How to create a Five Year Financial Plan to get your life together

Have you ever thought where will you be in 5 years’ time? Having a house? Getting married? Having children? Setting up a business?

Most of the time, life manages to get in the way. And we may realise in the 5 years, we haven’t done anything productive or worth mentioning.

When we haven’t created a plan for the future, we will start living reactively instead of proactively.

So why do we need a five year financial plan?

A five year plan is a great way to focus on your goals and really figure out what you want with your life.

It is also long enough where you can make your goals big, and short enough to make your goals tangible and create actual results relatively quicker.

Thus, how do we create a five year financial plan?

First, ask yourself questions like what you want to do or to have, like:

1. What do you want to be doing?
2. Would you want to have children?
3. Will you want to upgrade your house?
4. Where would you want your money to be in 5 years’ time?
5. How much would you want to save up by then?
6. Do you still want to be working in your current job?

Once you have these questions, second is to make SMART goals.

Keep your goals specific, measurable, attainable, realistic and timely.

For example, if you are getting your house in 5 years’ time. You would need to save up for its renovation cost. If the renovation cost works out to be $50,000, means that you need to save $50,000 by 5 years’ time by setting aside $10,000 per year. Then ask yourself if this is reasonable and what actions must you take to achieve it.

Before you start working through your five year financial plan, you also need to ask yourself these important questions:

1. Do you have debt? How long more do you need to clear them?
2. How much are you saving every year? How can you reduce your expenses and increase your income?
3. Do you have emergency savings yet? If not, build up 3–6 months of expenses first.
4. Have you started saving for retirement? If so, how much do you set aside each month? If not, why haven’t you started?

To create a successful five year financial plan, it is important that you do not only set goals, but also create dedicated tasks that you can do each day or every week that will help you reach that goal.

For example, if you are earning $36,000 per year, and you want to save $10,000 per year for 5 years for your renovation cost, not only that, you will also want to save up for other goals like your wedding, your dream honeymoon, your children’s education etc. Is it reasonable if you only spend $18,000 per year?

Thus, it is also important to discuss your plans with someone to map out your financial goals. To see if it’s SMART. Because sometimes, we can only see the goals at our point of view without realising there are other ways to look at them.

Source: https://www.moneyparentsg.com/post/how-to-create-a-five-year-financial-plan-to-get-your-life-together