After reading Psych Yourself Rich by Farnoosh Torabi, I realized that I’ve gotten my finances under control through budgeting and have created some goals for the immediate future. However, what I haven’t done and need to do, is set slightly longer-term goals. Torabi’s advice is to create a 5-year plan; a plan that is not too far in the future where the goals becomes more similar to hopes and dreams, yet not too short term either. The purpose of setting goals is to continue to motivate yourself and shape the life you want to live, which I am constantly working towards.
I want to create a realistic, (this isn’t a get rich quick scheme!) yet not too convoluted 5-year plan with the focus on saving for retirement and a possible career change. Visualization strategies work well here:
- Increase my retirement savings to 15%. This is a must over the next 5-years. I’m starting late and need to become aggressive as my salary increases.
- Increase my salary by 30%. At a reasonable 6% increase a year, this should be a realistic goal. Prior to this past year, my salary increase was averaging about 5-6% annually. With some possible streams of revenue increasing over the next 5-years, this should be possible.
- Where do I see myself physically in 5 years? I don’t see myself living in the same city, so this means a change of location. I’ve been researching some cities north of where I live and comparing the cost of living to where I live now. I need to visit these cities before making any real decisions, but online research can help narrow down the list. Moving Savings Goal: $5,000.
- Will my family structure change in 5-years? I’m already married, but we don’t have children yet. The clock is ticking and this might mean we need to lean towards options other than the “natural way.” Children Savings Goal: $7,000 – $25,000 (dependent on biology!)
- Is there a possible career change imminent? Perhaps. I’m working on some current changes and project ideas. I like having the option of mobility and working from home, but I know that some of my pending projects will cost money to get off the ground. Project Savings Goal: $3,000.
- Potential house purchase. Originally, I thought I’d be purchasing a house sooner than later. However, with a few changes heading my way, I need the flexibility of a lease right now. House Savings Goal: $30,000.
If I add up all of my savings goals over the next 5-years, about $48,000, it sounds daunting. BUT, because this is a 5-year plan (or 60 months) that amount breaks down to only $800 a month (not including my retirement savings.) Looking at it this way, it’s not nearly as scary. Is this a realistic goal? Perhaps. The $800 a month isn’t possible for me right now. Instead, I’ve set my sights on saving $550 a month (or 10.5% of my income) including retirement savings. I could reevaluate having kids (honestly, I’m currently not dying to have them – But will I regret NOT having them in the future?) and the house purchase could be put off a few extra years; extending or rethinking these two goals would save me a HUGE chunk of money (or $40,000 to be exact). I also didn’t add in saving for an emergency fund or short term savings because I’m currently working towards them now.
The nice thing about a 5-year plan is it is possible to visualize. It’s hard to visualize 20 years from now (and I don’t really want to anyway!), but doing so in small chunks is more realistic and the chances of success increase.
Have you set goals within specific time frames? Do you think prioritizing goals in 5-year increments makes more sense than 1, 10, or 20?
11 Comments
Little House – It looks like you have some major savings you are looking to attain.
My advice is this: Do not stress yourself out over saving this money. Saving is great, but when it makes you alter major decisions just to meet a number, it may not be a good idea. I use savings goals as exactly that, goals. Sometimes I meet them, sometimes I don’t. Life happens!
It is great you have a 5 year plan. But just make sure you keep flexibility in your plan and that it doesn’t rule your life. You don’t seem to be one that spends on frivolously things, so as long as you stick to your spending rules, the savings should happen automatically.
That is my 2 cents…
.-= Everyday Tips´s last blog ..What is Either The Worst Tip Restaurant-Bar You Ever Gave Or Received =-.
@Everyday Tips – Thanks for that 2-cents! I’m usually pretty good about not being too terribly rigid with my goals, surprises seem to always pop up ;). And, yes! My savings goals are pretty lofty, but it really just depends on what happens with kids and a house…the whole if/when/maybe approach.
Second YMoLY if you haven’t already read it!
We don’t have a 5 year plan. We have a pre-tenure plan with options for what to do in the future. We’ll see what happens. In the mean time we’re living comfortably and saving up so we can be more flexible.
.-= Nicole´s last blog ..The whether or not to follow your dreams post =-.
@Nicole – I like the idea of having options, no 5-year plan will go as, well, …planned! I’m okay with a little side-tracking if it comes up, but my main focus right now is saving a good portion of my income. That way I’ll have more flexibility in the future.
We have long-term goals and a few of them are about 5 years off. Our cars are both going to be getting older in 5 years (Mine will be 11 and his will be 8-9), so we’ll need about $35,000 in cash to buy two new-to-us cars sometime around then or maybe even sooner if my crappy Chevy Aveo gives out on me. We’re currently putting aside $500 for this every month.
Our house should be paid off within the nxt 5-6 years. We’re currently paying $900 on a $740 mortgage which puts us on target for 7-8 more years, but we’ll be throwing way more at it starting next year.
No plans yet for kids or moving in the next 5 years (thankfully). I cannot fathom having a kid yet and I HATE MOVING.
I do plan on blogging full time in the next 2 years. 5 years from now, I am hoping that blogging alone will be bringing it at least $40,000 a year. That sounds impossible to me right now, but based on how much my income has increased in 7 months, I think it’s attainable.
Thanks for making me put this in writing. It keeps me honest, lol.
@Budgeting in the Fun Stuff – I think it’s great that you will be able to blog full-time in the next couple of years. That’s actually not part of my plan, but if it happened, I’d be just fine with it! I like staying accountable too, which is why I listed my five-year plan in a post. I actually had to think about what I wanted and where I see myself at that point (wrinkles and all!) Retirement planning is really the most important to me at this point and everything else is just icing.
@Rebecca – Wow, that’s really impressive! I will have to check out that book. I completely agree that it really is how much you save and not earn. I look forward to not having to worry about money!
Gotta tell you, it’s kind of hard to figure out what my timelines should be.
I guess they would go as 5 year, 10 year and beyond (let’s say, age 65 when I retire, or it might be earlier). LOL! 🙂
5 year is to get settled into a city and have kids. 10 year is to raise them and pay for them, and then I retire at 55 or whenever.
I like to plan loosely but I don’t like to set anything in stone because I want to be open to possibilities.
.-= FB @ FabulouslyBroke.com´s last blog ..The Other Side of Freelancing =-.
@FB – The nice thing about goals is that you can always alter them to make room for unexpected events! It’s hard to say what will happen in 10 years or more, but 5 seems a little more tangible. I think your goal to retire by 55 is a great one, though!
@Lola – Thanks for your comment. It took me a while to become financially savvy and based on other blogs, it appears that I’m a little behind. But I think that during my early and mid-20’s there just wasn’t the kind of information available about personal finance that there is today, thanks to the internet and blogging!
I’ve never thought of doing this – It’s a great idea. I think that I’ll have to settle down and start thinking about my 5 year plan.