How To Be SMART When Setting Financial Goals

It’s very easy in these tough economic times to get absorbed into thinking that making ends meet is the only financial goal you should be setting. This simply isn’t the case; your financial goals should reflect your financial situation – if your finances are in check then you should be setting much more ambitious goals.

Goal setting is extremely important, in any walk of life. Goals not only motivate you but they give you something to strive for. Without goals it can be very easy to simply drift along with very little direction. When setting goals you need to strike a balance between being both ambitious and realistic. Setting goals that you are never going to reach is demotivating and often counterproductive.

One particular system that works well when looking to set goals is the SMART system. The SMART system defines that all goals should be:

S – Specific

M – Measurable

A – Achievable/ Attainable

R – Relevant

T – Timely

Specific – By setting a goal that is specific, you greatly increase your chances of success. When setting financial goals many will be very general e.g. increase my level of disposable income or pay off some debt, while these give you some direction, you never have a clear end goal. Rather than being general, set goals like; knock $100 a month off my essential expenses or clear $1,000 worth of credit card debt in the next six months. By giving specific figures and identifying realistic time frames you can work on creating an action plan regarding how you are going to hit your goal.

Measurable – How are you going to [tooltip text=”track your progress” gravity=”ne”]If you want to track your progress, I suggest setting up some goals in Mint.com or many of the other great programs.[/tooltip]? In order to accurately predict whether you are on course you need to determine where you stand in relation to your target. Not tracking your progress can lead to a lack of motivation. If you’ve set a long term goal (5+ years) it can be easy to feel like you are a long way away from your target, however by sitting down and looking at your current situation in relation to your timescale, you’ll probably find that you’re right on track.

Achievable/ attainable – As I mentioned above, while it is important to be ambitious, making sure your goal is attainable is equally so. While in the long term you may want to be completely free of debt, realistically, you may have some constraints (such as upcoming expenses) that mean that this is not attainable in the near future. In this situation simply set a more short-term goal like paying off a credit card within the next 6 months.

Relevant – Your goals should be set in line with your current financial and personal situation. Just because your friend is looking to pay off their mortgage it doesn’t mean this is a good financial goal for you. Sit down and think about where you want to be in 5 or 10 years’ time. If you’re currently renting a property and in the future you want to own one then this may be a good goal for you. Alternatively, if you’re a young adult who’s looking to move out of your parents property, calculate how much you need to save to cover the down payment and closing fees, set a target date and create an action plan.

Timely – As I’ve outlined throughout; a goal without a time frame is simply a wish. In order to fully validate your goal you need to set a deadline.  By doing this it also gives you a sense of urgency; if you need to save $300 in a month to stay on track then you’re going to do everything in your power to save money. By listing some milestones along the way (and potentially rewarding yourself when you hit these) you’ll ensure that you stay motivated and driven.

Author Bio: Jason Scott regularly writes content for a number of finance related websites. You can find more of his content by following @UKCredit on twitter.

Image courtesy of pakorn / FreeDigitalPhotos.net