How to Create a Five Year Financial Plan

Learning how to create a five year financial plan can really improve your money stuff in every way. It can seriously help you save money, make more money, and definitely get out of debt.

One of my favourite ways to get anything done is to create goals for long periods of time and work backward to figure out exactly how to make it happen.

That’s why a five year financial plan is an awesome option because you can figure out exactly where you want to be in 5 years for your finances and then work backward to get there.

Here’s how to create your own 5-year plan and take control of your future. 

How to Create a Five Year Financial Plan

When you think back to 5 years ago, where were you? I’m going to assume you’re pretty much a different person because we change so much in 5 years, especially if you’re in your 20s.

Take a few seconds right now to think about where you want your money to be in 5 years? What do you want to be doing? Would you love to take a mini-retirement?

Would you love to have your house paid off? Do you want to still be working your current job? Or would you prefer that your side hustle makes more than your 9-5?

There are so many places where a five-year financial plan can take you and it’s a really great exercise to get to your goals quicker. Let’s dig into all the reasons why you need one, and how to create one.

Why Only Five Years?

Personal finance is something that spans the entirety of your life, which can make is hard to figure out the big picture vs the small stuff.

I’m a huge fan of making plans for five-year periods because it’s long enough where you can have the goals be big, however, it’s also short enough that it’s tangible and you can create actual results relatively quickly.

With a lot of things in life, I follow the 12 Week Year method of goal setting and it works for 90% of situations.

However, personal finance is a longer game and needs way more time than 12 weeks, or even 12 months.

Another thing about 5 years is that it goes by a lot quicker than we think, so if you don’t make goals and plans for the next 5 years you may wake up one day in the same place you’re in right now which won’t feel the greatest.

If you try and only plan your finances for the next 12 months, you can’t make those huge, hard to reach goals actually attainable. Some examples include:

• Pay off Student Loans
• Get Out of Credit Card Debt
• Fully Fund 3-6 Month’s of Emergency Money
• Build a Credit Score Over 700

What is a 5-year plan?

A 5five-year plan is a written document (you can handwrite or have it in a word document, whatever you prefer) where you write down exactly where you want to be in 5 years (duh, what a bad explanation).

A five-year plan is a great way to focus on your goals and really figure out what you want with your life. A general 5-year plan can include all aspects of your life (i.e., money, health, friends, family, career, travel plans, etc.) but I think that individualized five year plans for each aspect work much better.

A five-year plan is going to help you to say yes to the things that will bring you closer to your goals, and say no to the things that will keep you further from your goals. It’s just a great way to track exactly where you’re going and see how far you’ve come.

So what can you think about in your 5-year financial plan? 

• paying off debt (credit cards, student loans, etc). 
• building a side hustle for extra money 
• saving for retirement 
• building up your savings 
• getting a promotion/raise 
• and so much more 

Why Have a 5-Year Plan?

Usually, we have an idea of where we want to be in five years time. However, most of the time life manages to get in the way! When we haven’t created a plan for the future, we start living reactively instead of proactively.

To really reach our goals it’s better to be making proactive plans that will get you there faster, instead of reacting to the crazy things that life throws at you day-to-day.

A 5-year plan will really help you to stay motivated about your goals and it’ll really focus you on what’s most important TO YOU. The best part about a 5-year plan is even if your goals completely change you can use it to see who you were 5 years ago!

Tips for Crafting Your Five Year Financial Plan

There are a few things you need to know before you actually learn how to create a five year financial plan. I love goal setting and planning so I’ve discovered a lot of the good and bad about goal setting and really want to make sure you create SMART goals that will get you through the tough times.

• Keep Your Goals Specific: You want to make sure your goals in your financial plan are specific and easily defined. There shouldn’t be any ambiguity to these goals. You want to make sure that if a 10 year old were to read your goal, she’d know exactly what you were talking about. I use 10 years old because I explain all my goals to my 10 year old baby sister and she helps me make sure they’re specific and understandable. 
• Keep Your Goals Measurable: You want to make sure you can actually measure how close to reaching this goal you are. For example, if you just say “have an emergency fund” that is not a measurable goal, however “have a $10,000 emergency fund” is. Having measurable goals is key to keeping yourself motivated and working toward the goal.
• Keep Your Goals Attainable: This section is how actually achievable your goals are. For example, what new attitudes, skills, etc would you need in order to reach these goals. Your goals should keep you excited, and be actually excited about reaching it, not disheartened if you’re not close.
• Keep Your Goals Realistic: Let’s be real, if you’re only making $25,000 a year, it’s probably not realistic for you to have a $25,000 emergency fund in 5 years because that would require you saving an entire year’s worth of income. You want to make sure your goals are actually attainable for you in your current situation, not in an environment that you’re not in.
• Keep Your Goals Timely: Having a target date for the goals you set is one of the best ways to keep yourself motivated to work hard and get the job done. This is one of the reasons why I love the 12 Week Year for non-financial goals because it keeps the time goal in sight at all times. Having all these goals be set for a 5 year period of time is a great start!

