Just over 5 years ago, my wife and I decide to double down and become debt free. This wasn’t a quick decision. We knew that doing this would mean sacrifice, and hard work. To keep ourselves on track we knew we needed to come up with a 5 year plan.
At that point we sat down and made a long list of the things we wanted to be, wanted to do, and wanted to have. When we started to organize our thoughts getting out of debt, all debt including mortgage once and for all made the most sense.
It didn’t seem possible. At the time we just had our new mortgage and debts of over $340,000. We got a lot of objections, strange looks and questions like:
“What will you do for fun?”
“I could never do that. Why bother, just enjoy the “now” (FYI: YOLO wasn’t a common term yet)”
“Just pay it off over 25 years like everyone else does. Don’t worry about it”
Fast Forward to Today:
We are completely debt free, mortgage and everything.
Right now we aren’t looking nearly as crazy as we did 5 years ago.
Don’t get me wrong, many days it felt like we were crazy. Watching friends go on holidays, while we did trips to the library were of little comfort starting out.
Bottom line our 5 year plan worked.
Not only did it work it changed our lives. We are living in a completely different reality than what we lived in before, and we owe it all to this plan.
Now we find ourselves with a new problem.
Where do we go from here?
It’s time for a new plan! We love this 4 step process, and I’m thrilled to get to share it here:
Before You Begin to Make Your Five Year Plan
Schedule it and make it a priority to do this with your significant other.
Sit down with your key stakeholders (i.e. spouse and other family members if necessary). Have pens and paper (or computers) ready to mark everything down.
Decide on the time frame. Usually we will do a 5 year plan, and then break everything out into yearly goals and objectives. The idea here is to think in a longer term than you usually would.
Important: Think BIG Picture
This can be tricky when you are starting out. Most of us tend to think incrementally, rather than in big goals.
It’s easier to think “I’ll save an extra $100 this month” than, “I will save 75% of my paycheck from now on and become financially free in 5 years”.
A Common Barrier To Thinking BIG
Here was my problem. No one gave me permission to think big. For some reason, I needed permission.
Maybe it was from missing several big goals in the past, or maybe it’s some psycho-analysis thing I’m too dumb to understand.
Bottom line I needed someone to tell me it was “ok” to think bigger.
If that is you, and you need permission here it is:
You have a right to dream big. Set a big goal for yourself. You have 5 years to do it, a lot can happen in that time. Don’t believe me? Think of where you were 5 years ago. Did everything just stay the same? I doubt it!
No matter where you are today, you can pick yourself up and start an amazing journey. But you need to start. Take the first step. You have permission to think big!
So for the love of yourself and everyone around you, think big.
Go for it!
The 4 Parts to Creating a 5 Year Plan:
1. Brainstorming and prioritizing
2. Creating a timeline
3. Deciding what you will do to get there
4. Working your plan and adjusting as you go.
How to Make a 5 Year Plan For Your Finances
Step 1a: Brainstorm Everything You Want To Be, Do or Have
Write down everything you would like to be, everything would like to do, and everything would like to have, over the next 5 years.
Get everything you could possible think of down on paper. Nothing is too big or too small. New TV. Debt Free. Travel every country. Paint the bathroom. Go to some kind of event. Learn how to build a web-based business. The point is to get it all on paper.
Leave nothing out.
This is going to make things so much easier when everyone puts what they are really wanting on the table. Open communication here is a must!
If you don’t write it down, you don’t get it.
Don’t assume others will read your mind here either. Remember that this is going to directly impact everything around you and your money.
Tip: We use post it notes and write down each one on an individual post it. It’s way easier to move things around that way later on.
Step 1b: Prioritize Your Goals
Once you have all of the things you want to be, do, and have for the next 5 years, you will need to start setting priorities.
Enter a conversation around the things that you have written down and why they are important to you.
Then arrange all of them from most important to least important. Always keeping in mind your “Why?”. If you want to be debt free more than you want to travel, put that down.
This is where having each thing on post-it notes is a great idea. You can rearrange things easily.
Step 1c: Decide What is The #1 Most Important Goal
Once you have prioritized. It’s time to make the tough decision and make something the number one priority. This will be the one thing that rules above all else. For us five years ago it was paying down the mortgage.
