What Is Your 5 Year Financial Plan?
Have you put much thought into where you want to be (financially) in five years time? I would assume that most people tend to live for the here and now (pretty general assumption I know) but it rings true when we see the amount of consumer debt and lack of take up for financial planning in Australia.
John Lennon had a wonderful quote when he said:
“Life is what happens to you while you’re busy making other plans”.
So with this quote in mind, let’s have a look at what a 5 year plan could potentially look like.
You only have a limited time to make money
Every time I am watching the news, some NRL or Rugby Union player is defecting from their team to go and play overseas. Why do they do this and what does it have to do with a financial plan? The answer is simple.
You only have a finite period of time to make money in life. No different in rugby. Except when you are a rugby player, you have until about the age of 30 to make your fortune.
This means that everyday closer you get to the age of retirement, you have one less day to earn money to support both yourself and your loved ones into the future.
Your plan should use this as the basis for accumulating wealth as it really frames it well – you only live once and there is no second chances when it comes to how much money you have to retire with. Though remember John Lennons quote above when doing this, you don’t want to only plan for the future and not live for the now.
Every dollar you waste, is irretrievable
Further from the point above, if you only have a limited time to earn money – every dollar you spend is $1 off your lump sum you will earn in your life. Yes spending is necessary, but it might make you think twice about buying your 3 cafe quality coffees a day for $10.
A financial plan is about growth
A good 5 year financial plan needs to have the idea of growth heavily embedded. If you are young, you want more money. If you are older, you still want more money but probably less able to risk how it is you go about making those returns.
Set a clear goal of how much you want to grow your wealth within 5 years. This will be your driving force.
An even better financial plan is about growth and defending wealth
There is no point having the right mindset, growing your money and then wasting it or risking it too heavily. You want to defend your money, which means diversifying where you invest, save and spend.
Yes you can own some shares, but consider some cash savings, extra super contributions and more. You want your money protected from one foul swoop on any given industry or sector.
Without a plan, your finances will fail
Set really clear goals on where you want your finances to be in 5 years. Aim to maximise your earnings, minimise your wastage, find ways to grow what money you do have and then ensure you defend it to stop your hard work going to waste.
A plan can be as simple as 5 written goals on a piece of paper on the fridge. It could also be a contract you write up and sign to help hold yourself to it.
You should start a plan right away, it will atleast get you thinking about your 5 year goals and financials at the end of that period.
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