The Cheshire Cat famously told Alice that if she didn’t care where she ended up, it didn’t matter which way she headed. Think about this when you contemplate making a five-year financial plan. It’s not at the top of on anyone’s fun list, but the chances of achieving your goals increase when you figure out where you want to go and lay out a road map to get there. Here are some tips to get you started.
Priorities First
Setting goals is important, but goals alone are not enough. Anyone who has ever made New Year’s resolutions knows how quickly they can disappear when it comes time to change those destructive habits. That’s why you should invest time and effort into making a personal financial plan that you’re likely to stick to.
Five years is not the long-term future — it’s more like the immediate future — so identify the most important financial goals for you and your family right now. Miranda Marquit, money expert and founder of the blog Planting Money Seeds, emphasizes that setting priorities first is critical. “The first thing you should do is decide on your priorities,” she says. “Understand what matters most to you. Unless you know what’s important to you, it’s impossible to manage money in a way that will allow you to reach your goals.”
Evaluating the Gap
Create a very clear picture of the financial gap you hope to bridge in the next five years. Start with detailing where you are now in terms of income, debt and assets, including savings. Then project forward in each category and make note of the goals and priorities you’ve identified. This may require a reality check. If you have no savings now, setting a goal of $1 million in savings creates a gap too wide to cross in five years. Keep things realistic because the next phase is to set a path from one step to the next.
Road-Mapping Your Future
You’ll need a viable road map to create a practical 5-year financial plan. Figure out alternative savings and spending strategies that will lead you in the right direction. These often involve reallocating existing resources, such as cutting spending, or generating new resources, like getting a second job. “After you know what matters to you and what you want your money to accomplish, you can start figuring out what you need to do to get there,” Marquit says. “Making your 5-year plan should be about what you hope to accomplish, then breaking down your next moves, whether they involve finding a way to earn more money, investing, paying off debt or saving up for your goals.”
Implementing Your Plan
After you’ve selected your goals and identified the financial alternatives you must adopt to achieve them, you’re on your way. Break those five-year goals into five separate years, then divide the first year’s goals into 12 one-month segments. For example, if your five-year savings goal is $60,000 for a down payment on a house, that’s $12,000 the first year, or $1,000 a month. You’ll need to tuck away $250 a week to make that happen. Make daily and weekly goals that will help you get to the finish line the first month.
Don’t be thrown off when unforeseen obstacles arise, because they will. You may have to adjust your plan on a regular basis to work through unexpected issues that pop up.
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FAQs
Get more from your home wealth
With a solid 5-year financial plan, you can stay on track and meet your goals. Whether you'd like to pay off student loan debt, buy a car, or pay for a wedding, a well-designed plan paired with persistence and hard work can help you get there.
What is a good 5-year financial goal? ›
Get more from your home wealth
With a solid 5-year financial plan, you can stay on track and meet your goals. Whether you'd like to pay off student loan debt, buy a car, or pay for a wedding, a well-designed plan paired with persistence and hard work can help you get there.
What is the 50 30 20 rule in your financial plan? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
What is a 5 year plan template? ›
A five-year plan is a list of goals, either personal or professional, that you want to achieve within the next five years. It often includes ambitions with specific timelines and measurements.
What is a 5 year strategy? ›
What is a 5 Year Strategic Plan? A 5 Year Strategic Plan Template helps organizations to establish their long-term goals and objectives, and outlines the steps needed to achieve them over a five-year period.
How can I be financially free in 5 years? ›
- Set Life Goals.
- Make a Monthly Budget.
- Pay off Credit Cards in Full.
- Create Automatic Savings.
- Start Investing Now.
- Watch Your Credit Score.
- Negotiate for Goods and Services.
- Get Educated on Financial Issues.
Long-Term Financial Goals. The biggest long-term financial goal for most people is saving enough money to retire. The common rule of thumb is that you should save 10% to 15% of every paycheck in a tax-advantaged retirement account like a 401(k) or 403(b), if you have access to one, or a traditional IRA or Roth IRA.
What's a smart financial goal? ›
Image credit: Jernej F. on Flickr, CC BY 2.0. A better way to write financial goals is to use the SMART method. SMART stands for Specific, Measurable, Achievable, Realistic, and Time-bound. These are five criteria that can help you make your goals clear, realistic, and trackable.
What is an example of a 5 year goal? ›
It's the answer to that classic interview question: “Where do you see yourself in five years?” Here are some long-term career goals examples: Get promoted to a senior position at work. Pivot your career into a field you're passionate about. Develop your own career plan.
How do you manifest a 5 year plan? ›
SO HOW TO ACTUALLY MANIFEST THE '5-YEAR-PLAN'?
- Step 1 – Start thinking about feelings. ...
- Step 2 – Which actions will make you feel the way you dream? ...
- Step 3 – Baby steps. ...
- Step 4 – Check your progress over time.
In 1928 Stalin introduced an economic policy based on a cycle of Five-Year Plans. The First Five-Year Plan called for the collectivization of agriculture and the expansion of heavy industry, like fuel extraction, energy generation, and steel production.
How to live off $500 a month? ›
Consider options like sharing an apartment, renting a smaller space or living in areas with lower cost of living. For utilities, be conscious of your energy consumption to keep bills low. Use energy-efficient appliances, turn off lights when not in use and limit the use of heating and air conditioning.
How much savings should I have at 50? ›
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
How much should rent be of income? ›
Generally, experts recommend spending no more than 30% of monthly pre-tax income on housing. However, it's not always that simple. According to the U.S. Census Bureau, between 2017 and 2021, over 40% of renter households (19 million) spent more than 30% of their income on rent.
How do you make a projected balance sheet for 5 years? ›
To make a projected balance sheet:
- Gather financial data and forecasts.
- Estimate revenue, expenses, assets, and liabilities.
- Calculate equity.
- Organize data into the balance sheet format.
- Review and adjust for accuracy.
- Document assumptions and methodologies.
Becoming financially free in just 5 years
The math works out so that if you save 75% of your after-tax income, and earn about 8% a year on those savings for 5 years, you'd have enough to maintain that standard of living indefinitely by withdrawing a sustainable income of 4% a year from those savings.
How to create your own financial plan? ›
How to make a financial plan in 9 steps
- Set financial goals. A good financial plan is guided by your financial goals. ...
- Track your money. ...
- Budget for emergencies. ...
- Tackle high-interest debt. ...
- Plan for retirement. ...
- Optimize your tax planning. ...
- Invest to build your future goals. ...
- Grow your financial well-being.
