The most successful people have a very clear idea of what they want. Creating SMART money goals will help guide you in achieving great things. What are SMART money goals? How can you make SMART money goals that you actually accomplish?
Let’s break down this acronym.
Specific – Measurable – Attainable – Realistic – Timely
SMART goals provide a clear sense of purpose, focus, and direction. You define what you want to accomplish and when you want to accomplish it.
Specific money goals are well defined and clear. When creating a specific goal make sure you address the following questions:
- Who is involved in this goal?
- What do I want to accomplish?
- Where is this goal to be achieved?
- When do I want to achieve this goal?
- Why do I want to achieve this goal?
Do not say, “I want to pay off debt”
Do say, “I want to pay off my American Express Credit Card in the next 6 months so I can get out of debt”.
Measurable money goals are ones that allow you to clearly see progress. Think about it, if you cannot see your progress, then how do you know if you are accomplishing your goals?
When creating a measurable goal make sure you address the following questions:
- How many/much?
- How do I know if I have reached my goal?
- What is my indicator of progress?
Do not say, “I want to pay off my entire American Express Credit Card in 6 months”.
Do say, “I want to pay off my $6,000 American Express Credit Card bill within 6 months by contributing an additional $975 each month ($25 minimum payment + $975 = $1,000 per month * 6 months = $6,000)”.
You want to have a money goal that you can realistically achieve in a reasonable period of time. You should be challenged but not overwhelmed.
When creating an attainable money goal answer the following questions:
- Do I have the resources and capabilities to achieve the goal? If not, what am I missing?
- Have others done it successfully before?
Do not say, “I want to retire”.
Unless you are one year away from retirement, this goal is good to have but, add a little more detail. For instance, do say, “I want to max out my 401(k) and IRA contributions this year”.
In this way, you are working towards your larger goal of retirement, but you are condensing this larger goal into a smaller segment.
A realistic money goal is one that can be achieved given the resources available to you.
For instance, do not say, “I want to max out my 401(k) and IRA contributions this year” if your income is $5,000 or you are unemployed. This is because you do not have the resources available to you to achieve this goal.
If your income is $5,000 or you are unemployed your goal should be something like, “I want find a job where I can earn $60,000 a year that has an employer sponsored 401(k) plan with a matching program”.
When you are developing your money goal make sure there is a clear start and end date.
For instance, if your goal is, “I want to retire”, more likely than not we are looking at a decade or more time horizon. Within that time horizon you may end up taking time off, you may end up with a medical or other emergency that halts your savings and pushes your retirement date back. Basically, there is no clear end date.
However, if your goal is, “I want to max out my 401(k) contributions this year” then this is much more timely. There is a clear start and end date because the clock on contributions starts on Jan 1 and ends on Dec 31.
- When developing a plan to take control of your finances, whether to pay off debt, increase savings, or become more knowledgeable about your personal finances, creating SMART money goals is essential.
- If you need help defining your goals, creating a plan, and holding yourself accountable, a financial coach may be just what you are looking for.
- Interested in learning the top 10 money goals for financial independence? Click here!
- If you have any questions let me know! I am happy to answer.
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