S - Specific
Set clearly defined goals.
When setting your financial goals, you need to be SPECIFIC. Some examples of financial goals are:
- I want to be debt free.
- I want to buy a new home.
- I want to build an emergency fund.
Ask Yourself: What is my specific goal and what do I need to do to achieve it?
Special tip! It could be as simple as saying you want to save $5,000 this year for an emergency fund in case your roof needs a repair or to help with your commitment to stay away from your credit cards. In any case, you need to get specific and give your goal some personal meaning so that you stay inspired and on track.
M - Measurable
Review your progress regularly.
For a goal to be effective, it must be measurable. To say, "I want to have a lot of money in my retirement fund" is not a measurable goal because you cannot measure "a lot". Be clear in your financial goals as stated in the first step and set an actual number or dollar amount to that goal, this way you can review your progress on a regular basis to see where you are at. When your goals are measurable, they are easier to track and will give you checkpoints along the way making it easier to track your progress.
Ask Yourself: Is there a straightforward way to measure my progress towards achieving this goal?
Special Tip! Break your goal down based on your paycheck cycle to make it even easier to stay on track, e.g. $4,000 divided by 52 weeks in the year is $77 per week, times 2 if you are paid every other week. This comes to saving $154 bi-weekly.
A - Attainable
Set goals within your reach.
Now that your goals are specific (“I want to put $100 extra towards credit card debt every month to pay off my debt” or “I want to save $100 every month to pay for a summer holiday”), you need to put those goals into action.
Setting attainable goal can be challenging. While you want to strive to achieve your goal, setting a goal that is not attainable will only lead to discouragement. Make sure your financial goals are ones that are attainable and that you are able to achieve.
Ask Yourself: How will I stay on track and achieve my goal? Is my action-plan feasible in the long run?
R - Realistic
You need to have the ability and commitment to succeed.
Setting realistic goals involves the methods that you intend to use to achieve those goals. For example, a goal of funding your retirement fund by lottery winnings obviously isn't realistic. An example of a realistic goal might be to pay off all credit card debt by 2021 by paying an additional $500 per month on that debt.
Ask Yourself: Are my goals and my action plan realistic? Do I need to reshape my big goals into smaller, easier goals in order to monitor and achieve them?
T - Timely
Set goals with a clear end date.
This last element of SMART financial goals is important. Effective goals have time limits.
- Short Term Goals would be less than 1 year to 2 years.
- Medium Term Goal would be 3 - 5 years.
- Long Term Goal would be greater than 5 years.
- Long-term goals generally involve retirement, saving for a child’s education, paying off the mortgage, and so on.
- Medium / Intermediate-term goal might be to save $15,000 in four years to buy a new car.
- Short Term goals is to pay off credit card debt.
Ensure that you are putting a time element to your goals Not putting a time element to your goals is a problem with the three example goals above. Let’s rewrite these goals adding a time frame to each of them:
- I want to pay off all my credit card debt by December 31, 2020
- I want to save $15,000 for a new car by March of 2024.
- I want to pay off my mortgage by September of 2030.
Ask yourself: Does my goal have a time-frame that’s realistic and that will keep me focused? Finally, when setting your goals, sit down with a pen and paper and think through all your goals, short-term and long-term. You could end up with a mix of short (within the year), medium (within 2 to 5 years), and long-term (over 5 years) goals.