13 Feb 12 Financial Products You Should Have
12 Financial Products You Should Have
Almost everyone uses some form of a financial product on a daily basis. Even if you are someone who is completely against the mainstream financial system; you are probably still required carry some form of insurance depending on the state.
If you’re like me, you don’t like to pay for things you don’t need. Sometimes I even loathe the thought of paying for insurance on a regular basis, as I often don’t need it. Fortunately I saw past the monthly premium (or just accepted the fact I live in a state that requires me to carry insurance) and continued to pay for it anyway. Just a few weeks ago I ended up totally my car in some bad weather. It was WELL worth the investment of paying for insurance up to that point. Had I not, I would be struggling to payoff my vehicle in full while finding another installment loan to get a new vehicle.
We compiled a list of 12 financial products everyone should have for various reasons to keep your bases covered. Not all of these products have a cost associated with them, but the ones that do will justify it down the road.
1. ATM/Debit Card
Statistically there are very few of you out there who don’t already have this product. The majority of Americans utilize this product on a daily basis and probably have several in your wallet. There are a few hold outs though who don’t already have one. If you are one of them, we recommend getting at least an ATM card for emergency purposes.
An ATM card exclusively, generally can’t make purchases but would allow you to withdraw cash from an ATM when you’re in a pinch. If security is your concern, you can always call and cancel it at a moments notice. Additionally, with most making institutions you are not liable for fraud on the card when it is lost or stolen.
2. Budgeting Tools
Although gaining popularity, I think a lot of people simply don’t understand the value in what a lot of sophisticated budgeting tools offer now. My personal favorite is Mint. Mint allows you to tie together almost all the financial products and accounts you may have into one spot. Outside of basic monitoring, you can also set budgets and goals for yourself that will automatically update with your accounts. You could even set a goal to payoff your installment loans and check it’s progress online regularly.
Some of these services even offer free credit monitoring and bill reminders to make sure you don’t miss anything important.
3. Emergency Fund
A recent study last year concluded that 63% of Americans don’t have enough in savings to cover a $500 expense. This is a problem for many people and it is something that you should make a priority. The lack of a saving account is a contributing factor that drives people to reactively take out online installment loans when an emergency comes up.
Come up with a number, no matter how small, and start setting it aside each month. You may want to consider a online savings account that helps fulfill the old “out of sight, out of mind” adage. Regardless of what you can start with, come up with a fixed number and start paying yourself first.
4. Investments/Retirement Fund
In addition to your emergency fund that helps you avoid short term loans, you should also think about your long term future. I’m going to venture a guess, that almost everyone would like to either quit working or seriously reduce the amount of time spent working as they get older. You may even wish to do so now…
If that describes you, start thinking about your future finances. Even if you don’t feel like your in a position to start investing, know that every little bit helps. Even if that means just setting up a 401k at work or creating a separate savings account, so you can invest in the future. The point is, get started now to have success later.
LOANS/LINES OF CREDIT
5. Installment Loan
While this may not directly seem like a necessary product, I am confidant that at some point on your credit history there is an installment loan. Whether it was for a home, car, or just small online loan; most of us have probably had one at some point.
An installment loan is a loan for any purpose that is for a fixed amount and paid back in monthly installments. The benefit making this a need on our list? It helps you establish or build your credit history. This type of loan is often times one of the first loans you get (sometimes with a co-signer) and it helps establish through regular monthly payment that you are a qualified borrower. There are many different companies that offer these loans and if you are looking for something in particular, you can always try here.
6. Everyday Credit Card
This is also a very common product and a great way to begin building credit. Credit cards can be a great addition to your ATM and debit card, especially if it get’s rewards. Most debit cards don’t offer rewards while it would be rare to find a credit card company that didn’t offer some form of rewards. We recommend (assuming you are a responsible user) utilizing an everyday credit card for normal purchases like groceries and gas to take advantage of the free rewards given back to you.
It is important to note that this only makes sense if you are paying the card off on a monthly basis to avoid paying any interest. Paying any interest on this card would definitely offset any benefit from the rewards points. Perhaps you can use your budgeting tool to make sure you don’t overspend.
