Do you have 5 year goals? As you know I really like the idea of making goals and planning to achieve them. After my passive income report of October I once took out my plans for 2020. They are written down in a small book which I use to make notes over the year. So, whatever 2020 made with this world, I have to check my goals for this year. And one of the very huge goals was to generate a passive income stream of 250 Euro from capital income.
I failed, to be honest.
But what to do now? My 5 year goals are on the financial aspect to achieve financial freedom. As I failed to do my part in 2020 – Is my overall goal at risk? Of course it is. As it is always. Now it is my task the get the best result in 2020 to close the gap and furthermore focus more on this goal in 2021.
Where do I see myself in 5 years?
Five years from now are quite a long time. It is 1.820 days and roughly beyong 10.000 hours. There is a lot of time to get things done and work on my progress. To answer the question my main answer is always: “Financial Freedom”. I dont want to quit my job and make it a goal today, but I want to work on the possibility to do so.
I tested being self-employed in August and September this year during my sabbatical. Nice time, but I was not able to put things into the right order. To stick to my 5 years goals I have to make “first things first”. And first things are mainly not watching YouTube 🙂
So, financial freedom for me requires the following things:
- My passive income covers my full monthly expenses
- My emergeny fund is filled with a full-year-salary
- I am able to work in my own company earning my current salary per month
I guess, it is quite easy to understand. Everyone has his own understanding of financial freedom. And this is mine. In my eyes reaching these goals is possible. There is just the timehorizon of 5 year goals, which make things a bit tricky. When I was in school and had to write into those friendship books I always wrote at the job: living from my assets at the age of 45. Therefore the time is set.
Answer: My 5 year goals are to achieve financial freedom in November 2025, having filled up the emergency fund with a full-year-salary and work in my own company. This together is my vision I have to work on.
How to plan my 5 year goals?
If you google for those topics of long-term-planning, you will find several sheets you are able to work with. I tried some of them, but I havent found that one to fill all of my goals and thoughts. Therefore I am working in my own version, which is a simple Google-Sheet.
Especially this year I made a quite huge plan and somewhere lost it in March. I think it is not necessary to plan that much (as I do), but in my case my plan was not enough to keep my goals in my focus. This is something I have to adjust in 2021.
I do not want to talk about my figures in total, as they are completely irrelevant for you. Everyone of us has his own goals and should make own steps to achieve them. Whether I invest 1.000 EUR per month or 2.000 EUR does not have any influence on your goals. And the same way around. But me for myself have to have to those goals. So I will use some numbers as examples here. In my future passive income reports I will express the status as a percentage of achievement.
Coverage of my monthy expenses
If my todays expenses per month are 2.000 EUR, it is the sum my passive income has to cover from 2026 on. But, there is something like an inflation rate, which I have to take care about. Over here in Germany this rate is somewhere between 0.5% and 2.0%, depending on whatever the goverment decides what to do. In my worst-case-scenario I will calculate with 2.0%. Therefore I have to increase the amount of 2.000 EUR into “5 years 2.000 EUR”. Adding 2.0% per year it will be an amount of 2.208 EUR, which has to be covered.
Calculation 2.208 EUR divided 5 years to go is yearly goal of 441,60 EUR of passive income. Hitting this goal every of the next 5 years will make me achieve my goal. Therefore goal #1 for 2021 is to generate a passive income of 441 EUR.
Emergency fund filled with a full-year-salary
I already talked this emergency fund in another blogpost some months ago. I think especially this year everyone has recognized how important such an emergency fund is. To feel safe I decided to make it a full-year-salary. Let’s take a sum of 100.000 EUR, which is more or less randomly. It is easier to calculate with it, because it is 20.000 EUR per year increase of the emergency fund.
Very important: This money is not supposed to generate passive income. It is not allowed to invest this money and take it at risk. If you do so, your emergency fund is at risk, which makes it completely useless.
And here is my goal #2: Nest egg 20.000 EUR in my emergency fund!
Increase my sidehustle
I worked my main job since I am able to think. At the age of 11 I was delivering newspapers, later on I did some book keeping and so on. I worked beside school, studies and of course work, as there has always been something I wanted to do instead of watching TV.
Taking my numbers that high with my 5 year goals needs also an improvement of my side hustle. Today the level of working beside my job is okay, but does not really influence my savings and investments. This is something I have to change next year.
