For most American people, money management is a compulsory course. People may lose their ability to make money due to age, illness, mental problems or family reasons. A good money management plan will save people from a desperate situation. There is no perfect family financial plan, but a good plan will protect people from the regret of “living too long” or “dying too soon”.
As retired Americans, personal income consists of three major parts: social security, legal allocation to a personal account, a pension from governments, schools, or other institutes.
401K is a salary-based saving plan. If you work for a company, the employer usually pays a certain percentage of your salary to match your contribution to your 401K account. Let’s say, if you allocate 2% of your salary into a 401K account, your company will also compensate another 2% to that account. There is no law to force the company to pay for an employee’s 401k contribution. However, it is required that annual nondiscrimination testing plans are fair to all employees. Therefore, if your company has matched the 401k for other colleagues, that means you will get the “bonus” too. So, 401k is the most common saving plan for Americans. In case that you are working for a small company that does not provide 401K benefit, the employee can choose to open an “IRA” (Individual Retirement Account), which works similarly as 401K.
401k is not enough for the middle class. Different types of insurances will provide other channels for family financial arrangements, and some time can be the last line of defense for your family’s wealth. For the middle class whose annual income is between 50k dollars and 100k dollars, a proper insurance plan can be the basic risk control method and a perfect channel for stable wealth growth. Among all kinds of insurance products, car insurance, house insurance are necessary for most people because these types of insurance will cover your losses due to car accident, flood, hurricane or other force majeure unexpected, so after a disaster, you don’t need to start from scratch. In the USA, car insurance is compulsory by law, real estate insurance is quite reasonable and most companies provide very good medical insurance.
However, for people who earn 50k-100k each year, they have to think about an alternative hedge against inflation. First, they should consider catch-all medical insurance which can fully cover dental care and visual health. After that, one can look into permanent life insurance. For permanent life insurance, the pools of capital are usually several millions of billions of dollars large, which guarantees the security of your investment and at the same time, it helps to waive the capital gains tax and inherit tax while providing enough flexibility. Theoretically, permanent life insurance is a good money management solution for most high-income classes in America. However, there is still a risk because the quality of company and personnel managing the insurance, are quite different.
While talking about investment and money management, the stock is an inevitable topic. If you are a rational investor, and you believe in math and statistics, you will not step into the stock market. If you believe you are Warren Buffet, then you can make a try, but never throw all the money you have into the stock market because even Buffet himself, not only purchase stocks but also buy some blue-chip companies as a whole, to mitigate risk.