If you are like I was five years ago, you might be thinking: I don’t even have a clue where I’ll be working or living in five years from now! That’s okay. You can set financial goals that are independent of your career or lifestyle goals. Whether you plan to earn an MBA and climb the corporate ladder, get married and start a family, or bounce between a half dozen cities and jobs in the next five years, a five-year financial plan will help.

Why Five Years?

Five years is barely “long-term”. We’re not talking about paying for your kids’ education or planning your retirement just yet. We’re talking about setting goals over a period of time that’s brief enough to feel tangible but long enough to allow you to accomplish a few things. If you put your mind to it, you can accomplish a lot in five years, such as:

• Save up a down payment for a home
• Eliminate most, if not all, of your debt
• Save an emergency fund of over $25,000 with about $400 a month
• Build excellent credit

Then again, if you don’t set long-term financial goals, five years can pass you by and you may find your financial situation unchanged. That’s why creating, rereading, and occasionally revising your financial play can make such a difference.

How to Create Your Plan

There’s no right or wrong way to set a long-term goal, although self-help gurus tend to emphasize that the most effective goals are specific, achievable, and in writing.

Make Goals Specific: It’s impossible to predict exactly what job you’ll hold, where you’ll live, or what your savings account balance will be in five years. But the more specific you can be about what you’d like your financial situation to look like down the road, the better. Instead of simply saying that you’d like to have an emergency fund in five years, write down exactly how big of an emergency fund you’d like. Want to purchase your first home in the next five years? Write down how much the house will cost, how much you’ll put down, and what your mortgage payment will be.

Make Goals Achievable: Although you don’t want to set goals that you’ll easily achieve in two years (let alone five), you don’t want to set yourself up for failure. Banking $1 million is a nice goal, but unless you earn more than $200k a year or hope to sell or expand your own business, it’s probably out of reach in the next five years. Figure out how much you can save and/or how much more you can earn in the next five years, and set savings goals based upon those realities. Don’t be afraid to push yourself, but don’t create goals that will only disappoint you when you don’t achieve them.

Put Goals in Writing: Goals differ from dreams—especially when goals are in writing. When you put your goals in writing, you not only reinforce your desire to achieve those goals as you write them, but you’ll have a concrete reminder of your goals whenever you need it.

What to Include

Your five-year financial plan is yours alone. What will it include? Debt reduction and savings goals are obvious starting points, but they’re only the starting points. Perhaps you want to have multiple income streams in five years (e.g., your salary, a side business, and rental income). Maybe you want to be your own boss, or be able to work part time. Perhaps you want to go back to school. All of these possibilities have financial implications—and require financial resources. Ask yourself what you want to accomplish in life in the next five years (and beyond), and then ask yourself what you need to do to your finances in the next five years to be in a position to realize those ambitions.

My Five-Year Financial Plan

Since I started this blog, my biggest financial goal has been to be 100% out of debt by my 30th birthday. I have work yet to do in my remaining two years, but I’m on track. Now that I’m looking ahead, it’s time to write a new five-year financial plan. There are some uncertainties in my future. For example, I may return to law school in 2010. Also, I’m getting married this year, and we’re not sure when we’ll start thinking about kids. That said, there are a few financial goals I want to accomplish in the next five years regardless of the other turns my life takes:

• Continue to live debt-free (except a mortgage)
• Have a $25,000 emergency fund
• Have at least $25,000 in retirement savings (due to my debt, I’m admittedly behind in this category)
• Own my home with a 15-year fixed mortgage and no PMI

What about you?

What’s your five-year financial plan? Have you set financial goals in the past and found them helpful? Please share your story in a comment.

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1. The Three Year Rule
2. Debt Free Step One: Create Financial Goals
3. 401(k) With Company Match or Roth IRA?

