How to Prepare a 5-Year Financial Plan?

Financial planning is a step-by-step procedure that enables an individual to meet their personal and financial goals. Basically, it acts like a guide throughout your entire journey in the financial plan and helps you track your income, expenditures, and investment to meet your goal effortlessly. However, you must decide on an optimum tenure before making a financial plan.

To know how to make a 5-year financial plan, keep reading.

As mentioned earlier, financial planning is necessary for every individual's life, irrespective of their profession. Good financial planning includes your prevailing economic situation and advises you on achieving your short-term and long-term financial goals.

Thus, financial planning explores several areas of your finances, including your investments, taxes, retirement, estate, insurance, savings, etc. In addition, with a well-organised financial plan, you can save for your children’s education, plan for retirement, manage taxes and insurance, etc. 

To get better results, you can take assistance from expert financial advisors, who will provide you confidence and guide you throughout your journey along the financial plan thereby showing you a better tomorrow.

You can go for a comprehensive 5-year financial plan to achieve your financial goal. A financial plan will enable you to make sensible financial decisions. Furthermore, it will help you determine whether you are executing your activities and progressing towards your goals. Remember that managing money is not too challenging. All you have to do is to make a structured financial plan and follow the same on a strict note.

If you are wondering how to create a 5-year financial plan, take a look at the steps mentioned below:

Step 1: Determine Your Goals

The primary step for a financial plan is to determine your financial goals. Here you will require to clarify your target, which you are willing to accomplish. This can be regarding increasing your net worth to a substantial margin, children's education, planning to buy a dream home, going for a foreign tour, adjusting the level of disposable income, etc.

Many people are not aware of disposable income; it is basically the money left to save and spend after the deduction of income tax. Additionally, while setting your financial goal, consider the S.M.A.R.T framework, which signifies specific, measurable, attainable, realistic, and timely.

Step 2: Consider Your Existing Financial Situation

After you decide on your financial goal, your second step will be to assess your present financial status. By doing so, you will be able to judge whether you are proceeding according to your pre-determined plan or not.

First, you have to analyse your earnings relative to your expenditures. Here you have to check whether your income is sufficient to meet your bills and payments while maintaining a proper savings account and leftover money to fulfil your day-to-day transactions.

Secondly, compute your net worth, which means the difference between your assets and liabilities. Also, check whether you own a diversified investment portfolio, the amount of debt you hold, the interest rates you pay, etc. Thoroughly assess your financial status and increase its stability since it greatly contributes to making your future goal successful.

Step 3: Make a Plan to Fetch Your Goals

After assessing your prevailing financial status, your next step will be to outline the actions to be taken sequentially to achieve your goal. Some things that you can consider include:

• Creating an emergency account for savings.
• Trying to clear outstanding debts as much as possible.
• Boosting your income via passive income.
• Making a budget to track your expenditures better and manage your spending.
• Starting or optimising an investment portfolio.
• Setting your savings target for post-retirement, down payment for home, vacation, etc.

Step 4: Implement Your Plan

Upon completing the third step, you are ready to proceed and you can execute your plan. This step encompasses the collection of tools and implements and the necessary skills to successfully implement your financial plan. Here you must select whether you have short-term, medium-term or long-term goals.    

Remember that the more delay you make in implementation, the longer it will take to enhance your wealth. As a result, you may experience a savings shortage during your post-retirement phase. Therefore, you need to execute your plan as early as possible to improve your present and future.

Step 5: Monitor Your Advancement and Modify Your Plan as Necessary

The final step in a financial planning procedure comes after the implantation of the plan. If you believe that formulating and executing a plan are the same, then you are wrong. After you complete the implementation step for your financial plan, you need to keep track of your progress to ensure that you are on the correct financial track.

You should assess your financial decisions from time to time with the changes in economic, personal, and social factors. If you face any discrepancy and lack in some areas, investigate the matter and find its solution quickly. Also, consult with your financial planner to get expert assistance.

1. Manages Cash Flow

2. Helps in Managing Debts

3. Streamline Investments

4. Provides Financial Security

5. Builds Your Savings

6. Asset Allocation

7. Helps in Obtaining the Appropriate Insurance Cover

A proper financial plan helps you choose the appropriate life insurance policy that suits you the best. If you are the only breadwinner of your family, it is better to avail an insurance plan to provide financial security to your dependents. If having coverage along with investment is your aim, then choosing an endowment policy can be a great choice for you. 

With these plans, the insurance company will compensate the insured amount to your nominee in the event of your sudden demise. In this way, your family can maintain a normal standard of living. Moreover, you can also get a health insurance policy and include your family in it to cover the cost of any treatment. Also, having an insurance plan helps you get tax benefits.

Cash Flow Planning

The main component of financial planning is cash flow planning. Its main objective is to ensure that a person has enough funding to achieve their financial goals. Cash flow is divided into three types: investing cash flow, operating cash flow, and financing cash flow.

You can determine the status of your net worth, assets, and liabilities through proper cash flow management. Other features of cash flow management comprise debt elimination plans, savings plans, income analysis, and budget allocation.

Investment Planning

Another vital component of your 5-year financial plan is investment planning. In this process, you have to choose an investment option to accomplish your financial goal. Having an ideal financial plan, you can decide how much money you have to invest. Investing considers your goals, risk tolerance, and cash flow.

It acts as the base for achieving your long-term goals like education and retirement goals. If investment planning is done accurately, it will promote asset allocation and portfolio diversification. Some well-known investment plans include mutual funds, bonds, fixed deposits, etc.

Insurance Planning

Tax Planning