Five Year Plan

I took some time today while waiting for some science to happen in the lab to make a ROUGH five year plan.

Well, technically, it is a 5 year plan that starts in two years. So I suppose it would be a seven year plan.

If you recall from a few weeks ago, it is likely that when I get my next job I’ll be making around $60,000/year as my starting salary. So I made a budget based on that salary and what some of my goals are in life.

Just to recap, some goals that I have down the line – keep in mind that I’m assuming that I’ll pay off all my debt before getting this job – which at my current rate of repayment will probably happen:

• $10,000 Emergency fund
• 10% of my salary towards retirement every year
• $2-4,000 for vacationing every year (I LOVE to travel)
• $10-15,000 to pay for a “new car” in cash when my current car dies
• $20,000 for a down payment on a new house

At first those numbers seem STAGGERING. Frankly MIND-NUMBING.

After taking a few deep breathes and looking at the numbers, it actually won’t be THAT hard!

With a salary of $60,000/year, my take home salary after taxes will be approximately $3,600/month.

Here is how I decided to break down my savings and spending for the first year and the assumptions that I used:

1. I assumed that I will live in a geographic location where my standard of living will be the same as it is now. Thus my rent, care for my animals, food, gas, ect are all maintained the same. Since I have no idea where I will move, I felt I should just leave these numbers alone and change them when I know where I’m going next since it could be higher or lower depending on where I end up moving.
2. I will be doubling my student loan payments. Since my interest rate is only 2.25%, I think it will be a better use of my money to NOT pay this off straight away but instead save for retirement, emergency fund, housing and a vehicle. I ONLY feel comfortable with this because my loan rate is so low and the rate of return on the savings would be higher than what I am paying in interest on the loan.
3. I’m also putting in my budget money for clothes, electronics and miscellaneous stuff, since I won’t have any extra jobs.

Okay, all of that said, here is the budget for the first year:

The number in the last column is the monthly value multiplied by 12, hence what I would save in a year.

What is amazing is that within a year I’d have $6,000 saved in my emergency fund (plus the money I’d save between then and now!)

The budget for living expenses I didn’t change, but I did changed the savings each year for Years 2-5. Here is what I came up with (you can click on this to make it bigger).

After I got around $10,000 in the Emergency Fund I stopped saving to that and started putting more money into a “Future Fund” (for a house, most likely) and into the car fund.

And that’s right – if I save these percentages of my income, then in 5 years after starting this future job I’ll be able to save $10,000 to my emergency fund, $15,000 towards a new car, $12,000 for vacations to fantastic locations around the world, $25,000 towards retirement and over $21,000 for a down payment for a house.

That’s right – if this budget comes to pass - I would end up saving $90,000 in 5 years!

$84,900 of it to keep myself out of consumer debt and achieve my personal life goals.

Amazing – I never thought that I would be able to save that much money. Of course, all of this hinges on getting that $60,000/year job and making sure that I live on 60% or less of my salary when I do get it. This makes me so excited for the future and motivates me even more to get my credit card debt paid off!!