Some people grow up saving and rarely, if ever, make financial blunders. Many of us, however, learn the hard way. We make financial mistakes like:

• Racking up credit card debt
• Buying too much car or house
• Defaulting on a loan
• Failing to save an emergency fund or for retirement

If you have ever done one of these things, you know some of the consequences:

• High monthly debt payments
• Repossession or foreclosure
• A tarnished credit score
• Feeling behind your peers in savings

Learn and Move On

Yes, you’ll have to face the consequences of financial mistakes. But that doesn’t these mistakes should ruin your life. If you’re up all night worrying about a debt you incurred or a less-than-stellar credit score, ask yourself: “What’s all this worrying doing for me?” Instead of worrying, find a way to make financial decisions today to make sure that you aren’t making your financial situation worse.

Today’s Decisions Equal Tomorrow’s Stability

The reason building financial stability is not easy is the same reason it’s not easy to lose weight or quit a bad habit—all require making difficult decisions today for which we won’t see benefits for months, years, or even decades. That’s why—if you have made financial mistakes in the past—you continue to feel the pain from those decisions today. The good news, of course, is that you can reverse the trend.

If you’re struggling with credit card debt, it’s important to pay down your debts, but even more important to make a budget, live within your means, and not accumulate new debt. If you’ve tarnished your credit score, you can’t make the old late payments or defaults go away, but you can avoid new ones by paying all your bills on time.

If you overbought a car or a home, you can find a way to sell it and purchase a more affordable option. If you haven’t saved as much as you should have, you can start saving today!

Related posts:

1. Money Mistakes We Make Growing Up
2. The Connections Between Financial and Physical Fitness
3. Don’t Stress About Your Credit Score!

ChexSystems is a national database of bank customers that chronically overdraw their checking accounts (either via bounced checks or other overdrafts).

Like a credit bureau, ChexSystems uses your social security number to track:

• How you manage your checking accounts
• How frequently you overdraw your accounts
• Whether you owe money to any banks for overdrafts/bad checks

Whenever you open a checking account with a new bank, most banks check with the agency to make sure you haven’t abused accounts in the past. (Some non ChexSystems banks exist; see a list at the end of this post).

If, like most Americans, you rarely overdraw your account and always pay any overdrafts quickly, you’ll never have to worry about ChexSystems. If not, watch out: You may be in the system and you may not be able to open a new checking account.

This happened to a friend of mine. When he was younger and less wise, he overdrew not one but two checking accounts and failed to repay the banks several hundred dollars a piece. Soon, his banks closed his accounts and he couldn’t open a new one.

Had he repaid his overdrafts quickly, his banks probably would’ve let him keep his accounts open. Now, getting a new checking account won’t be easy; he must make due with cash and a savings account. (ChexSystems doesn’t typically impact your ability to open savings accounts).

What to Do If You’re In ChexSystems

Just because you have a negative report in ChexSystems doesn’t mean you’ll never be able to get a checking account again. There are steps you can take:

• First, order your individual ChexSystems report. You are permitted one free report per year or anytime you are denied a bank account.
• Next, dispute any inaccurate information on the report.
• Finally, repay any outstanding checks!

Information can stay on your ChexSystems report for between four and five years, but banks will be more willing to consider you for a checking account if you have fully repaid any outstanding checks. (Getting a checking account will likely be impossible if you still owe).

Finally, talk to a real person. You may have luck opening a bank account if you apply to a local bank or credit union where you can speak to a sympathetic teller or manager and demonstrate that your past financial transgressions are behind you.

Finally, you may be able to find non ChexSystems banks. These banks that do not use ChexSystems are few and far between, but some sites maintain lists (like those here and here). Again, it’s your obligation to repay your old debts and it’s the smartest financial move for a lot of reasons, but the alternatives to a checking account (such as check cashing/bill-paying companies and prepaid debit cards) are expensive and inconvenient.

Have you had a checking account closed or had difficulty opening a checking account because of a report on ChexSystems? What happened?

Related posts:

1. How Much Money Is In Your Checking Account?
2. Online Checking Accounts Compared: Smart Banks for Savvy Spenders
3. Cruel Overdraft Traps

Some people can live life in a state of permanent self-denial in pursuit of their long-term goals, be it an early retirement or simply a huge bank account. Others would ask: What’s the point if we can’t enjoy ourselves today? Although we all should learn and practice restraint and frugality so we can live within our means, we do need to enjoy ourselves today. Of course I’m not saying go into debt and buy whatever you crave. There’s a line between the spending patterns that keep you forever ensnared in debt and those that allow you to reward yourself periodically while continuing to build long-term financial stability.

