There’s a difference between setting financial goals and achieving them. Anyone can say they want to save $50K, but do they actually save it? The key to setting financial goals is to make them SMART so that you can actually achieve them.
Whether you’re wondering how to get rid of your debt or how to save a certain amount of money for retirement, making any financial goal you set SMART will increase your chances of achieving them.
What are SMART Financial Goals?
SMART financial goals are Specific, Measurable, Achievable, Realistic, and Time-Based. This method can be used for short-term, mid-term, or long-term goals. Here we’ll break down how to make these acronyms work for you and your goals whether you’re looking for debt relief, to save more money, or to achieve a major milestone.
How to Set SMART Financial Goals
Each goal you set should go through the SMART steps to make sure you can achieve them. Setting lofty goals without a plan will just leave you disappointed with unachieved goals.
Here’s how to set SMART goals.
Create Specific Goals
Your goals should be specific. This means in detail like how much you want to save, but it should also state your ‘why.’
For example, just saying ‘I want to save money for a down payment on a house’ isn’t enough. It’s not specific. How much do you need to save? How often will you save? It has your reason in it, which is good, but it needs to be more specific.
Instead, you could say ‘I want to save $10,000 in the next 2 years to buy a house,’ for example. You could also say ‘I want to save $500 a month for a down payment on a house.’
The key is to make your goals specific so you have something to guide you to reach your goals otherwise you’re just aimlessly trying to reach random goals.
Make your Goals Measurable
Your goals must be easily measured. Think about when you’re trying to lose weight. You usually set a number, right? You can also weigh yourself to see how far you’ve come.
The same principle applies to financial goals. They must be measurable. Using our example above again, you shouldn’t say ‘I want to save money for a down payment.’ Instead, you can say ‘I want to save $10,000 in the next 2 years to buy a house,’ but you can even take it a few steps further.
Saying you want to save $10,000 in 2 years can feel overwhelming or unachievable. Instead, break it down. Figure out how much you can afford each month, week, or even day to reach your goal and state it.
This gives you something to measure. You know by each date how much you should have saved and if you don’t, you can go back to the drawing board and see what happened.
Keep yourself Motivated with Achievable Goals
You can set all the goals you want, but if they aren’t achievable, they’ll only set you up for disappointment. To keep yourself motivated, set achievable goals that you can create an action plan for to help you make them a reality.
For example, you want to save $500 a month. That’s great, but how will you achieve it? Look at your budget and see if that’s a feasible number. If it is great, you can set your goal and put it into action.
If it’s not, you might have to do some shuffling around to see what you can change. Are there expenses you can cut or eliminate altogether? Do you need to start a side gig or invest money so your money grows faster?
This is important and it goes back to our talk about setting ‘lofty’ goals. Sure you could say you want to save millions of dollars, buy a million-dollar house and take a 3-month vacation to Hawaii, but is it realistic?
When you set your goals, make sure they are something within your reach. They can stretch you outside your comfort zone slightly, but don’t make them so unrealistic that you’ll never reach them.
If you’ve failed at setting goals before, we suggest setting small, very achievable goals first. For example, make a goal to save $500 in your savings account. You can likely achieve that in a short amount of time. When you do, you’ll feel good about your ability to reach your goals and will focus on realistic goals versus those dreams that would be amazing, but probably aren’t real.
Set Timelines and Milestones
Each goal you set should have a timeline, and for longer-term goals, you might include milestones. This does two things. First, it gives you a way to measure how you’re doing. If you had a goal to save $1,000 in 1 year and after 6 months you have $20 saved, you can tell you aren’t going to meet that goal.
Second, it helps you prioritize your goals. You might have many goals that fall within the same timeline. You might have to pick and choose for a while until you free up some money to achieve more goals.
If you have long-term goals – usually 5 years or longer, consider setting up milestones. In other words, checkpoints to see how you’re doing. This way you know after 1 year if you aren’t where you should be with your goal, you might have to make some adjustments.
Setting SMART goals is the best way to achieve what you want in life. Don’t worry, they aren’t set in stone. You can change them at any time and you don’t have to share them with anyone if you don’t want to.
The key is to set yourself up for success by setting specific, measurable, achievable, realistic, and time-driven goals. Start with a few small goals and work your way up. If you ever need help figuring out how to manage your finances so you have money for your goals, call EmpireOne credit counsellors today!