5 Financial New Year’s Resolutions for 2017

1. Pay off Consumer Debt

Credit cards can have interest rates well into the double digits. Paying off credit card debt is a great way to free up cash flow for the future. Credit card purchases are generally for short-term items that have no lasting value. Putting away your credit cards and learning to live within your means can go a long way towards financial independence. If you are prone to consumer debt, try consolidating your credits cards down to one and using cash for everyday purchases. (For related reading, see: 6 Major Credit Card Mistakes.)

2. Build an Emergency Reserve

Wage earners should have a minimum of 10% of their gross annual income in a long-term savings account. An additional 20% should be saved as an emergency reserve. The best place for your emergency reserve is within your 401(k) or other tax-sheltered accounts because the interest earned is tax deferred. Self-employed and retired individuals should build their cash and emergency reserves to an even greater level. As an additional test, the combined value of cash and emergency reserves should be at least 20% of your mortgage balance.

A home equity line of credit (HELOC) is a loan where a homeowner can borrow against the equity they have in their home. Unlike a conventional home equity loan where the borrower is advanced the entire lump sum up front, with a HELOC the borrower only draws on the line of credit if needed. A HELOC could be used to cover a variety of expenses including unforeseen outlays for home improvements or medical bills. Homeowners could consider getting a HELOC as a supplement to their cash/emergency reserves as an added security blanket. (For related reading, see: 3 Good Reasons to Tap a Home Equity Line of Credit.)

3. Purchase Long-Term Disability Insurance

For most workers, the ability to earn a living is their most significant financial resource. A disabling illness or injury stops income, often leads to additional medical costs and prevents savings for key goals such as education and retirement. Despite these facts, employees are more likely to have dental insurance than long-term disability insurance. The reason for this is most people associate disability with serious accidents. Since very few employees have high-risk jobs, the general inclination in the workforce is to say, “I don’t need it” when it comes to disability insurance.

In reality, this couldn’t be further from the truth as 90% of disability claims are due to illness, not injury. Even people who don’t have high-risk jobs are still at risk of disability from cancer, cardiovascular, muscular, or other illnesses. A disabling illness or injury can have a devastating effect on you and your family. You can purchase long-term disability insurance to protect you and your family’s financial security. (For related reading, see: Selecting the Right Mix of Insurance Benefits.)

4. Increase Retirement Savings

Most company retirement plans allow you to enroll in a plan where your contributions are automatically deducted from your paycheck and directly deposited into the retirement plan. The beauty of automatic deductions is that since you never see the money, it’s nearly impossible for you to spend it. The only problem with this out-of-sight, out-of-mind enrollment process is most people set up a standard contribution rate when they enroll in their plan and never think to increase it. Lots of employers now offer an automatic-increase plan where your contribution percentage will increase by 1% per year.

If your employer offers an automatic-increase plan be sure to enroll, if not then be sure to increase your contribution percentage manually each year. Consider investing in an individual retirement account (IRA) if your employer does not offer a retirement plan. (For related reading, see: How to Save More for Your Retirement.)

5. Create an Estate Plan

Approximately 55% of American adults do not have a will or other estate plan in place. The primary reason for this staggering statistic is twofold: one being that no one wants to think about their own demise, and the other more alarming reason is because many Americans are ill-informed about the benefits of an estate plan. The most common excuses I hear are: “I don’t have children so I don’t need an estate plan,” and “estate plans are only for wealthy families.”

Both of these statements couldn’t be further from the truth. Most people don’t know that one of the primary purposes of an estate plan is to give guidance while you are still living. Questions such as, whom do you want to make medical decisions on your behalf, or what are your wishes concerning life-prolonging procedures, are typically addressed in a comprehensive estate plan. Regardless of your wealth or family situation, an estate plan is beneficial for everyone involved. (For related reading, see: Getting Started on Your Estate Plan.)