Most of us are familiar with setting goals in our lives. They tend to revolve around work, health, and personal finances.
But they also tend to be abandoned almost as quickly as they’re made.
Setting money goals is a great way to prepare for your financial future, but how can you make sure you’ll have a shot at reaching them?
By making them SMART financial goals!
What Are SMART Goals?
SMART is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-based.
It’s a popular framework for establishing your goals in a way that makes you more likely to achieve them.
Here’s how it works:
Goals Should Be Specific
Goals like “be healthier” or “save more money” are too general.
There’s too much wiggle-room and not enough specificity to make them effective.
To make a goal like “save more money” specific you’ll turn it into “I will save $5,000 in my emergency fund by the end of the year.”
Your Goals Need to Be Measurable
Whether you’re tracking the amount of dollars saved or the number of days you pack a lunch, you want to make sure your goal can be measured.
Not only is it important to have a measurable goal so you know when you’ve actually hit it, but being able to track your progress will give you extra motivation as you pursue it.
Seeing your emergency fund grow or your credit card debt shrink will inspire you to keep moving forward.
Make Sure It’s an Achievable Goal
While you want to make your goals big and a bit of a challenge, you also want to be careful to keep them realistic.
If you set your goals too high at the start you’re giving yourself an excuse to fail.
Your financial situation will dictate what’s realistic or not. To make sure you’re setting an attainable goal take a look at your income and expenses to see how much you can afford to save.
Setting a short-term goal of saving $50,000 for a house down payment this year isn’t realistic if you’re only making $48,000 a year.
But expanding out your time frame and making it a long-term goal over the next several years will turn it into an attainable goal.
Is Your Goal Relevant?
When you think about what you want your life to look like in 5 or 10 years, is this goal relevant?
Assuming you want to achieve financial security and freedom, absolutely saving $5,000 would be relevant.
If your goal is to save up for a beach house, but you hate the sand, it may not be a goal you can stick with.
Relevancy is important because it’s what will keep you motivated.
That’s not to say you can’t make it a goal to buy a beach house, but if you start to lose the desire after a while, you’re going to give up.
Goals Need to Be Time-Bound
Finally, a SMART goal needs to have a set time frame.
- Is this a short term or long term goal?
- What period of time are you giving yourself to hit it?
- Is there a time constraint like an introductory APR or due date involved?
Having a deadline will keep you focused and on course. It fuels the need to take action.
Why You Should Set Financial Goals
Being intentional with your money is the cornerstone of financial success.
Setting goals for your money is a great way to gain awareness into your spending habits and become intentional with your decisions.
As you clarify your goals you’ll gain a better understanding of your financial picture so you can start to define your priorities.
Being crystal clear on your priorities will help you stick with your goals even when things get tough.
You may have set goals in the past only to struggle with momentum and willpower. Instead of throwing in the towel altogether, try adjusting your goals to be SMART.
Examples of SMART Financial Goals
Goal: Pay Off Credit Card Debt
“Pay off debt” is a worthwhile goal, but it’s not a SMART one.
Let’s SMARTen it up: “I will pay off $10,000 of my debt by Christmas.”
Let’s double check:
- Is it specific? Yep. You know how much and by when.
- Is it measurable? Sure is. You can easily track how much you’re paying off as well as know when you hit your target.
- Is it achievable? This depends on your income and other expenses, but for this example I’ll say yes.
- Is it relevant? If you want to be debt-free it is!
- Is it time-bound? Yep. You’ve set yourself a Christmas deadline.
Goal: Save for Retirement
Again, “save for retirement” is a great idea, but doesn’t have much clarity to it.
Let’s try “I will contribute 10% of my paycheck to my 401k this year.”
- Is it specific? Yes. You’ve got a clear plan of action.
- Is it measurable? Sure. You can easily specify percentage contributions with your employer.
- Is it achievable? If you’re not saving anything and living paycheck to paycheck it may not seem like it, but you can start gradually and work your way up. So, yes.
- Is it relevant? Assuming you want to retire someday, definitely.
- Is it time-bound? Yep. You can either start immediately or set a target date to hit that 10% contribution level.
Some Smart Financial Goals to Target
If you know you want to set some goals for your finances but aren’t sure where to start, here are some ideas:
Earn More Money
- I will declutter my home and sell what we don’t need online before the end of the month.
- I will start a side-hustle that generates some additional income by the end of the year.
Spend Less Money
- I will tackle a no-spend challenge this month.
- We will only spend $100 on eating out this month.
Pay Off Student Loans
- I will round-up my student loan payment every month.
- I will cut expenses and pay off an extra $5000 of student loan debt this year.
Pay Off Credit Card Debt
- I will pay off my highest interest credit card by the end of the year.
- I will sell my old gadgets on Decluttr by the end of the month and put that money toward debt.
Improve Your Credit Score
- I will pay all of my bills on time and pay extra this month to reduce my debt-to-credit ratio.
- I will pay my credit card balance in full every week to keep my usage low.
Save More Money
- I will save every $5 bill I receive for the entire year.
- I will try a money-saving challenge this month.
Save Money for Retirement
- I will contribute 10% of my paycheck to my 401k by the end of the year.
- I will save $5,000 for my retirement funds this year.
- I will open an account and set up automatic contributions with M1 Finance today.
- I will open a Digit account this week to invest money automatically.
Invest smarter with M1 Finance. Get free investing, high yield checking, low rate borrowing, automation, and optimization. For free!
Goal setting by itself is a sign that you’re on the right track. Thinking about and planning for your future is how you start to recognize your priorities and start living the life you want.
By taking your goals a step farther and making them SMART you’re setting yourself up for success.
If you’ve got some specific financial goals I’d love to hear about them! Drop a comment or email me if you want some added accountability.