Financial planners are well known for counseling their clients to think long-term. While it is important to think 10, 20 and 30 years down the road, that can be hard to do. We frequently counsel clients to manage what we can control and not worry about what we can’t control. Just like tackling a big project is sometimes best handled by starting with baby steps, try looking at your future in smaller steps. What do your next five years look like? A few issues may immediately come to mind. Better yet, let’s break that into smaller pieces. What does your next year look like? Next three years? Next five years? Of course, being financial planners, we focus on events that will have financial implications or need financial planning. That’s not to say that personal goals, like strengthening friendships or improving your golf handicap, aren’t important, but they are beyond the scope of this article.
Allow me to use the Berno family as an example. In the next year we will be making a college decision for my second oldest child. Obviously, this has huge financial implications. He is very smart, so he may get a generous scholarship or he may go to a top-tier school that is very expensive. Did I forget to mention he just announced he is interested in the Air Force Academy? We’ll definitely have to take a wait and see on this one as it is very hard to plan for. Let’s take the fact that my wife wants to remodel the kitchen as an additional swing factor here.
In May 2012, my daughter will be graduating from college. She has chosen teaching as a profession so a job may not be firmed up until August. The across-the-board layoffs in the teaching profession are certainly on my radar screen. She may consider a volunteer position in social service for one year. The only thing I am reasonably sure of is that her tuition payments will be over!
Within three years I have one term life insurance policy that expires. I am comfortable that I can stick with my original plan of letting it lapse. I plan on keeping my other life insurance in force and do not see the need for more disability insurance. My youngest son turns 16 in October 2012 so that will affect our car “fleet,” as I call it, which currently has four vehicles. Should we shift my second son’s car down to my youngest and buy the then 19-year-old son a different car? Assuming that the 2002 Toyota hasn’t died from mechanical failure or an accident, this sounds like a plan.
Within five years my second child will hopefully be out of undergraduate school. (Did I mention he just told us he may be interested in medical school? This makes the Air Force Academy sound even better!) My third child will be off to college and we will be empty nesters. We are frankly not looking forward to that as my wife and I really enjoy having the kids around. Based on the fact that my one and only daughter will be 26 in five years, should we plan on a wedding? God only knows. But it is important to sketch this list out.
Over the next five years we should be able to get by with only one, or maybe two, car replacements. We have no major home improvements planned other than the aforementioned kitchen remodel. My wife and I will have our 25-year wedding anniversary, so does that call for a special trip?
Having started this “next five” exercise myself, I know that it can be exhausting, but a lot of it is due to our stage of life and it is certainly easier than thinking 25 or 30 years out. At the end of the day, a little thinking and planning is better than none. What’s in your next five?