Ray’s take: A typical job interview question is “Where do you see yourself in five years?” So should you be asking yourself this question in general? Is a five-year plan a must to your fiscal future?
You do need a comprehensive financial plan that includes your hopes and dreams in a realistic way – one that has short-term, mid-term and long-term goals. Be sure to revisit it every year to assess the progress you’re making toward your goals.
Having hard deadlines can be problematic because there are always things that are out of our control. But by keeping score with where you are financially, where the market is at any given time and where you are in your timeline, you can create a framework for things to generally happen closer to your goals.
During your annual review, be honest and hold yourself accountable to your set goals and make adjustments as needed. You shouldn’t need to totally scrap your plan, but you will need to make updates as you go along. Life sometimes dramatically changes your plans. Grieve them, then make new ones.
Everyone has important milestone activities or special purchases they want to make, and planning is the best way to work toward making those dreams a reality. Of course, retirement is the biggest and most long-term of those milestones, but there are also others along the way, such as buying a home, taking that 20-year anniversary trip, and college for the kids. Plug in your dreams and needs, and set some dates.
If you don’t know your destination, how will you know when you get there?
Dana’s take: Some people would rather have a tooth pulled than sit down and create a financial plan. That’s understandable. It can be pretty daunting to sit down, put everything down on paper, and then try to figure out a way to make it happen.
Once you do get everything written down – your hopes and dreams along with the must-haves – and compare those to your income, you might find yourself somewhat disappointed. Everything you aspire to do and have may not actually be within reach.
Don’t let the planning procress discourage you, because creating a financial plan is the best thing you can do for yourself. Yes it looks scary and impossible, but doing so will allow you to see the big picture. You’ll be able to take steps to cut down to a more palatable day-to-day budget. You will also have a map of how to make those dream purchases a reality.
It’s kind of like creating your own TripAdvisor map to the future.