Having a healthy financial life means that you manage money wisely in the present and are also prepared for the future.
Our goal should be to create a rock solid financial foundation, so we’re comfortable and less stressed when something unexpected happens, like losing a job or business income, getting sick, or losing someone you love.
There are many different types of products designed to help you manage your personal finances. In this article I’ll review 10 products that everyone needs in order to create financial security, make more money, and manage your money the best way possible.
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10 Products to Make Money and Create Financial Security
Make sure you use these products to create a strong financial foundation for you and your family:
1. Checking account
While having a checking account might seem basic, according to the FDIC, almost 8% of American households don’t have one. That’s close to 10 million households that are “unbanked.”
People who don’t use a checking account tend to keep and carry large amounts of cash, which isn’t safe. If your cash is stolen or destroyed in a natural disaster, you can’t get it back.
Everyone needs a checking account with a bank or credit union to manage income and expenses. It’s really difficult to create and stick to a spending plan if you don’t have a centralized place to monitor your cash flow.
You can link up your checking account to money management software or apps like Quicken, Mint, or Personal Capital and manage your money from there. Having your everyday transactions online gives you an easy way to track them. Otherwise, you’re stuck with a manual system that can be difficult and time-consuming.
Additionally, a paper or online bank statement gives you a permanent record of your deposits and payments. Having proof of payment allows you to take advantage of tax deductions more easily, such as medical expenses, charitable donations, job hunting, moving, and unreimbursed business expenses.
Using a checking account is incredibly convenient and most are free. The best accounts—such as the 360 Checking from Capital One—pay interest and offer a wide variety of free online and mobile services such as:
direct deposit
online bill pay
debit cards
automatic teller machines (ATMs)
overdraft protection
unlimited transactions
Free Resource: Online Bank Comparison Chart (PDF download)
2. High-yield savings account
While checking accounts come with unlimited transactions, that’s not the case with a savings account. You can make as many deposits as you like into a savings account, but you’re typically limited to 6 withdrawals per month.
A savings account is the best place for your emergency fund, which is a financial safety net that everyone should have.
The benefit of a high-yield savings account is that they pay more interest than a checking account. So it’s the perfect place to save money for your short term goals like holiday spending, taking a vacation, or buying a car. You can even have multiple savings accounts for different purposes.
A savings account is also the best place for your emergency fund, which is a financial safety net that everyone should have. Think about your emergency money as insurance against life’s unexpected expenses, such as a big car repair bill, a last-minute plane ticket, or being suddenly out of work.
Figure out how much you spend each month on necessities and bills, then multiply that amount by 3 months. That’s the minimum amount you need to keep on hand and never touch--except in the case of a dire emergency.
Keeping your emergency funds in savings separates it from the rest of your money and earns more interest than you could with a checking account. While it can be tempting to invest your emergency money for higher returns, don’t do it. Keep that bucket of money completely safe from risk so the full amount is there when you need it.
You can open up a savings account at the same company where you have a checking account, or use a different institution. Some great high-yield choices include Discover Savings, American Express Personal Savings, and 360 Savings.
See also: Your Emergency Fund: 5 Tips to Build a Financial Safety Net
3. Safe deposit box
While we’re on the topic of banks, most people also need a safe deposit box at a local branch. The annual fee to rent one varies depending on the size of the box, but could be as little as $50 a year. You might get a lower rate if you also have a checking or savings account with the institution, but that’s not required.
Safe deposit boxes keep your personal documents, legal papers, and family heirlooms safe. It’s ideal for valuables that you don’t need to access regularly or wouldn’t need in an emergency.
Safe deposit boxes keep your personal documents, legal papers, and family heirlooms safe. It’s ideal for valuables that you don’t need to access regularly or wouldn’t need in an emergency.
Remember that you only have access to a safe deposit box when the bank is open. Most have limited weekend hours and are closed on Sundays and holidays. So keep copies, but not the originals, of important documents—like like powers of attorney, medical directives, trusts, and wills—in your safe deposit box.
