As the quote goes “To fail to plan, is to plan to fail.” This is practical because nobody in the world plans to fail; the thing is many people fail to plan for their future. Be it family, social, career, health or finances. A well thought-out financial plan is vital to save you from disappointments, lack or misery that people face for lack of planning.
How does your 5 years ahead look like financially? Where do you desire to be and how do you intend to get there? Do you have goals or dreams for your future (both short-term and long-term)? If your answer is no, then months and years will come and go with no record of achievement, only regrets or wishful thinking. A financial plan acts as a road map to guide you to your intended destination. Here’s how to create a 5 year financial plan.
Tips on how to create a 5 year financial plan
Set specific goals
No one has the power to predict exactly how their future will unfold. This could be in terms of their health status, job/career or even bank balances in the next five years. However, the more specific you are in regards to your financial future the better the life you create for yourself and loved ones.
For instance, never say you want to have built a huge emergency fund in the next five years, that’s too vague. Instead state how huge you want it to be and the steps towards reaching that target. You want to be debt-free, write down a strategy to achieve that goal.
Set goals that are achievable
Your goals must be achievable. Don’t set goals too low or too high to achieve within 5 years. For instance saving up to $2 million sounds really good but can you achieve it based on your monthly income? Unless you earn $500k in a month, then that might not be workable in the next few years. Do your calculations on how much you can comfortably put aside as your savings. This will help you come up the a realistic amount to save within 5 years. It’s okay to sometimes stretch yourself but not to a point where you end up disappointed.
What to consider in your 5 year financial plan
A financial plan ought to be strictly personal, one that fits your financial circumstances. Never at any point copy your parent, friend, neighbour or sibling’s financial plan because it will surely fail.
The fundamental items should include;
- Your income – your income being the key factor, you must have the knowledge of how much you bring in at the end of every month and how much you want to be making in the next 5 years.
- Debt – If you owe or should you take up a loan, how much it is and how you plan to be debt-free in 3, 4 or 5 years
- Emergency fund- How much do you want to save for emergency in the next 5 years enough to sustain you, should you lose your business/job or fall sick.
- Retirement plan – On your road to retirement how much do you want to save/invest between now and next five years.
- Home ownership– How much do you intend to pay every month in terms of mortgage in order to fully own your first home within the next 5 or 10 years.
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