8. Home Equity Line of Credit (HELOC)
You can probably already see the trend here. Naturally this is going to be the largest line of credit you have access to. It also has a different niche to fill. A HELOC is useful for those very large expenses that are also unwise to put on a credit card. This loan is attached to your home as collateral (hence the Home Equity part) and because of that keeps the rate low. Rates for this product are generally variable like on a credit card but start down around a home loan or even lower.
These are also useful for larger planned expenses, such as a home improvement project or a new car. Generally, you are only paying for this loan when you actually borrow from it. Although some do have an annual fee. This are great products to have available, even if it won’t be a regular use product. They are often recommended especially if you are going into retirement as people often experience a reduction in income. A HELOC can help fill in the gaps very affordably when needed.
9. Home or Renters Insurance
If you have a home, you should have insurance on it to protect your investment. If you have a home and you used a mortgage to acquire it, you will be required to carry it. If you are renting, you should or may also be required to carry it depending on your landlord. Insurance is necessary for more than just if your house burns down. Things break down and can occasionally create a huge mess. If you aren’t up to par on some of the other products mentioned earlier in this article, you are going to need some assistance in taking care of these. For instance, my sump pump went out a few years ago and caused my entire basement and home office to flood while I was out for the day. Not something you would expect, but the total cost (primarily covered by my insurance) was over ten thousand dollars. Let that sink in.
Renters insurance is just as important. While you may not own the home, you are more than likely to do something to it that may cause damage, even if by accident. More common, are pet related damages. Do yourself a favor and for a very affordable cost, get yourself covered to avoid issues when you eventually move out.
10. Auto Insurance
I already shared early on why auto insurance is necessary and usually required by law. Be smart and get it. Not only does it cover you when you slam into the back of someone else’s car (like I did), but it also covers if someone hit you and didn’t have insurance or the funds to pay. Point is, if you are driving at all or simply own a vehicle – get it covered.
11. GAP Insurance
What I didn’t cover earlier was GAP insurance. Another admission here: I didn’t get GAP insurance and I regretted it when my car was totaled. GAP insurance covers the difference between the amount your insurance covers in a total loss and the balance of your auto loan. But Riley, I pay on my loan every month, there shoudn’t be a difference. Wrong. Let me give you a quick example.
Let’s say you buy your car for $13,000 and take out a loan for that much. Two years later you get in a wreck and it’s totaled. The insurance company decides your car two years later is worth $9,000 which leaves you say $2,500 left on your installment loan (assuming you paid down about $1,500). Without GAP insurance, you now owe $2,500 dollars on a car you no longer have.
GAP can vary quite a bit depending on your area, but should generally be around $300-$600 dollars. Especially if you can only afford a longer term installment loan (which has you pay down the balance slower) it’s usually well worth it.
12. Life Insurance
While easily the most uncomfortable product to talk about, it is arguably the most important. Nobody wants to have to talk about the loss of someone close to us or even begin thinking about how things will go financially after such an event. After being in the banking world for over 5 years and helping people through this transition more than I would prefer; do yourself a favor and talk about it now.
This product is even more crucial if you have a spouse and/or children. Not only do you need to think about how the loss of income will affect them short term, think about how it will affect them over time. Will they have enough money to send the kids to college? How will they pay for the home? What quality of life will they have? All important questions that are better answered than forgotten. Life insurance is generally very affordable on a monthly basis as well and is well worth the investment.
Obviously we covered quite a bit there. We recommend before jumping into any financial product that you do your due diligence and get more informed. I hope that this article at least got the brain thinking about your complete financial picture and where you may have some gaps to fill.
This list is also meant to be holistic and not necessarily in any particular order or time line. While life insurance may be number twelve on the list, if you have a family it may be a bigger priority then say your retirement fund.
If you are a younger reader; do what you can when you can, as appropriate. Naturally, being younger you may not be at a place where you could even take advantage of all these products. Take your time and develop your finances in a way that suites you and at your own pace.
As always, seek professional financial advice from your financial adviser.