What Makes Your Financial Goals SMART?

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It’s easy to get ahead of yourself. When spotting an issue, you might jump into problem-solving mode without even thinking. Say someone is renovating an old house and decides their first step is to paint the front door. This plan doesn’t make sense and is not smart because it’s not prudent to do the finishing touches without addressing the larger structural issues first.

You can apply the same idea to your finances.

There may be many changes you want to make with your money. Maybe you want to invest more, or double down on your retirement savings, or ensure next year you get that dream vacation.

But before you buy non-refundable airline tickets or dump a hefty chunk into your portfolio, you need to see how these changes fit into your existing plan and how to accommodate them.

The starting point? Your goals. Many people struggle with goal setting, so we’re going to walk you through a technique that helps you create more intentional goals today:  SMART goals.

What Are SMART Goals?

The SMART acronym dominates the business landscape and can be applied to nearly any type of goal you set – from personal to financial and more. 

  • S (specific)
  • M (measurable)
  • A (attainable)
  • R (relevant)
  • T (time-bound)

The SMART strategy brings clarity, purpose, vision, and intention into your goal regime. Instead of simply stating a goal, SMART goals ask you to dig deeper and make a plan for achieving it. What do each of these items mean and how do they work in practice? Glad you asked. 

1. Specific

Specific goals cut through vague notions and provide tangible, concrete conclusions. The more specific the goal, the more actionable it can be. Specific goals clarify your true objective, which enhances the rest of your plan’s construction. 

For example, instead of saying you want to invest, say you want to invest at least $50 a month in your brokerage account for the rest of this year. 

2. Measurable 

Not only should you make your goals specific, you should also have a plan to gauge their success. Measurable goals help you set milestones and track your progress along the way. 

If you’re investing at least $50 a month, you will clearly be able to see if you’re following through. A solid way to ensure your savings stay on track is to automate them. That way, you’ll meet your benchmarks and can always add more as needed. 

3. Attainable

If you’re juggling a full-time job, mortgage bills, raising children, etc. it’s important to set goals you can actually accomplish. Money might be tight right now, especially during the pandemic, so you might not be able to add an extra $200 to your portfolio each month. But you might reasonably be able to do $50! 

You want to accomplish the goals you set for yourself, but you can’t do it with an unrealistic vision. Know where you are and set goals that push you but don’t impose on other aspects of your life.

4. Relevant

Your goals should have purpose. Goals without purpose lack meaning and don’t get done. If you aren’t setting goals that will expand your life, it’s time to change your process. 

Relevant goals also help you prioritize short-term, more annual goals. While it’s always wise to apply consistency to long-term goals, you don’t want to ignore short-term ones. 

Perhaps you have a goal to replenish your emergency fund. That’s incredibly relevant and can support you should something unexpected happen. You might commit to funneling $50 into a highly liquid, safe account until the number is where you need it. 

5. Time-bound

Time-bound goals provide a deadline for your goals. So if you invest $50 a month for 6 months then increase your contributions by another $50 for 6 months (and so on), the time frame helps keep you accountable and encourage progress. 

As you can see, all of these ideas play off each other. Even though each is separate, they come together to create a more well-rounded solution. 

SMART Examples

Let’s compare a traditional goal example and a SMART one. Take a retirement savings goal from an early-career professional: 

Example #1: Increase retirement savings.

Example #2: Increase 401(k) contributions to 10% and supplement savings by opening an IRA with automating contributions (about 5%) for the rest of the year. 

It’s probably easy to see why the second example is the SMART goal. It’s specific by designating which accounts to target and what salary percentage to contribute. It’s measurable by taking advantage of compound savings and automating contributions. It’s attainable because this person received a salary increase and can proportionally allocate their resources. It’s relevant to their retirement savings journey and time-bound for the year they set.  

This exercise encourages you to think critically about what you want and the work it takes to achieve it. SMART goals don’t just show you the reward, they also build the path.

Should Your Goals Come First?

While there are different schools of thought, our team believes your financial goals should come before creating the plan. 

Your goals can then chart the course for structuring your finances in a way that’s unique to you. Someone who wants to retire early, for example, will need a different savings plan than someone who wants to wait until they’re 70. 

Once you know what you’re working toward, you can take it step-by-step. So before changing your financial plan, check on your goals and ask yourself:

  • Will this change bring you closer to achieving one or more of your goals?
  • Will the action harm or hinder your progress?
  • Do you need to change your plan to best meet your needs?

Make Your Goals SMART-er

While SMART goals prioritize detail, it doesn’t mean you should ignore the big picture. Your biggest dreams, goals, and aspirations are important and can set the stage for creating more focused SMART goals. 

Want to buy a vacation house? That is an amazing  goal, but you must know the actionable steps to reach it. Do you need to allocate more money for this goal? What is your ideal timeline? Is this goal impeding other top priorities like retirement or education costs?

In addition to creating SMART goals, amplify them further by:

  • Understanding the big picture and where your goals fit in
  • Distinguish between short- and long-term goals
  • Establish clear priorities
  • Use your values as a guide
  • Revise and revisit as needed

Your goals don’t stand still. Be sure you make intentional updates that best reflect your needs, both now and in the future. 

The Bottom Line

Your goals set the foundation for the rest of your financial plan. Why not make them even better through clarity and purpose with SMART goals? By digging deeper into your goals, you’ll make changes that make sense for the future you want to create. 

Remember: a crumbling exterior with a cute front door won’t do you any good, just like applying changes to your money without a solid support plan won’t lead to success. Ready to revamp your goal setting? We would love to talk with you.

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Mary Beth Storjohann, CFP® is an author, speaker, and financial coach who takes a fun, no-nonsense approach in working with individuals and couples across the country, helping them make smart choices with their money.

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