It's Time to Map Out Your Next Ten Years
The novel Coronavirus has brought with it a lot of tragedy, devastation, and chaos; many are losing loved ones, finding themselves in financial peril, and questioning their job security. However, it also brought with it a lot of quality life lessons and a significant pause which provides a rare opportunity to turn inward and focus on what you want for your financial future. Normally, people wait until the end of the year to set out short- and long-term goals, but right now is ripe with potential for those who choose to take advantage.
One of the biggest lessons we’re learning is how fragile and short life can be; for those of us who are lucky to be healthy and safe, it’s important that we do what we can to make the most out of what we’ve been given and where we are at. It’s time to think about what you want your life to look like five, ten, twenty years from now – specifically, where you will be in your financial journey. One way to do this is to start a decade into the future – and work backward to understand how you’ll achieve your goals.
The following tips offer a roadmap to follow as you begin planning for a financially successful decade ahead.
Ten Years Out
When you’re looking so far into the future, it can be difficult to know where to begin. This can be even harder now if your current finances are leaving you feeling stretched, stressed, or overwhelmed, especially with the state of our current economic climate. When you’re budgeting month-to-month and failing to look at the long-term, though, you miss opportunities to make meaningful progress toward your goals. So, try to turn off the outside noise and start out by thinking about the big picture.
Maybe you want to:
- Buy a home
- Pay off your current home mortgage
- Pay off your student loans
- Start a family
- Pay for children’s college expenses
- Improve your portfolio
Your goals are unique to you, so it’s okay if they don’t show up on this list. The important thing is to identify them, believe in your ability to achieve them, and then start working towards them by getting as specific as you can with each one. For example, you might begin by realizing you want to buy a home, get more specific by identifying the exact amount you want to save for a down payment. Do things change? Of course, they do. It’s entirely possible you’ll have different goals in five years. However, working toward your current goals in the meantime will pay off.
Retirement goal can be at least ten years from now, but
Five Years Out
After you’ve identified your big picture goals for ten years out, consider where you need to be in five years in order to make them happen. Are there big life moves you need to make? Is there a dollar figure you can identify? Have you taken into account any major expenses you can foresee?
If you are planning to retire in five years, make sure that you have reviewed your detailed cash flow projections with your financial advisor who can help you design the right asset allocation for you to stay invested in the stock and bond markets during good and bad markets after you have set aside an adequate emergency fund.
If you are saving money to buy a home in the next five years, consider including some short-term and intermediate bond ETFs in your non-retirement brokerage account to potentially outperform the interest rate you can earn in your savings account. You generally cannot use your retirement assets before age 59.5 without penalties and it’s prudent to have some non-retirement assets for buying a home, buying a car, and extra cushion to deal with job changes or future pandemics.
If your child is going to college within five years, the 529 plan fund allocation should be adjusted accordingly to shift from stocks to bonds gradually.
As the mortgage interest rates are at a historical low, if you plan to live in your current home for at least five years, now may be the right time to work with your advisor and your mortgage consultant to see if refinancing is the right action to take based on your cash flow and current mortgage interest rate. If you are near retirement or just retired and you are able to pay higher monthly payments, refinancing to a 15-year fixed mortgage may be the right choice now as the interest rate for the 15-year fixed mortgage is lower. The key decision is to make sure you still have some cushion to continue funding other goals, such as paying for college, when you choose the 15-year fixed rate with higher monthly payments.
Ten-year goals can seem overwhelming and unreachable if you don’t establish mini-goals along the way, so determine where you need to be halfway through your next decade’s journey.
One Year Out
Big goals start with small steps, so don’t lose sight of how powerful one year can be. When you’re planning for a full decade ahead, you’ll need to combine your long-term vision with short-term actions that will take you to your desired financial destination. However, it’s important not to focus solely on the things that need your immediate attention. Try to tackle one or two things in the coming year that aren’t crises, but rather things that will contribute to getting you closer to where you want to be five and ten years down the road. If possible, break your one-year goals down into action items for each month. Even if they seem small, think of each small success as a seed planted for something bigger in the future.
I set my one-year financial goals to focus on savings for retirement goals, college funding goals, reducing debt, increasing my earned income, reviewing tax strategies, and estate plan (if major changes happened). I use the Evernote app to write down my goals and ideas to achieve these goals as it’s easy to review them from all devices anytime.
A Note for When You’re Feeling Discouraged
The old adage that Rome wasn’t built in a day holds true. Even our best-laid plans can be derailed by unforeseen circumstances, like an unexpected global pandemic, and sometimes we get knocked down harder than we expected or simply forget to focus on our long-term goals. If you find yourself faltering from your one, five, or ten-year financial plans, don’t despair. Progress doesn’t have to be perfect and the road to success isn’t always a straight line. Celebrate your small wins, show yourself some grace and forgive yourself for imperfect execution, and keep your sights set on the potential in front of you.