And I know: I used to be in the “it’s just money, live now!” camp. I ate out whenever I pleased. I bought whatever I wanted. I even pursued my private pilot’s license simply for the fun of it…before I even had a full-time job. Talk about an irresponsible indulgence. Obviously, those decisions caught up with me, and about five years ago led to my financial enlightenment. I tightened the belt and started learning (and writing) about making smarter money decisions. Although I consistently live within my means today, I have my spending weaknesses. The two that come to mind are: the occasional dinner out and a BlackBerry that, although I use it for work, I admit is primarily for my own entertainment.

My fiancee’s include fitness classes and organic foods. Although I would say she spends too much in those areas, she’s living below her mans and she’s quite frugal in every other area. (She does not, for example, share my interest in the latest and greatest cell phones. She recently purchased a new phone only after her old one cracked and wouldn’t hold a charge for more than a few hours).

I’m acutely aware that all of the budget bulldogs out there would find faults with both of our budgets. Stop paying that ridiculous cell phone bill! Cancel your gym memberships! Stop shopping at Whole Foods and cut your grocery bill in half! It’s true, those things together could save us about $200 a month. But those are our spending weaknesses. Our indulgences. They’re what make working and saving and scrimping on other things worthwhile. Could we do without them? Sure. Would we get rid of them if times got really tight? Of course. But for now, we pay for them—fully acknowledging that they are luxuries—as we continue to work hard to build our future.

Do you have spending weaknesses? What are your indulgences—your splurges? Are they in check, or out of control? Do you justify them, or feel guilty about them? Please share in a comment!

Related posts:

1. The Connections Between Financial and Physical Fitness
2. The Vicious Psychology of Spending
3. Using Multiple Bank Accounts to Control Your Spending

The trends feature aggregates all of your income and spending from your linked accounts (checking, savings, credit cards, etc.). Quicken Online trends looks at all of your spending and income over a period of time. Tthe default is three months, although you can select year-to-date, this month, etc. You’ll see, at a glance, how much you have spent and how much you have earned and Quicken shows you how much either above or below your means you are living. It also breaks your spending down by category.

Personally, I’ve always known how much I’ve spent on my car between the payment (financed it before I knew any better, but it’s almost paid off), insurance, tolls, parking, gas, and maintenance. But Quicken Online showed me that over time, that damned car is my biggest expense. Yup, transportation costs me more than my housing expenses (although those are very low).

I considered these transportation expenses a fact of life when I had a long commute and used my car to visit my fiancee a hundred miles away every week. But now we live together and I can walk to work. So that expense needs to go! Once I pay it off later this year I’ll consider selling it or working to dramatically reducing how much those damned wheels cost each month.

Quicken Trends also pointed out months in which I was really good at stashing away money and months in which I spent more than I should have. (A trip to Puerto Rico for a friends’ wedding and some expenses towards my own wedding this August contributed). Unlike a budgeting tool that only looks at a month at a time, however, Quicken trends lets me look at a greater time period, so if you spend more than you should one month, you can make sure other months’ spending is balancing that out.

That’s important, because although we look at our budgets one month at a time, it’s not really realistic. Big expenses pop up that can really throw a wrench in your monthly spending plan.

About Quicken Online

Quicken Online is a free, online, “lite” version of the popular Quicken personal finance software. You can set Quicken Online up in a just a few minutes and link all of your financial institutions. Quicken then grabs your transactions and organizes them. In addition to the trends tool, Quicken Online lets you set monthly spending goals and lets you see upcoming bills to give you a better idea of how much money you actually have in your accounts before your next paycheck. You can access the program 24/7 online or via their iPhone app.

Learn more about Quicken Online or set up a free Quicken online account now.

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1. Quicken Online is Now Free
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