buying a house
Personal Finance
August 12, 2019

Your Money Timeline: What Goals To Set For the Next Five Years

Written By Mary Beth Eastman
Last updated November 22, 2019

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If your current financial situation is less than ideal, you can make a significant change in the next five years. In fact, true dedication to a savings plan can give you a new level of financial independence. So whether you are just starting out or nearing retirement, now is the time to improve your finances.

This simple advice actually works if you truly get rid of unnecessary expenses and don’t deviate from the budget. For instance, you should allow a certain amount of money for groceries, clothing and other necessities. You don’t have to cut out all luxuries, but you need to limit them to a certain dollar amount. Obviously, the less you spend on unnecessary items, the better your financial situation will be. Learn how to create a budget here.

You may be able to save significantly if you downsize your living situation. You can find a place that comes with lower rent or sell your current home and buy something with a lower mortgage. These may seem like drastic options, but they can make a huge difference in your financial health.

First, figure up all of your debts and come up with a plan to pay them down or even off in the next five years. Doing so may mean making some uncomfortable choices, such as adopting an even more stringent budget. You certainly shouldn’t take on any additional loans or credit cards. If you feel overwhelmed, reach out to a debt professional. Debt consolidation or settlement could be your ticket to clearing your debt.

Even if you have good credit, work to get it into “excellent” territory, which is considered 800 or above. Reducing your debt and making timely payments on all your accounts will help achieve this goal.

In just five years’ time, you may be able to achieve a degree of financial independence if you commit to saving a large percentage of your earnings. Saving 50 – 80% of your salary may sound incredibly difficult, but the sacrifice can set you up for early retirement, pay for your children’s college or provide a trust fund for your grandkids. With enough savings, you’ll be able to weather the emergencies that will inevitably occur during your lifetime.

Having a five-year-plan is one of the best ways to improve your financial situation. Unless you set goals for yourself, nothing will change. If you make a plan and stick to it, you can reap huge benefits in just a few years.

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