If you’re one of the 97 million Americans who made financial resolutions this year, you’re in the right place. In this post, we’ll go over S.M.A.R.T goals and how they can help you achieve — and keep — your financial resolutions no matter what time of the year it is.
What Are The 5 S.M.A.R.T Goals?
S.M.A.R.T is an acronym that stands for:
- Specific
- Measurable
- Achievable
- Realistic
- Timed
Let’s take a closer look at what these five goals entail:
S is for Specific
Simply stating that you want a promotion is far too vague for the S.M.A.R.T strategy. Instead, you should pick a specific salary figure you’re aiming to earn — whether it’s 50K, 150K, or one million.
If you’re a business owner, don’t just state that you want to make more sales. State the specific dollar amount or percentage you’re aiming for your profits to increase by.
You must have a clear number set in stone to track your progress with. This allows you to better visualize your outcome, and you’ll know 100% when you’ve achieved your goal, thanks to the concrete figure.
M is for Measurable
The next component of S.M.A.R.T goal-setting is tracking your progress — how else will you know whether or not you’re actually on track to achieve your goal?
For example, you can measure your earnings throughout the course of the year to make sure you’re on track to reach that 150K sales goal.
When your goals are concrete, like “I want to play tennis three times a week,” instead of “I want to learn to play tennis,” they are actually able to be measured.
A is for Achievable
Of course, one of the most important components of S.M.A.R.T goal-setting is that it’s actually attainable. If you’re a regular Joe and you set a goal to be nominated for an Oscar in 2022, that’s called a pipe dream, not a S.M.A.R.T goal.
While we appreciate the ambition, setting lofty goals will eventually cause you to give up entirely because there’s no way you can achieve them.
S.M.A.R.T goal setting helps you achieve tangible progress and avoid setting yourself up for disappointment with out-of-reach goals.
So, instead of setting a goal to be nominated for an Oscar, set a goal to write your first book or screenplay. Then, each year, you can gradually tweak your goal to move up the chain of becoming Oscar-nominated (or whatever your goal is).
R is for Realistic
In a similar vein as S.M.A.R.T goals being achievable, they’re also realistic.
A realistic goal is one that you’re willing and capable of working toward that you can achieve by tweaking and/or improving current habits.
Think about what exactly you’ll need to do to reach your financial goals, whether it’s making more sales, getting promoted, or taking the lead on a new client.
You need to ensure your goal is something you have the time, resources, and energy for.
T is for Timed
S.M.A.R.T goals are set in a clear, achievable time frame. It’s important to give yourself a reasonable amount of time to accomplish your goal.
If you’re a startup business in your very first year, setting a goal for $10 million in sales may be quite difficult to accomplish.
A clear time frame with a realistic goal allows you to check your progress along the way and make adjustments as needed without getting discouraged and giving up because your goal was just too far-fetched, to begin with.
Do The 5 Components of Financial Goal Setting Work?
Yes, especially when you follow the expert tips we went over above to ensure your goal is:
- specific,
- measurable,
- achievable,
- realistic, and in a
- time frame.
What Is A Good SMART Financial Goal?
A good S.M.A.R.T financial goal is one that makes sense, and you can realistically achieve. We’ll go over seven examples of S.M.A.R.T financial goals for different life stages in the next section.
How to Write S.M.A.R.T Goals
Writing down your S.M.A.R.T goals is imperative.
A study found that people who write down their goals are 42% more likely to achieve them.
You can write your S.M.A.R.T goals in a journal, a notepad, or a Word document or app. Just make sure you document them and save them for easy access to check your progress.
7 S.M.A.R.T Financial Goal Examples
Are you feeling empowered to start setting some S.M.A.R.T financial goals for yourself yet? Here are seven examples of excellent S.M.A.R.T goals.
#1. Create An Emergency Fund
The amount you should have in your emergency fund differs based on your income and expenses. For example, someone who earns $50K/year with apartment rent of $800/month and a car note of $250/month will have a much different goal than someone who earns $200K/year with a $4,000/month mortgage, and two car notes that total $1,200/month.
