How to Create a Five Year Financial Plan that Really Works

People usually establish financial goals or strive to create a five year financial plan without even taking their financial commitments into consideration. That often leads to failure. Success in life is not related to finances or achieving wealth, but having financial security can certainly make daily life much easier. When it comes to creating a five year financial plan, it’s crucial to remain grounded in reality and construct a realistic plan.

Assess Your Finances

Unfortunately, many people are clueless about the current state of their finances. In fact, they think their financial state is much better than it actually is, not realizing the terrible state of their finances until it is too late. In order to stay one step ahead of the curve, you must make an objective assessment of your current financial state, which means considering more than your monthly expenses alone. The key to making an accurate financial assessment is being honest with yourself.

You need to look past your monthly income and expenses, focusing on the complete picture and gaining a true understanding of your financial status. All of your credit cards, mortgages, student loans, auto loans, and any other debts need to be factored in. Additionally, the performance of any investments you may have should also be considered to determine whether or not they are performing well enough to justify keeping.

Create Financial Goals

By assessing the current state of your finances, it now becomes much easier to establish realistic financial goals. You may not know where your life will take you in the next five years or where you will be working or living, but setting actionable and achievable financial goals can still be accomplished.

The most obvious step you can take to improve your financial situation is to reduce your debts, so this should be the primary goal of your five year financial plan. You should pay off any high interest credit card debt first. Then, you can focus on paying down your mortgage or paying off an auto loan if you have one. Student loans should be saved for last, because they typically have the lowest interest rates.

Regardless of the financial goals you set for yourself, you should write them down and keep them in a visible place. This will help reinforce your goals and inspire you to take positive steps each and every day.

Discuss Your Situation and Goals with a Financial Planner

Creating a five year financial plan can be an overwhelming experience, especially if you suffer from a large amount of debt and have substantial monthly expenses. A professional financial planner will be able to provide you with sound advice and create the proper financial plan to help you reach your financial goals.

Secure a Life Insurance Policy

Many people do not consider incorporating a life insurance policy into their financial plans, but this is essential, especially if you have the responsibility of being the sole income provider for your family. You should take this step seriously and choose a plan that can provide enough money to take care of the basic needs of your beneficiaries should you suffer an unexpected death. A life insurance policy is not meant to make beneficiaries wealthy. Rather, it is only intended to provide a financial cushion for a period of time.

Managing your finances can seem like a daunting task. The task can seem all the more challenging without a solid financial education. Financial books and finance blogs can provide valuable insight into proper financial planning and help you tremendously in creating a manageable five year financial plan. By educating yourself and following these tips, you will be well on your way to developing a financial plan that suits your individual situation.