Many of us will be setting financial goals as the New Year approaches.
No doubt, setting financial goals is an essential first step toward realizing your vision for the new year and your future financial situation.
But many people fall into the trap of setting overly ambitious goals without having metrics to track or measure their progress. Sometimes these goals are broad and vague. This makes it difficult to focus and see it through to the end.
One way to avoid setting unrealistic goals is by using the SMART technique.
Let's have a look at the SMART strategy and how you can apply this to set your financial goals.
SMART is an acronym that stands for:
This strategy emerged in the field of management sciences as a way for organizations to set and measure their goals. Since then, various other fields have adopted the SMART strategy because of its practicality.
The SMART framework suggests that to make sure your goals are clear and reachable, each one should be:
Let's look at how you can use the SMART technique to set and achieve your financial goals.
Make your financial goals clear and specific so you have a clear understanding of what you want to accomplish. A well-defined goal makes it easier to achieve. You can focus your efforts on the most important tasks that would get you to your intended financial target.
A viable way of setting financial goals is by trying to answer the five "W" questions:
For example, you might start with the general notion that you want to save more money or that you want to start investing for retirement. These are good starting points, but it's difficult to meet goals without a clear target.
This will give you a picture of not only what you want to do, but how you can go about achieving it.
If your goal is not measurable, it is easy to go off track.
Creating ways to measure your progress helps you keep tabs on your financial journey. It also provides a way for you to evaluate your process. This is by identifying areas where you fall short and need to improve, and areas where you
For example, if you are saving towards a down payment for a house, you can make your goal measurable by specifying how much you want to save within an allotted time (let's say a year).
Then you break this further down into the amount you would need to save every month or every week. This way, it is easy to know if you are behind your goal by looking at when you don't meet up with your weekly or monthly target.
Assessing progress helps you to stay focused, meet your deadlines, and feel the excitement of getting closer to achieving your goal.
To make your financial goal achievable, identify what particular steps you'll need to take to bring your goal within reach.
For example, in the case of saving for a down payment, one of the best ways to make your goal achievable is to set up automatic contributions.
When you automatically send the money to a separate account for your down payment, you'll avoid the temptation to spend the money elsewhere.
On top of this, you can make your goal of saving for a mortgage down payment achievable by ensuring you can live on what's left of your pay after your contributions are taken out. Other avenues you can explore to make your goal achievable are by cutting discretionary spending and looking for ways to increase your income.
When you set an achievable goal, you may be able to identify previously overlooked opportunities or resources that can bring you closer to it.
Set financial goals that are realistic for you.
It is fine to set a challenging financial goal as this can help you push yourself, but be sure to set goals that are within reach else you outdo yourself in the process.
For instance, if you want to be married in two years, it would be exceedingly challenging, if not impossible, for someone with an ordinary income to save up enough money for a $100,000 luxury wedding.
Plan your objective instead based on what you can afford.
The average cost of a wedding ceremony and reception in 2021 was $28,000, so you might reduce your spending to that amount. To make saving for a bigger wedding more feasible, you may also postpone your wedding for a few years.
A goal is a dream with a deadline.
This underscores the importance of attaching your goal to a time. If there is no timeframe to achieve your financial objective, it is just a vague dream. There would be no incentive to go after it, since it can always be postponed.
This criteria also helps to prevent everyday tasks from taking priority over your longer-term goals.
A time-bound goal will usually answer these questions:
For instance, if you want to save $1 million by the time you retire, you can divide your retirement goal into smaller, more manageable chunks.
Setting goals for how much of your balance you'll have paid off by certain dates will help you remain on track and make a realistic plan when it comes to paying off high-interest debt.
SMART is a powerful tool that gives you the clarity, drive, and concentration you need to reach your objectives.
By outlining your goals and picking a deadline, the SMART technique can also help you achieve them. Anybody, anyone may implement SMART goals with ease.
SMART goals have many benefits, but they also have some drawbacks.
Because your goal will be well-planned, for instance, you can become fixated on finishing it by a specific date. Additionally, it might make you yearn for further successes in the future and might even pave the way for a never-ending cycle of setting and achieving goals.
Making SMART goals may be too ambitious for some people.
Setting financial goals does not start and end with what.
You have set a timeframe and develop ways to measure your progress. You also have to understand the resources you have, recognize your strengths, and acknowledge your weaknesses. Taking all this into consideration will enable you to set realistic goals.