Most experts suggest having at least three to six months of living expenses in your emergency fund.
For a S.M.A.R.T goal resolution, you could say, “I am going to limit my discretionary spending until I have $25,000 saved in my emergency fund in a high-yield savings account. I will accomplish this in eight months.”
#2. Pay Off Credit Card Debt
There are a few different methods to pay off credit card debt, including the Snowball Method, balance transfer, consolidation, and so forth.
You should research all of the options and choose the one that makes the most sense to you.
Don’t forget your S.M.A.R.T steps, and make sure you write down how much you are going to pay off in total, how much you’ll pay off each month, and when you plan to have this done by.
#3. Maximize Your 401k
More than 50% of Americans report feeling as if they’re not saving enough for retirement.
A 401k is a crucial investment strategy to help you get there. To deploy the S.M.A.R.T goal strategy, you’ll need an achievable, concrete number and a timeframe. For example, “My husband and I are going to save $2 million for retirement by the time we are 65.”
401k accounts are employer-sponsored and allow employees to defer taxes on their investments until they retire. This helps them grow their money faster. What’s more, many employers also contribute by matching employee contributions.
#4. Pay Mortgage Bi-weekly Vs. Monthly
One of the most significant debt sources is the mortgage payment. So, S.M.A.R.T goals surrounding paying your mortgage are excellent ways to manage debt and even become debt-free.
When you pay your mortgage bi-weekly instead of monthly, you can allocate extra funds to the second payment as it’s later in the month, and most of your other monthly expenses will already be paid for.
Take what’s left and add it to the second mortgage payment of the month to pay off your home debt faster.
Of course, for a S.M.A.R.T goal, you should decide what the average you’ll pay extra each month will be and how long you plan to take to pay off your mortgage.
#5. Budget Your Expenses
One of the smartest financial decisions is to follow a budget. This year, take the time to sit down and make a budget with your earnings, savings, and expenses. The best way to get an accurate picture of this is to track your finances for a month or two and then sit down and evaluate and analyze them and make your budget accordingly.
You’ll be surprised at how fast those $5 lattes on the way to work and $15 salads from the café across from your office will add up! Seeing those added up will be a great deterrent to start packing your coffee and your lunch in order to reach your financial goals.
#6. Boost Your Income
You may be reading this and thinking, “if I don’t start earning more, I’ll never be able to reach these crucial saving milestones!” Well, a determination to earn more money is a terrific resolution!
Naturally, this goal will differ from person to person and situation to situation. Here are some great opportunities to generate extra income:
- Picking up extra shifts at work to earn more.
- Becoming a freelancer to earn money when you have spare time — evenings, weekends, and holidays.
- Starting a side hustle and looking at other residual income options, such as real estate investing and flipping, stocks, bonds, and so forth.
#7. Create Estate Plan/Protect Your Assets
A key step in financial planning is to ensure you have measures in place to take care of your family if you pass away suddenly. The last thing you want is your family to have to go through a grueling probate court process while also grieving your untimely death. Creating a will or trust for your family is an excellent new year’s resolution S.M.A.R.T goal.
There are other ways to protect your assets and your loved ones in the event something happens to you, including term life insurance. A S.M.A.R.T. goal for this could look like, “I plan to purchase term life insurance by the end of the month through a reputable insurance company or agent to protect my family and ensure they are taken care of if something happens to me.”
Another way to protect your income if something other than death happens to you is through disability insurance. A S.M.A.R.T goal for this would look like, “I plan to purchase disability insurance by Friday of this week to supplement my income in case I become disabled.”
This is also a great option for people who are not married or who don’t have any dependents that they would leave behind. Of course, once your life situation changes and you do have dependents, you’ll need to purchase term life insurance. In order to protect your financial future, it’s imperative that you don’t skip this step.
SMART Financial Goals Made Easy: The Bottom Line
This new year, prioritize taking the time needed to make goals that are specific, measurable, achievable, realistic, and time-based. Remember, you can’t get where you’re going if you don’t know what the destination looks like and how you’re going to get there. A little preparation and planning can have you on your way to financial freedom in no time.
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