How to Set SMART Financial Goals

Your guide to setting SMART financial goals. We show you how to create goals that are Specific, Measurable, Actionable, Result-focused, and Time-bound.

It’s fairly easy to set financial goals, if you think about it.

“I want to be rich.” “I want to get out of debt.” “I want enough money to retire comfortably.”

See? Easy.

While these are all wonderful, worthwhile goals, I wouldn’t necessarily argue that they are SMART.

What Is a SMART Goal?

You may be wondering why I’m capitalizing the word SMART. Well, while I believe your goals should also be wise, SMART is an acronym for determining just how smart they really are.

SMART stands for specific, measurable, attainable/actionable, relevant/results-focused, and time-bound. Let’s delve into each one a bit and see exactly how you should lay out your goals.

S  for Specific

Goals have different meanings for different people, so the acronym can also be altered slightly to fit the circumstance. Because of this, you could also use S to stand for Simple, Sensible, or even Significant. For simplicity’s sake, I’ll stick with Specific here.

When setting goals in personal finance, it’s important that they be specific. Simply saying that you want to “have more money” just won’t cut it, no matter how great of an overall goal that may be.

In order to actually reach your goal, you need to establish more defined criteria.

So, you want to have more money. Great! But what do you mean by that?

Do you want to pay off high-interest credit cards and student loans, in order to free up cash flow and add more money to savings? Or maybe you want to spend less money each month. This is very easy to say, but without some elbow grease and defined terms, it can be difficult to put into action.

When setting your goals, make them as specific as you can. Say things like,”I want to put $4,000 in my IRA this year” rather than “I want to save more for retirement.” Set goals like,”We want to cut our grocery bill in half” instead of “Let’s spend less on our bills each month.”

M for Measurable

Again, the M can mean different things depending on your circumstance, such as Meaningful and Motivating. For us today, we are going to focus on Measurable.

If you have no way of measuring your goal’s progress, you have no way of really defining it or achieving it. You’ll need to set some parameters, as an extension of the Specific aspect above.

If you’ve determined that you want to pay off debt, define what that means for you personally. Are you alright with having a car payment, as long as those credit cards are paid off? What about your mortgage–do you consider that part of your debt when setting goals?

You may even want to split your goal up into segments. Maybe you have $100,000 in debt and it seems impossible to ever climb out. However, if you break that debt up into measurable pieces that can be more easily achieved, you’ll begin to see light at the end of the tunnel.

Maybe this means saying something like,”This year, I will pay off three of my credit cards.” No, it won’t immediately get you out of debt, but this mini-goal will get you closer to being debt-free. And you can use a method like the debt snowball to help you get there even faster.

A for Attainable

Attainable, Achievable… the idea is the same. At the end of the day, your goals have to be realistic, or you’ll never reach them.

Now, this isn’t to say that you can’t set some wildly exciting goals. For instance, I would love to one day sail around the world in a yacht. Deep down, I know this probably won’t happen, but it’s fun to dream, right?

However, when we are talking about concrete financial goals–and SMART ones, at that–you need to set some more plausible parameters.

Let’s say that you decide you want to be a billionaire. That’s quite the goal, and I wish you luck! However, take a step back and determine whether you’re truly capable of such.

Does your career path allow you to find a position with very high pay? Are you able to find an alternate income source, such as a profitable investment or invention, that can begin building your wealth to extreme levels? Do you have other constraints that would prevent you from being able to maximize your resources?

Set goals that challenge you, but make sure that they are still within the realm of possibility.

R for Realistic

This could also stand for Results-Based, Resources, or Relevant, depending on you and your goal. We are going with Realistic.

This ties in somewhat with keeping your goals attainable, but takes it a step further. It factors in the time, effort, and skills that you have to put toward your goal, and whether your goal is still a realistic one.

If you want to be able to save $2 million for retirement, but you’re 35 and haven’t saved a penny, you might want to consider how realistic your goal actually is. Or maybe you want to pay off all $90,000 of your student loan debt by the end of this year–unless you’ve got some serious savings tucked away, a new job on the horizon, or make some serious changes, you may want to reevaluate your goal.

T for Time-Bound

Timely, Time-Sensitive… no matter which “t” you choose, this last aspect of a SMART goal has to do with some time constraints.

It’s important to set a deadline for your goals, in order to prioritize them, give you something concrete to work toward, and also allow you to evaluate whether you’ve met them.

It’s very easy to say,”I want to pay off all of my debt.” If you don’t establish some rules, though, you could be saying that same thing to yourself ten years from now.

Try setting goals like, ”I want to be completely debt-free in five years.” Or maybe a goal such as, ”I want to cut my monthly expenses by 30% in the next six months.”

Then, as you approach that goal’s deadline, you can decide if you’re on track to meet the goal, if you need to refocus your efforts, or if you’ve even met it early. Having a defined point in the horizon can ensure that your goals don’t just slip by the wayside.

Want to Make Your Goals Even SMARTER?

Paul J. Meyer, author of Attitude Is Everything, established the original SMART goal rules. However, some others have come in and expanded it even further, saying we should be setting SMARTER goals.

The additional letters in the acronym stand for Evaluated and Reviewed. These are particularly helpful with long-term goals, as it is important to regularly evaluate their progress.

It can also be helpful to review, or have someone else review (such as  a financial advisor) whether your goals are attainable. If you could be doing more to reach your goals, or working toward them in a different way, it can be invaluable to have another set of educated eyes looking at the bigger picture.

In Closing

At the end of the day, it’s important to have financial goals. Simply chugging along each day can lead to years of missed opportunities, wasted money, and even financial ruin.

Evaluate your financial situation and any goals that you may have. Do you want to retire early? Maybe it’s important for you to get out of debt as soon as possible. Or perhaps you just want to be able to save 50% of your income.

No matter your financial goals, set aside the time to spell them out. Not only will you ensure that they are smart, but you’ll make them that much easier to reach.

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