Finally, you have total control over how you write your plan. You can have it on paper, or on a computer. However, research has shown that people who physically write down their goals actually reach them more often. So, personally, I would suggest you write it down in some capacity.

How to Create a Five Year Financial Plan

There are a number of important questions that you need to ask yourself before start working through your five year financial plan. These include:

• Are you in debt? If yes, what is the total of your debts? How long will it take you to become completely debt free?
• How much money are you making each year? Are there ways you can increase this? Could you get a promotion? Change jobs? Or start a side hustle?
• Do you have emergency savings yet? If no, why not? If yes, how much? You should try to build up to 3-6 months of expenses.
• Have you started saving for retirement? If so, how much do you put away each month? If not, why haven’t you started?
•  

In order to create a successful five year financial plan, it’s important that you don’t only set goals. You need to also have dedicated tasks that you can do each day or week that will help you reach that goal. Here’s an example:

I want to pay off all my student loans. Okay, so this is an okay goal, however, it needs to be a little more specific and have the real numbers included. So, let’s change it up a bit.

I will pay off my $10,572 of student loans in the next 5 years. Now that you have the SMART goal set, it’s time to figure out the tasks you need to complete each month in order to reach this goal. So, you’ll need to pay off $2114.4 each year.

(these numbers don’t include interest, just for simplicity).

In order to save over $2,000 every year to pay off these loans you can work on making more money, or cutting expenses and spending less money. Here’s what I’d include in my action steps for this goal:

To pay off my $10,572 of student loans in the next five years I am going to start meal planning which means I will eat out less often, I will stop buying fast fashion products and start being more minimalistic, I will increase my income by at least $2,000 a year in order to pay it off before the five year time period ends, and I will sell things I don’t need in my closet in order to kickstart that goal.

You’ll want to do one of these kinds of statements for each section of your five year financial plan so you can have actionable steps to take that will get you there quicker.

My Five Year Financial Plan

I really like to teach by example and show you guys exactly what I do instead of just talking without ever proving that I do these things too! I wanted to share my personal five year financial plan so you could see an example of how easy this process can be.

At the time of writing this post I am 24 years old, I have a University degree in Business Administration, and my full-time job is this website. I’d say life is pretty great. However, I have serious goals for my future!

Since I’m only 6 months away from my 25th birthday, I’m going to write this as things I’d like to get done by 30 because I think that’s a great way to keep myself motivated over the next 5 1/2 years.

My financial goals for the next 5 years include:

• Paying off my student loans *should be done by the time I’m 25, woot woot!
• Have $30,000 in an emergency fund *this is especially important to me because I have a super irregular income and sometimes it can be scary not knowing how much I’ll get paid next month
• Purchase a 2 Bedroom Condo *either in my current city, or eventually move to Toronto which is the dream but condos are a million dollars there (literally)
• Have $25,000 in a retirement savings account *I write about personal finance and have no idea how to save for retirement, so like… I should start that soon.
• Make at least $15,000 a month from my various online income streams *last month (as of writing this) I made $3,000 from this blog alone, so I know that this goal is going to be SMASHED with more growth and time.If you want to start your own blog, enroll in this free blogging course which shows you everything you need. 
• Travel at least 3 months out of the year *My biggest dream in life is to see the world, so I’m making that happen at least 3 months a year

Now, I understand that some of these goals seem crazy for someone to reach by the time they’re 30. However, I write about personal finance every single day, I own my own business, and I’ve got big dreams. So I know I can make this happen.

So, what exactly do I need to do to make this happen over the next 5 years?

• Continue to work on my business to grow my income, because without income, most of these goals aren’t possible
• Quit spending money on fast fashion and trends because those products get thrown away within a few months every time
• Stop using my credit cards for things I can’t afford, however, I’m a huge fan of earning credit card rewards and cashback, so I do use credit cards for all of my recurring expenses
• Save 25% of my income so I can afford to travel and start building up a down payment for a condo someday
• Stop comparing myself to others because them having things doesn’t mean that they’re happy

Final Thoughts

I really hope this post was able to teach you how to create a five year financial plan and it opened your eyes to all the possibilities that are out there. Let me know in the comments what your new five year financial plan is focused on, I’m so curious!