, will you be left 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.
6. Auto insurance
Aside from your home, your car may be your most valuable asset.
While many states require you to carry at least a minimal level of coverage, you may want to consider getting additional car insurance coverage, depending on your assets and income.
7. 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 of time. The details may vary by insurer and policy, but most generally provide payments equal to 50 to 80 percent of your pre-disability earnings, according to legal site Nolo.
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. But even if you’re approved, there is a five-month waiting period before benefits begin.
To learn more about disability insurance, see “How Will You Live if You Can’t Work? Disability Insurance 101.”
8. Life insurance
If you were to drop dead tomorrow, could your family pay the bills? Do they even have the cash to bury you?
Again, unless you have plenty of cash in your coffers, you need life insurance. Even if you’re wealthy, you might want a policy to help your family pay off estate taxes.
Beyond that, life insurance can come with added bonuses that make it a smart buy. For example, some policies offer living benefits that let you tap into your death benefits if you’re terminally ill.
9. Retirement fund
Someday you’ll want to retire, and God help you if you plan just to live off Social Security. As of February, the average Social Security benefit was $1,249.55 per month — just under $15,000 per year, according to the Social Security Administration.
If that seems like a pathetically small amount, the SSA provides this explanation:
But Social Security was never meant to be the only source of income for people when they retire. Social Security replaces about 40 percent of an average wage earner’s income after retiring, and most financial advisers say retirees will need 70 percent or more of pre-retirement earnings to live comfortably.
So take a cue from the SSA and 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 information, see “Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple.”
10. College savings account
If you’re childless and plan to keep it that way, you get a pass on this final must-have financial product. Most everyone else should start planning for college 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.
The 529 college savings plans and Coverdell educational savings accounts are common ways to get tax advantages for your kid’s college fund. However, you must use the money for educational purposes or you’ll get hit with a tax penalty. (You can always transfer the money to another child if things don’t pan out for student No. 1.)
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 for retirement, or maybe a dream vacation to celebrate or de-stress.
Would you add or remove any products from this list? Sound off in a comment below or on our Facebook page.
This article was originally published on MoneyTalksNews.com as 'You Can’t Be Financially Secure Without These 10 Products'.