If you want to take charge of your life, you need to set goals. This is a truism that applies to breaking a bad habit or being a better person just as much as it does to your financial life. Setting goals is the first step to getting where you need to go.
What comes as a surprise to many people, though, is that setting goals is more complicated than just saying “I’m going to fix my money problems” and calling it a day. If that was all it took, we’d all be living the life of Reilly — and you wouldn’t be reading this.
So what does it take to make a goal that will actually work for you? “SMART goals” are big in the business world, but they can also help you achieve your financial dreams. This powerful little acronym can help put you on the path to success when it comes to solving problems with your budget, income, credit score and more.
What Is a SMART Goal, Anyway?
SMART is an acronym designed to remind you of the steps required to turn a wishy-washy idea into a goal with detailed steps that will get you where you want to go. SMART stands for:
- Specific: Make your goal as specific as possible, narrowing your focus to a particular budget item or area of your finances to keep your eyes on the prize.
- Measurable: You’re dealing with dollars and cents here, so be sure to attach a number to your goal.
- Attainable: Keep in mind your particular circumstances and limitations of time, energy and resources as you make your goal. It’s good to stretch yourself, but a goal that’s too pie-in-the-sky to achieve will only frustrate you in the end.
- Relevant: It should go without saying that your goal should be something that will actually improve your quality of life. Forget about what your mom thinks will make you look successful and focus on your own needs and desires.
- Time-based: You need to give yourself a timetable and some benchmarks to meet along the way to help stay on track and make your goal easier to accomplish.
With these five tips in mind, you’re ready to write down a truly useful goal that has some built-in keys to success.
How to Craft a SMART Financial Goal, Step by Step
- Start General, Then Add Specifics
First, think of what you want most out of your financial life. Is it a better credit score? A more workable budget? A nest egg for retirement? Choose an area of focus.
For example, let’s go with one of the most common financial goals around: building savings. On its own, that’s pretty vague. To make this goal more actionable, it needs some detail. So think about your specific needs and goals to get focused.
For example, let’s say your goal is to save up for a vacation; in particular, a cruise to Bermuda. That’s much more specific, and sets the stage for doing some research in the next step.
- Crunch the Numbers
To make that vacation savings goal something measurable, it’s time to add some dollar amounts to it. To do this, you’ll need to research exactly how much a cruise to Bermuda costs — or the details surrounding whatever your personal goal is.
Once you have your numbers in mind, you’ll need to decide on the timetable required to keep your goal attainable. If that cruise is going to cost $2,000, it might not be reasonable to think it’s going to happen next month. You can play with the numbers to see how much you need to save each week or month — and for how long — to reach your goal. There’s no right or wrong answer here, so play with a bunch of different options until you hit upon a time-based schedule that will let get you where you need to go while remaining doable.
For example, If you start in September, you have 10 months to save $2,000 for a July cruise. That means you’d need to set aside $200 a month. If that feels doable, great! But you could just as easily postpone the trip for another year so you’d only have to save $90 per month.
- Map Out Your Strategy
Now that you’ve decided to save $90 per month for the next 22 months to splurge on a cruise to Bermuda, it’s time to figure out how to do that. It’s unlikely that $90 is just going to appear in your vacation savings account without you making it happen. So how will you do it? Here’s where you’ll need to decide on specific, relevant savings strategies to reach your goal.
For example, you may have a job that allows you to work overtime pretty regularly. If so, sign up for extra shifts to cover the $90 each month. If overtime isn’t relevant to you, you may want to take on a side gig or cut some cash from another budget area like eating out or shoe shopping.
Whatever you decide, be as specific as you can about how you’ll get the job done.
- Track Your Progress
How will you know if you’re going to be ready to book that trip? It’s crucial to hold yourself accountable for your progress. Set a reminder on your phone to make sure you don’t forget to complete those steps toward your goal each month. It’s also a good idea to automatically shift money into your savings account if you can so you won’t accidentally forget to do it.
What happens if you have a bad month and don’t meet your benchmark? In this case, you’ll need to revise your plan to catch up over the next few months, or push your final deadline into the future. Whatever works for you is fine, but
don’t let yourself off the hook too easily or too often — be your own taskmaster to help stay on track.
- Enjoy Your Reward
Once you reach your goal, be sure to celebrate! Your success is also a great motivator to set another goal, as you’ll have built up the skills and confidence to follow through on your personal financial plans. There’s always room for improvement when it comes to your financial health, so consider always having a goal on tap to work on.
What motivates you to work toward your financial goals? Got any tips for sticking to your plan? Share them in the comments!