Think about your current financial situation. Now think about where you want to be in five years. You might hope to pay off some (or all) of your student loan debt, save up for a down payment on your first home, or contribute a certain amount to your retirement plan. Whatever your goals might be, it's important to put together a roadmap to reach them. Without a little planning, it's amazing how time can zip by with little to no change in your financial situation.
Here are some tips to help you create a five-year financial plan:
1. Write down your most pressing goals
Start by thinking about your financial priorities. What matters most to you now? What are your most important goals for the future? Write down the things you hope to accomplish, rank those items by importance, and include the possible timeframe for accomplishment.
You don't have to say that all your goals will be accomplished within five years, but you should have an idea of what specific actions you want to focus on during that time. Also, consider how longer-term goals fit into the plan. There's nothing wrong with acknowledging that, while you want to pay off debt in four years, it might take you 20 years to save enough money for a comfortable retirement.
2. Decide what to tackle first
After you have determined your goals and their respective timeframes, it's time to decide where to begin. When deciding how much money to put toward each of your goals, consider whether you want to devote your financial resources to achieve quick wins or if you should start saving toward goals that require a more significant financial commitment and increase your likelihood of staying on target in the long run.
3. Understand that you can work on multiple goals at once
You can save and pay off debt at the same time, but you do need to figure out which priority you want to focus on. Consider what strategy will produce the best results. For example, if you have high-interest debt, it might make sense to concentrate more of your resources there and put less toward savings. Also, estimate how you can shift your use of resources over time during your five-year plan.
4. Use a combination of tactics to reach your goals
Now that you have an idea of what you want to accomplish and the path you will chart to get there, it's time to add a strategy. Use a combination of tactics, like cutting back on purchases that don't matter, increasing your income, and investing to help reach your goals. Decreasing your spending is the easiest place to start, and you can put the money you save toward your goals. As you get your spending under control, you can add making more money (perhaps with a side gig), and investing to the mix.
5. Tweak as needed
Finally, realize that your five-year plan isn't chiseled in stone and you can tweak it as needed. If you find yourself accomplishing certain goals ahead of schedule, revisit the plan and reallocate your resources. The same is true if unexpected events require you to deviate from your approach. Be realistic, make changes as you progress, and think of your five-year plan as a living document designed to help you make best use of your income over time.
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