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Get SMART About Realistic Financial Goals

Have you ever set a long-term goal for yourself, with the best of intentions and a genuine desire to follow through with it, only to quickly get derailed, become discouraged, and fall back into your old habits? Don’t worry, you’re not alone - just look at how many people start the New Year with a new gym membership, and stop going after only one month.

Financial habits and goals function in the same way, and often fall victim to the same pitfalls as fitness and other types of goals. While your financial professional can’t get you back to the gym, they can keep you accountable and on-track of your spending and saving goals.

However, it all starts with you, deciding what you want your overall financial status to look like in both the near and far future. It’s time to get back to the basics of creating “SMART” financial goals, so you can set yourself up for success.

Defining Financial Goals

At first glance, this section may seem a little silly. The phrase “financial goal” should be self-explanatory, shouldn’t it? However, many people’s definition is actually too narrow, restricted only to money-related “number” goals (like wanting to save $20,000 this year) and ignoring money-required goals that extend to other areas of your life (buying a house, a career choice or change, funding your dream vacation, etc.)

As you widen your definition of financial goals, you can also begin to include time-frame; understanding if a goal is long-term versus short-term will allow you to prepare for the extent and specificity of the plan to reach it. In general, short-term goals take three years or less to achieve, while long-term goals may take three to five years, or even longer.

Setting Financial Goals

Now that we have the theory down, the real work begins. The good news is that the first step is fun - build your dream life! Don’t just daydream, but write it down, make a list or write a story of a day in the life of your ideal self.

When it comes to identifying your financial goals, leave no stone unturned in any area of life: education, housing, career, leisure, hobbies - you can even go as detailed as the type of diet you’d like to eat and the style of clothing you’d like to wear. What are the similarities between the lifestyle of your dreams and the one you lead now? The differences? And what are your financial needs to close that gap?

This is where understanding the time-frame of your goals becomes important. Having a mix of short-term and long-term goals will give your overall financial plan built-in milestones from the very beginning. For example, if your goal is to have ten million dollars saved in your retirement account by the time you’re 65, it can be easy to lose steam and motivation for a goal that feels so far away. Being able to build up a series of smaller successes will help you maintain focus and motivation, and provide a simple method for you and your financial professional to check that you’re still on the right track.

The importance of having a clear, words-on-paper depiction of the kind of life you want to live is two-fold:

First, you’ll have a written record of your wants and needs, rather than ideas floating around in your head. A simple tactic, but one that allows you to see, literally, and more easily identify which parts of your current life do and don’t match them.

Second, having something to hold onto and refer back to can be a valuable tool when the going gets tough. Life happens, and no matter how strong your plan is, there will be speed bumps along the way. Writing down your dream, even putting it up on the fridge or on your bathroom mirror, can help you stay focused when you are struggling.

Setting Financial Goals - The SMART Way

Now that your ideals are clearly defined and written down, it’s time to begin turning them into your reality. You’re ready to sit down with your financial professional and set in stone your financial plan and the steps to reach each major milestone.

One of the easiest techniques to turn your goals from dreams to reality is the “SMART goal” method. SMART is an acronym that stands for: Specific - Measurable - Achievable - Relevant - Time-Bound. Applying this metric to each of the goals you’ve written down will help you create a simple roadmap connecting them all.1 

For example, let’s say one of your goals is to spend two weeks on vacation in Bali. In preparation of creating a financial plan, you first need to calculate the rough total cost of the trip, by finding the best time of year to travel to Bali; checking the costs of flights and accommodations; deciding what activities you want to do when you’re there, and what they may cost. Comparing this cost to the context of your current finances will allow you to first identify if this trip is a long-term or a short-term goal, and how far you are from that total cost in raw numbers.

After that, it’s time for you and your financial professional to apply the SMART method:

  • Specific: I want to save for my dream vacation in Bali. I have estimated that this trip will cost $5,000.
  • Measurable: Broken down, this means that I need to save roughly $97 per week or $388 per month. 
  • Achievable: My current budget includes $1,000 of disposable income per month, which allows me to set aside the required funds.
  • Relevant: Based on my income and expenses for the past year, this should be achievable.
  • Time-Bound: I want to achieve this goal within the next year.

Making A Financial Plan

Now that you know what the technique looks like, it’s time to go through and apply the SMART method to each aspect of your written dream life, beginning with what you consider the most important and working down to the smaller details. Before you know it, you’ll have a full, detailed financial plan for your future.

As your financial professional will likely advise, there are a few smart steps you can take that will help you achieve almost every SMART goal. Make it as easy as possible to save by setting up automatic transfers to a dedicated savings account so that money won’t be lost to the latest sale. Use one of the existing phone apps, a handmade spreadsheet, or anything else you choose to track your progress and celebrate your wins. Hold onto that written list of goals and remind yourself that a year from now, you’ll be lounging on a pristine beach as proof that you can set and achieve any goal.

Whether your dreams include paying off debt, saving for retirement, funding education, or carrying you on that once-in-a-lifetime trip, setting SMART financial goals will help you reach the lifestyle you've always wanted.

  1. https://www.thebalance.com/best-financial-goals-2385552

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.