The contents of your safe deposit box are not insured by the bank. FDIC insurance only protects money in your bank accounts up to certain limits. So make sure valuables you leave at the bank, such as jewelry or collectibles, are covered on your homeowners or renters insurance policy.
Anything you put in a safe deposit box that could be damaged by water, like photos, papers, or a stamp collection, should be sealed in a water-safe bag or box before you lock them up.
The only people who can open a safe deposit box are the owners. If you’re the sole owner and die, it could be weeks or months before an executor of your estate could be approved to open it. So let key family members or heirs know about your safe deposit box and include their names on it if you believe they can be trusted.
See also: 6 Essential Habits of Financially Healthy People
4. Retirement account
In addition to having the right banking products, everyone should use a retirement account to invest money on a regular basis for retirement. Even if you want to work up until the day you die, you may not be physically or mentally healthy enough to do it.
Social Security retirement benefits can help pay your bills, but the average payout is just a little over a $1,000 per month. To be comfortable you’ll need your own investments to fund retirement, which could last for decades after you stop working.
The most efficient way to invest for the future is to use a retirement account. They give you tax benefits that save money and allow you to accumulate as much as possible.
The most popular retirement accounts are offered by employers, such as a 401k, 403b, or 457 plan. Many companies include matching benefits, which pays additional contributions when you invest your own money.
If you don’t have a job that offers a retirement plan or are self-employed, just about everyone qualifies for an IRA or Individual Retirement Arrangement. And if you work for yourself, take advantage retirement accounts for the self-employed, such as an IRA, SEP-IRA, or Solo 401k.
Here are some great places to open up different types of retirement accounts or roll over funds from a previous employer's plan:
Betterment
Motif
FutureAdvisor
Scottrade
Just be sure that you won’t need the money before the official retirement age of 59½. Taking early withdrawals typically comes with a 10% penalty in addition to income tax on any amounts that weren’t previous taxed.
Free Resource: Retirement Account Comparison Chart (PDF download)
5. Brokerage account
I hope that you’ll max out one or more retirement accounts every year and still have much more to invest. Once that happens, open up and contribute to a regular investing or brokerage account.
You don’t get the tax benefits of the retirement accounts that I just mentioned, but you can contribute an unlimited amount each year and withdraw money at any time without penalty. Check out brokerage accounts at sites like: Betterment, FutureAdvisor, Scottrade, Fidelity, and Vanguard.
6. Health insurance
Now let’s talk about how different types of insurance products help you create an enormous amount of financial security.
Choosing a high-deductible health plan reduces your annual premium and also makes you eligible for a money-saving health savings account.
Even if you’re young and healthy, everyone needs health insurance. Even a short trip to the emergency room for an illness or a broken bone could leave you with a huge medical bill. Being uninsured and having a serious health condition could be financially devastating.
That’s why Obamacare requires most Americans to buy health insurance, no matter if you want it or not. You’ll be charged a penalty for any time during the year that you remain uninsured for more than 60 days.
Depending on your income and family size, you may be eligible for government assistance to reduce the cost of health insurance. You can learn more at Healthcare.gov.
Choosing a high-deductible health plan reduces your annual premium and also makes you eligible for a money-saving health savings account.
See also: How to Save Money on Healthcare with an HSA
7. Auto insurance
Just like health insurance is required, most states require you to have at least a minimal amount of auto insurance. However, depending on your income and net worth, it’s likely that you should have more than just the bare minimum.
Auto insurance is a collection of policies that protect you against financial loss in 3 major ways:
Property coverage pays for damage to your car. A comprehensive portion pays for damage that wasn’t the result of an accident, like for vandalism, storm damage, or theft. And there’s a collision portion that covers damage that was the result of an accident.
Liability coverage pays for your legal obligations to others for damaging their property or harming them in an accident.