All other decisions. All of the other “wants” were behind that one thing.
For us the new priority is financial freedom and travelling is a very close second.
When we are truly honest with ourselves, if we are financially free we would be in a position where we could enjoy our work more… or realize that we may just be lying to ourselves.
We really won’t know until we are there.
Ultimately we want financial freedom, and we want it from passive income sources that can be handed down. So that is what we want, the ability to be financially free, to quit our jobs if we ever choose to do so.
Step 1d: Figure out your Why
This part is often overlooked when deciding what you want. Most of us find this a vague thing to do, but it’s critical.
I believe it’s the reason why so many people ultimately give up on their goals.
I was going through a good goal sheet I had filled out from 5 years ago and a lot of the goals no longer interest me. Looking at them it’s because they were pretty superficial or someone else’s idea of what a “good goal” might be.
That list also had some goals that were just as important to me today as they were then, the ones I had reached were the important ones to me and my family, they were the ones that mattered most.
When you are picking your #1 goal ask each other these questions:
Why do you want this goal?
Why is this goal important to you?
Why can you not let this go and just live like a “normal” person?
In our case, our “Why” is that we want to be able to leave a legacy for our kids, and eventually grandkids.
This is bigger than just us. It stretches beyond our personal goals and can make it easier to stick with it as we go through the years.
Another “Why” is that we want to feel true freedom. That freedom of being able to do whatever whenever we want to.
Please, please, please, think this through and come up with a strong “Why”.
You will need something strong to get you through the next 5 years.
5 Year Money Plan Step 2: Create a Timeline
You need to have some realistic expectations but not too realistic.
Goals are a lot like renovation projects. We usually expect to do everything in half the time and with half the money we think we need.
So if your 5 year goal is feeling a lot like a 10 year goal that’s ok.
My best advice is coming up with a date and then stretch it out by doubling it.
This eases the stress of having to do it quickly.
If your goal was to pay off your mortgage in 5 years you will likely have to double up your payments, or more, in that time.
But stretch that goal out to 10 years and it’s not nearly as intimidating.
This works for most things.
Like losing 10 lbs in 60 days seems pretty hard. But stretch it out to 4 months, and it’s not so bad, and doing it over a year is pretty simple.
The same goes for your financial goals.
Make some notes about what you would have to do to achieve that goal by that extended deadline.
For us, we would like to be financially free in 5 years.
That seems somewhat doable given where we are at now.
Doubling this to 10 years makes it a much easier goal. We can still work at it like it’s 5 year plan, but in 10 years it can be done for sure.
Now Just For Fun…
Cut down your 5 year goal to 2.5 years. That’s right, cut your timeline in half.
What? Didn’t I just say stretch it out?!?
Yes, but this is just as important. It will get you thinking.
What would you have to do then to make these goals happen in 2.5 years? Work more? Spend less?
The reason for thinking this is three-fold:
- It gets your mind thinking about the possibility, once you start doing this new ideas will start to emerge.
- When you start planning things out over 5 years, a lot of times things happen quicker than you would expect.
- It’s an awesome way to challenge yourself and push yourself to a new level. Which, in my opinion, is the whole point of living.
The whole idea is to make you think up ways to meet your goals quicker. When we did this for our mortgage we came up with a whole bunch of tactics. You can read about those here. We started cutting little expenses here and there and saving the difference.
Related Post: 28 Things We Gave Up To Be Mortgage Free
Remember we tend to overestimate what we can do in 1 year and underestimate what we can do in 5 years.
This means we think we can do a lot more in 1 year than we actually can. That’s why we get discouraged when things don’t work out so quickly.
The opposite is true for the 5 years, we tend to think that we can only do so much when in reality we can accomplish more than what we think.
Aim big and think long term.
5 Year Plan Step 3: The Details of Your 5 Year Plan
Now it’s time to decide what you are willing to do and work on the details of this awesome plan you are creating.
What Will and What Won’t You Sacrifice?
We started what I call Operation Financial Freedom a long time ago. But it’s the past 5 year that we got serious about hitting it. And we want to hit it on our terms. There’s a lot of ways to get to the end result of financial freedom. It just depends on what you are willing to do. It also depends on what you are not willing to sacrifice.