Therefore my goal #3 is to generate a steady sidehustle income of 2.000 EUR.
And that’s it?
I do not know, whether you are happy with those goals having done them for yourself with your own figures? On the table there is plan and a rough idea. But I think I need to specify a bit to get things running. As for example I do not really know where to store my nest egg/emergency fund or how to generate the passive income stream. Of course I do know, what I have done until today. Checking my figures that wasnt enough to achieve my goal.
In the future I have to do something different, to achieve different goals. And with changing my perspective and my way of doing this I am able to adjust it and try to lead towards my goals. As I am probably the World Champion in planning things and not making them happen, I have to reduce my time to plan. The more decisions I make before, the less time (and need) is there to plan or adjust.
This is why I decided to do my financial planning for the next year a bit different. I do not know, whether it will be the key to my success. But doing nothing and waiting for things to come up seems quite dumb. So, maybe failing at some things, but learning and succeding at others is the better opportunity ot grow massively in 2021.
And it is the same with my 5 year goals. For now it is important to find grit and steadily work on them. I mean, I planned the hell out of my life over the last years. And it brought me somewhere or nowhere, but not towards the point I wanted to go. My financial freedom is still quite far away.
Coming back to the 5 year goals
After deciding what to do each year of the next five years I shortly made the experience, that it is quite useful to remind myself of those figures every day. There are people writing their journal every day and somehow they are successful. I do not think that they successful because of writing a journal or diary, but because they do it every day constantly.
There are different ideas, how to crush your 5 year goals. While researching for this blogpost I found a so called 5-4-3-1-method. You design your 5 year goals and will work on them in 4-months sprints. Those sprints are divided by 3-week-terms. This does not really add up to four months, but the idea is to constantly work on your goals and push those time-periods into the future.
When you are following me on Instagram you know, that I am working in four 3 months sprints per year. Everytime 90 days per quartile inspired by the Workbook from Joe Duncan / @before5am. You might be right, that I was not able to hit my goals with this type of working. But I think the problem is not the system, but more the work I put into (or not). Therefore I do not want to change this system now – but have an eye on it for the next two terms (until Dec 20 and than until Mar 21).
“Cut your life into pieces” – Papa Roach
Who does not know this song? The idea behind it is totally different, but for my case it works as a quote. Cutting my 5 year goals into year-pieces and after that into 90-days-pieces the total sum decreases. From 2k we are cutting down to 441,60 per month, which has the be generatet as passive income. I am currently calculation with an adjusted interest out of P2P lending, dividend shares and ETFs of 6,77% per year. So monthly I have to save an amount of 6.522 EUR to reach my yearly goal and my 5 year goals.
Additionally I mentioned to save another 20k per year as my emergency fund. This is 5k per quartile or 1.667 EUR per month, which I have to save. The total of 8.189 EUR sounds quite high, but not completely unrealistic. Okay, maybe it is unrealistic as well, but as I want more from my life, I have to give more.
Those numbers are just examples and I calculated with them to give you a rough idea how to prepare your 5 year goals over the years. Put in your numbers and adjust it the way you are willing to go and you will receive your numbers. Depending on your income and your wishes they will be higher or lower – whatever, there is no reason to not try it.
Make a vision about your 5 year goals
The first moment those numbers might lead to a huge motivation. But right after the first weeks and months this motivation might go away as you find out it is hard work to do so. I really understand as I often have quitted here. Looking and those folks, who did it, gives you an intention what to do: Execute further on!
Quite often this was the moment where I left the gamefield and quit. This time things are different, as I made up my decisions before. Targets and goals are set. There is no need to talk about them anymore. Just a hell out of work to do, which will lead my focus to the things which are really important.
Since I decided to do so, I made a kind of a visionboard for myself. It is very simple and includes different pictures from the things I want to achieve. There is a lot of money, a nice working places with a sea-view and a huge garden with playing kids. This is the moment where I will decide whether I want to work further on or not. It is a moment, where I am financially free and free to decide what to do. If you think the same about your goals, you might work on your 5 year goals and set up an own vision. It helps me a lot to re-focus again and again and again.
Now it is up to you:
What are your 5 year goals? Where do you see yourself in five years?