As 2020 comes to an end, you are probably looking forward to all of the things that a new year brings including a fresh start. And, if you’re like most people, managing your personal finances is probably at the top of your list of resolutions. But first, you’ll need to put some thought into what you want to achieve – do you want to save money? Pay off debt? Build an emergency fund? When you narrow it down, you can then begin to formulate achievable, but ambitious financial goals and enhance them to SMART goals. Briefly defined, a SMART goal is one that is…
Specific Measurable Achievable Realistic Time-Limited
The SMART method is designed to help you approach your personal finances in a logical, orderly, and intelligent way. You can transform your personal finances by kicking old habits that are less than healthy and establishing new ones that will set you up for success. With reasonable and actionable goal-setting, you can propel toward the financial future you desire.
Specific – State exactly what your goal is
All aspects of your personal financial plan should be as specific as possible and the first element is to define some goals. Begin with targeting a specific area of concern. What exactly is it that you want to accomplish? What is your goal boiled down to in five words or less? For example, a specific goal to set could be “Pay off all my debt.”
Measurable – Figure out the exact dollar amount needed to achieve the goal
In order to ensure that your specific goal of paying off your debt is met, it must be measurable. The key to measurability is being able to quantify it. In other words, placing an exact monetary amount here gives you a measuring stick and a target to shoot for. To make this goal measurable, you would add “Pay off the full $2,500 debt amount until it reaches $0” to your goal.
Achievable – Determine how it can be reached based on your budget
An achievable goal is one that you can actually attain. In this scenario, you need to think about how you will pay off your debt. Where will you find extra cash to pay it down? Perhaps you can cook at home a couple more days a week and put that money you would spend on eating out towards your debt instead. Be sure to set objectives that may feel challenging, yet doable. To add the achievable aspect to this goal, you would state “Adjust my budget slightly to contribute extra cash to my debt.”
Realistic – Only set a goal that is attainable and realistic
Although realism and achievability may seem to be the same thing, they are actually quite different when it comes to the particulars of financial planning. While making sure your goal is attainable, you need to make sure it’s also realistic for not only yourself, but also your financial situation. Focusing on the goal to pay off debt, be sure it’s financially realistic by stating “My budget permits me to contribute $200/month to my debt.”
Time-Limited – Specifically state when the goal needs to be reached
It is also essential to commit to reaching your objectives within a reasonable timeframe and take approaches that will allow you to stick to a schedule. This part of the SMART framework is intended to prevent goals from being overtaken by the day-to-day tasks and responsibilities we all have. Give your goals a target date to achieve them such as – “By contributing $200/month, I will pay off my debt in 12 months.”
To recap the process of setting and achieving a SMART goal, follow this example:
Specific: “Pay off all my debt.”
Measurable: “Pay off the full $2,500 debt amount until it reaches $0”
Achievable: “Adjust my budget slightly to contribute extra cash to my debt.”
Realistic: “My budget permits me to contribute $200/month to my debt.”
Time-limited: “By contributing $200/month, I will pay off my credit card debt in 12 months.”
Life happens and we all hit speed bumps and roadblocks on the path to reaching our goals sometimes. So don’t get discouraged if you hit some challenges or get side-tracked along the way. As long as you stay focused, refer to the SMART framework you put in place, and continue taking small steps towards achieving it, you’re well on your way to crushing it! Check out 4 money moves you should make to incorporate into your goals and for more financial tips, be sure to read our Money 101 blogs. Need assistance with your finances? We’re here to help! Speak with a financial advisor today.