Your Life

Money focus: Do you have a five-year financial plan?

- November 8, 2021 4 MIN READ
Why you need a five-year plan

Each week we ask a question to help you focus on an area of your finances that might need a closer look. This week: Do you have a five-year financial plan?

Do you know roughly how much you’ll be worth in five years time? You should! Five years may seem like a time in the very distant future (are people using self-driving cars yet?), but those years will slide away much faster than you think.

If you don’t know what you’re money is doing in the next five years, you’re doing yourself a disservice. Only 40 per cent of Aussies have a 3-5- year financial plan and only 25 per cent have planned their finances beyond the next five years.

No wonder a third of all Australians find dealing with money stressful and overwhelming.

It doesn’t need to be that way! A solid five year financial plan can give you confidence, direction and peace of mind. Here are some of the benefits of having a five-year money plan:

1. A five-year financial plan helps clarify your values

What really matters to you? Often we can list the things that mean the most to us, but we actually spend our money quite differently.

Here’s a challenge: take a thorough look at your bank statements for the past year. What did you spend your money on the most? Does it align with how you truly want to live your life?

Hopefully you’re spending your money where it matters, but this exercise can be a real eye-opener.

A five-year plan can help you close the gap between your spending and your values.

More on this here: Knowing your values can help you manage your money

2. A five-year plan protects your lifestyle

Many people think that having a financial plan means they will have to ‘miss out on things’, but the opposite is actually true.

Knowing where you want to be in five-years time means you can put money into the things that really matter to you. Without some solid goals and a budget to back them, it’s way too easy to fritter away your money.

You end up spending on things that feel justified at the time, but you frankly wouldn’t miss if you’d just said no in the first place. We all have plenty of stuff sitting on shelves in the garage that testify to that.

With a good plan in place, you’ll know that you can afford the things you want. It takes away the guilt that is sometimes associated with spending. With a five-year financial plan in place, you know you’ve planned for it, so you can purchase it – guilt-free.

Choose your tool: Which budgeting methods are the right ones for you?

3. A five-year financial plan brings peace of mind

It’s no good burying your head in the sand and hoping the Universe will take care of the future. Not when you can take care of things yourself.

Without a five-year plan (and beyond), you’re not doing future-you any favours. If money is stressful now, it’s still going to be stressful in future.

Unless you take steps to secure that future, of course. Financial planning can bring you peace of mind now, in five-years, ten years and beyond.

Even if your retirement is decades away, the more you can stock away for it now means the less you’ll have to save later. That’s true of any kind of investing: go hard early.

This is why: Behold the mighty power of compounding

4. A five-year plan sets goals you can manage

A year isn’t long enough and 10 years feels too far away, but five years – well, we can manage that. The great news is that if you focus on the next five years, you’ll find that this year is taken care of and you’re probably on track for 10 years from now anyway.

You can set tangible goals using online calculators to project your future wealth. It can be reassuring to see that you’re on track. If you’re not, use the calculators to see what making adjustments to your current budget will do. The more money you can free up each week to invest, the better off you’ll be.

These calculators are all excellent:

Investing calculator – what happens over time when you make regular deposits at X per cent return?

Mortgage calculator – if you put $X extra onto your mortgage each week, how much sooner will you pay off your house?

Superannuation calculator – are you on track to fund your retirement? What does adding $X a month as a voluntary contribution do to your balance?

5. A plan increases your patience

“The person who is willing to delay gratification longer than most reduces competition and gains a decisive advantage. Patience is power.” – James Clear

Delayed gratification is basically your ability to resist the allure of an instant reward and hold out for a potentially greater reward in the future. That’s actually an incredibly hard thing to do (as so many of us know when faced with a our favourite store at sales time). However, having a five-year plan in place can make it considerably easier.

That’s because you know exactly what benefit you’re getting when you say no to something. Most of the time, that benefit will far outweigh whatever is tempting you in the moment. If it doesn’t, you can go ahead and indulge, knowing that it’s what’s best for you.

A five-year plan also helps with patience because you know exactly how long you have to wait to be rewarded. A good plan will have a major goal to achieve in five years, but it will also have mini-goals along the way to keep you motivated and achieving.

More on this: All we need is just a little patience 🎵 and Delayed gratification is a key to wealth

Resources to help you build your plan

Click through to find out more about deciding what’s important, setting your goals, building a strategy, making a plan and reaching your goals.

Find the rest of our Money Focus series here.