How To Create A Successful 5 Year Financial Plan

Personal Finance

3 Min Read

Woman holding up her hand showing the number five as in 5 year financial plan

Like every person on the planet, you have dreams you wish to pursue, a lifestyle you aspire to lead, and goals you want to conquer. You have vivid images in your mind of the life you envision for yourself. But how do you turn those images into reality?

Each person's path will be different as everyone is unique. But, a concrete plan of how you plan to fulfill your vision will be a key pillar to your success - and that plan must include your finances. Money impacts practically every aspect of life, so arranging your financial affairs in a way that aligns with your vision is crucial. 

Building a five-year financial plan is an excellent way to get started on your journey.

How Can a Five-Year Financial Plan Help You Achieve Your Financial Goals?

Think of a five-year financial plan as a road map: there's a destination and a series of steps outlined to help you reach it. A financial plan will act as a guide, helping you make wise financial decisions. It will allow you to assess whether you're making progress on your goals and inching closer to your desired lifestyle. Also, it will hold you accountable and impose a healthy dose of discipline when it comes to your spending habits and learning how to make a budget.

How to Build Your Five-Year Financial Plan in Five Easy Steps

Do you swell with anxiety every time you ponder reviewing your finances? Well, you don’t have to! Managing your money doesn't require knowing any complex math or the assistance of pricey financial advisors. By sticking to the following steps, you can craft a solid financial plan without straining your wallet or your brain.

Step 1: Define Your Goals

Knowing your goals is the first step. You need to clearly define what you wish to achieve at the end of the five years.

What would you like your net worth to be? Are you planning to buy a home? How much traveling do you foresee doing? What level of disposable income will you require to sustain your lifestyle? Do you want to eliminate your debt entirely or maybe just your student loans? These are all relevant questions you can ask yourself.

When setting your money goal, consider employing the SMART framework. Ensure they are specific, measurable, attainable, realistic, and timely.

Step 2: Assess Your Current Financial Situation

Now that you have your goals listed, it's time to take a peek at your current financial situation. Doing so will help you identify which areas you're doing well in and which ones could use some refinement.

Firstly, measure your income relative to your expenses. Are you earning enough to pay your bills and maintain a savings account adequately? Are you left with spare cash each month to splurge on your hobbies and passions? Could you get more lucrative deals on your everyday shopping, vacations, utilities, phone, internet, etc.?

Secondly, calculate your net worth, meaning the difference between your assets and liabilities. Do you own a diversified portfolio of investment products? If so, are your investments generating a respectable return, or does your asset mix need some strategic tweaking? How much debt do you carry, and what rate of interest do you pay? Is it worth consolidating your debt to secure a lower rate?

Step 3: Outline What You Need to Do to Reach Your Goals

The next step is to map out specific actions you'll need to undertake to accomplishes your goals. Some things you may want to consider are:

  • Establishing an emergency savings account
  • Starting an investment portfolio, or if you have one already, optimizing it
  • Paying off your most financially crippling debt
  • Creating a budget to better track your expenses and reign in excessive spending
  • Boosting your income with a side hustle or rental property
  • Setting savings targets for your retirement, vacation, down payment on a home, etc.

Step 4: Implement Your Plan

Now it's time for action! This step entails gathering all the tools and knowledge needed to execute your financial plan. It may include financial apps and software subscriptions, brokerage accounts, travel rewards credit cards, and maybe a brief consultation with an expert.

Step 5: Monitor Your Progress and Update Your Plan as Necessary

Tracking your progress to ensure you're heading in the right direction is essential. Are you adhering to your budget? Are your investments generating the returns you expected? Are you on track to hit your savings targets? If you're falling short in certain areas, it's time to investigate why and what you can do to get back on track.

Ensure your financial plan is always in sync with your current life trajectory, as well. A career promotion, marriage, the birth of a child, and other major life events or milestones may render your original plan obsolete - be prepared to revise it accordingly.

Final Thoughts

A solid financial plan can be the compass that helps you navigate toward your ideal lifestyle and take charge of your money.

Whether it’s the next month or the next 5 years, Monorail can give the financial framework you need to put your money where it matters.

See how Monorail can help you budget, save, and still buy those items on your wishlist.

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