Medical coverage pays for the cost of treating accident injuries, and sometimes for lost wages and funeral expenses.
You should have enough liability insurance to cover the total value of your all assets—such as your home, vehicles, savings accounts, and non-retirement investments—if you injured someone in a car accident were involved in a lawsuit.
See also: What You Should Know About Credit-Based Insurance Scores
8. Home or renters insurance
If you’re a renter, you need renters insurance because your landlord isn’t responsible for your personal possessions in the event of a theft or natural disaster.
Unlike health and auto insurance, you’re not legally required to purchase home or renters insurance. However, if you have a mortgage, the lender requires you to have a home policy to protect their financial interest in the property.
Basic home insurance pays for claims when a natural disaster, such as a fire, tornado, or hail storm, damages your property. Your possessions, like furnishings, clothes, and jewelry, are generally covered up to certain limits.
There’s also a liability portion that covers you if someone gets hurt while they’re on your property. Plus, home insurance pays “additional living expenses,” such as a hotel and meals if you can’t stay in your home during repairs from a covered loss.
If you’re a renter, you need renters insurance because your landlord isn’t responsible for your personal possessions in the event of a theft or natural disaster. It also gives you liability coverage and additional living expenses if you have to move out while covered repairs are made.
A typical renters policy costs much less than you might think, just $185 per year on average across the U.S.
See also: Your Guide to Renters Insurance
9. Disability insurance
Did you know that you’re more likely to suffer a disability than you are to die before the age of 65? And when a long-term disability occurs, the average absence from work is 2½ years.
Disability insurance is never required, but is a wise policy to own. It pays a percentage of your gross income, such as 60% or 70%, if you can’t work due to a disability, illness, or accident.
Remember that health insurance only addresses your medical bills; it doesn’t pay your living expenses, like housing or food, if you can’t earn money for an extended period of time.
That could cause a major financial strain for you or family members who depend on your income. Social Security is only available after you’ve been out of work for a year and are completely disabled. Worker’s compensation insurance is only for work-related injuries.
If you don’t have the option to purchase a disability policy at work (or if you do but it’s not sufficient), purchase a private policy for yourself and have enough emergency money set aside to tide you over until coverage begins.
10. Life insurance
The final insurance product you need for financial security is life insurance. You’ll actually never get to enjoy it because the payout goes to your beneficiaries after you die.
Life insurance is critical when your death would create a financial hardship for those you leave behind, such as a spouse or children. If you’re single, or no one depends on your income, you either need a very small policy for your funeral expenses or none at all.
If you have a stay-at-home spouse who cares for your children, you also need a policy on his or her life to cover future child care costs.
There are two basic kinds of life insurance—term and permanent:
Term life insurance provides a benefit upon the death of the policy owner for a set period of time such as 10 or 20 years. I prefer term insurance because it’s inexpensive and gives you the most benefit for the dollar.
Permanent life insurance includes a variety of products such as whole life, universal life, and variable life. I won’t get into the details on each of those, but they provide a death benefit and an investment all wrapped up in one. They’re also called permanent life policies because you get lifetime coverage.
A basic rule of thumb is to purchase a policy that’s at least 10 times your income. So if you make $50,000, you might need a policy that would pay your beneficiary $500,000. You can get free quotes
But factors like the number of children you have, education expenses, mortgage payments, and the lifetime income needs of a surviving partner or spouse should come into play. If you have life insurance though work, but it isn’t enough, you can always buy additional policies to make sure your family is fully protected.
See also: 5 Facts To Know About Term Life Insurance
It’s not pleasant to think about what bad things could happen, and maybe that’s why so many people are underinsured. But managing different types of risk is easy, in a financial sense, because most of them can be passed on to a third party, like a health or life insurance company.
Having the right bank, retirement, and investing accounts, plus enough of the right kinds of insurance, is essential. These products allow you to monitor your money, accumulate wealth for the future, and protect yourself and those you love from something unexpected jeopardizing your financial security and happiness.
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