5 Resolutions for Financial Health in 2017: Patch Money

Getting your finances in order in 2017 may be far less exciting than planning a trip to Tahiti. But if you want to be able to afford that fancy vacation — and guarantee you still have funds when you get back — you’d be wise to consider it.

Whether you want to be ensure your family is secure in the future, buy a new house or build a nest egg, here are five smart money moves you can make in the new year to set yourself up for success.

1. Buy a life insurance policy

Owning life insurance isn’t really about you — it's about your loved ones. If there are people in your life who depend on you financially, whether it be a spouse, kids or extended family members, a life insurance policy will ensure they’re taken care of if the worst were to happen to you.

The logistical hurdles to buying a policy stop most people before they start: things like seeing a doctor, finding the money in your budget and choosing how big a policy you should buy. But just take a minute to remember why you’re doing it before you get discouraged. Shop around and see what options are available and affordable for you. For the long-run security, it’s worth it, and it might be cheaper than you think.

Many insurance companies make it easy for you to estimate how much your ideal policy will cost. And a quality term life insurance plan may be a lot more affordable than you think.

2. Balance your budget

It’s a daunting thought, but actually writing down your monthly expenses and earnings can add so much value to your life. Why? By putting your finances into perspective, you can better match your means to what you really want out of life, whether it be traveling more, buying a new car or going back to school.

If you don’t want to do it old school, download a smartphone budgeting app, like Mint. With tools like these, you can automatically collect your bank account and credit card data in one place. You’ll also get an immediate sense of your spending habits on a day-to-day basis with alerts and goal-setting features.

3. Pay off your credit cards – completely

Once your necessary expenses are covered, prioritize paying down any high- interest debts you have. For most people, these are credit card and consumer debts — money you’ve borrowed to refurnish the living room last year and buy your new iPhone.

Unlike a mortgage or some forms of student debt, the interest you pay on consumer debt is not tax deductible, and the rates can be exorbitant. Letting this debt continue to accrue is essentially levying a tax on your own future wages, especially if interest rates rise.

Negotiate with your creditors to bring the interest rate on your debts down. If you have an adjustable-rate mortgage, talk to your bank and figure out how you can lock in a low rate. Once you have lowered your interest rates as much as possible, use a debt payment calculator to create a plan for eliminating your obligations ahead of schedule.

4. Save a set amount each month

No matter your money situation, Jan. 1 is a great time to think about where you want to be 10 years from now in terms of savings. Experts recommend setting aside enough money to cover three to six months of your expenses in savings in case of an emergency such as an unexpected job loss. If that level of savings seems entirely out of reach, don’t panic.

Start by building up a smaller cushion of cash, between $400 to $500, to protect you from an unexpected payment, like a broken fuel line in your car or minor medical surgery. If even that sounds like a lot of money to squirrel a way, try saving just $10 or $20 a month each month — and slowly increase this amount when you’re able to. After a full year, you’ll be in the habit of saving and have a small pot of money to rely on in an emergency.

David Bach, a writer on finance, coined the phrase “the latte factor,” which refers to the large impact seemingly trivial everyday expenses can have. For instance if you frequently buy a $4 latte, you might not think much of it — but if you were to save $4 a day, you’d soon be sitting on a hefty chunk of change.

Check out services like Digit, which covertly coax you into saving money.

5. Invest what's left

So you’ve paid down all your high-interest debts, accumulated a healthy amount in savings and purchased a decent life insurance plan for your family’s benefit — now what?

It’s not particularly exciting, but unless finance is your life, your investments should be boring and safe. If your employer offers a tax-advantaged retirement savings vehicle, like a 401(k), start by maxing out your employer’s matching contribution to take full advantage.

Considering playing the stock market or investing in an actively managed mutual fund? Even if you’re a seasoned stock-picker, or you invest in a mutual fund run by a great stock picker, there’s still potential that you could lose money. The safest bet is to invest in a diversified index fund that will grow your investment with the stock market over the long term for a low fee.

Photo credit: Keith Cooper via Flickr