For us, there are a few things we aren’t willing to sacrifice.
- We want to stay in our house, we love the community and have a great network here.
- We want to live like we are financially free, not live like a pauper every day. Because to us that isn’t how we view freedom. So we are going to have to make allowances for these things.
- We want to experience life and enjoy the process as we go. This means travelling and enjoying life. (I said this twice because it was the one thing that kept coming up over and over as we talked about our next 5 years).
For your big goal what are the things you are willing to change, and what are the things you aren’t willing to give up on? What will that mean for reaching your goal in 5 years.
What do you need to make this goal happen?
Your plan needs to have some tools. Whether it’s as simple as “We need to save an extra $200 a month to be mortgage free in 10 years” to a detailed plan that lays out every detail.
It’s up to you what works best.
What In our case we are starting Phase 2 of Operation Financial Freedom. Investing and creating multiple streams of income.
What are we going to invest in? How much risk should we take on? Is there investments we should look into? The list of questions is a very long one, and it seems never ending.
For right now ask yourself this:
How will I achieve my # 1 Priority?
Here’s what we do
Just like the mazes you would have on a paper menu in a diner, I would start at the end and work back to the beginning.
So it would look like this for us (using our last 5 years as an example).
Ending: We are mortgage free, think about it for a while then answer these questions:
- What are you willing to do and NOT willing to do? We can cut costs and live frugally.
- What sacrifices are you needing to make? Travel and a lot of small things can be given up.
- Work backwards through the time line is it possible? Here we played with the numbers to see what we could make happen.
- What action steps did you have to take to get to this point? We did a million little things that all added up big in the end.
When it came to our paying down our mortgage plan, the plan was simple:
- Live as lean (cool word for frugal) as possible and throw everything we can at the mortgage. It all counted and that’s exactly what we did.
Not fancy, or crazily detailed in the beginning. Just “We’re paying off the mortgage. Let’s throw everything we can at it.”
The plan doesn’t need to be eloquent or look like something out of a Beautiful Mind. In fact it should be as simple as possible.
The more simple it is, the better.
Related Post: How to Manage Finances in a Marriage
5 Year Plan Step 4: Adapt as You Go
Your plan is going to hit snags, speed bumps, and roadblocks.
Expect it, anticipate it. But never let it stop you.
Having a plan is essential, following it to the letter is optional.
When I think about anything I have accomplished it was the end goal that kept me going. The same goes for your #1 priority.
If you have a bad month or two, shake it off and keep going.
That’s the beauty of a 5 year plan. The freedom of it can allow for set backs.
Unlike a 1 year plan that almost has no wiggle room.
It’s a really good idea, to have some benchmarks.
Things like: “By the end of Year 1, we will have reduced our debt by $5000. By end of year 2, debt will be reduced by $30,000.” and so on.
These benchmarks are how you will keep on track.
Put this years benchmark somewhere you will see it everyday. This will be a great reminder to keep on course. It will also keep you in line when the thoughts of stopping come up.
Celebrate little victories along the way
I have to admit, I used to be terrible at this.
For me the end goal was the only thing worth celebrating.
Here’s the problem.
This goal that you will hit will be a small moment in time. Made up of a hundred other small moments over the past 5 years.
Five years is a long time to not celebrate all of the effort you have been putting in month after month for all those years.
Now whenever we do anything towards our goal, we celebrate. It can be something as simple as making a nice meal, or even a pat on the back.
Just make sure to recognize the effort you are making along the way.
One Last Thing: Celebrating is Important!!!!
I’m repeating this because the further I go the more I realize that this is key.
When I finally started to celebrate more I saw my motivation SURGE!
I would look for new things to do, and try and figure out ways to get better.
When I wasn’t celebrating, my momentum wasn’t as great as it could have been. You are an awesome person, doing an awesome thing. Make sure you celebrate.
Are You Ready to Make Your 5 Year Plan?
If you are ready to make a five year plan I encourage you to get started today. It’s fun!
Grab some post it notes, set a date and get to it. A better future is within your reach, and a little planning and prioritizing will go a long way.
The one exercise that my wife and I did that changed our finances and our family forever.
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