It’s that time of the year where people start fresh and make new goals, and many of those are financial. But are they smart goals?
Did you know that according to a 2007 survey by British psychologist Richard Wiseman, 88% of resolutions end in failure?
We tend to try to do too much with little willpower to achieve our resolutions. We need systems to help us along.
SMART Goals is one such system.
One way we can help ourselves to success in our resolutions and goals is to make them S.M.A.R.T. – Specific, Measurable, Attainable, Relevant, and Time-Bound.
The following guide will walk you through SMART goals so you’re not one of those whose goals fizzle out by March (if not much earlier).
Everything You Need to Know About S.M.A.R.T. Goals for Your Finances
S is For Specific
To start, let’s focus on Specific.
To achieve your goal, it helps to make it specific. Often we make our goals too general, which makes a goal difficult to follow through on.
How many times have you heard a goal like “I’m going to lose weight” or “I’m going to get out of debt” or “I’m going to take control of my finances?”
These just don’t work!
You need to make your goal specific to give you a concrete goal to go after. You need to know exactly what it is you are trying to achieve.
Be as specific as you can when you create your goal. For instance, write down what it is that you want to do. Tell your friends about it and have them help keep you accountable.
Think of a goal like “I am going to get out of debt.”
Most of us have more than one type of debt. We have credit cards, student loans, car loans, home mortgages, second home mortgages, that twenty spot we borrowed from Bob last week…
It’s too much to tackle all at once. We end up failing our goal.
And what happens when we fail? We go back to the way we were before the resolution but now we’re disheartened. We feel beat down, thinking we can’t do it.
So break the goal down and make it specific.
Want to get out of debt?
Pick what kind of debt you want to attack. Let’s say credit card debt. Now we’re getting better.
But how many of us have more than one credit card?
Yup, a lot of us. Let’s get more specific. Pick one particular card that you are going to eliminate the debt on. Other cards are other goals that you can look at once you have achieved your first, specific goal.
Can you see how this can help your confidence and help you achieve your goal?
Picking even the smallest debt balance and paying it off can give you the courage to move on, knowing that it IS possible to achieve your goal.
So as you make your resolutions, make sure you make it specific! Ask yourself exactly what you want to achieve and how you will go about achieving it.
M is for Measurable
Let’s talk about the next step – making your SMART financial goal Measurable.
You need to make a goal measurable; you need to know exactly how much you are going to achieve.
Without a way to measure your goal, how can you track your financial progress? How will you know if you are making headway towards the financial goal? You need to have a way to measure your success with the goal (and you are going to succeed!).
Think, for example, about a goal of running a marathon.
You know the end distance, 26.2 miles, but how do you know you are progressing week to week?
I’ll tell you.
You keep a log of exactly how many miles you run every week and what type of running you are doing (distance runs, sprint runs, etc…). You also build a plan before-hand that tells you exactly how many miles you need to shoot for every week.
In this way you can measure your progress and you can tell how close you are to achieving your end goal of running a marathon.
Let’s talk about a goal of eliminating credit card debt.
You have made your financial goal specific and you are going to attack one particular card and pay off the debt.
How do you measure it?
Do you just “put a little extra in every month when I have it?” Let me tell you that won’t work very well. You need to be specific (remember to first rule?) and you need to be able to measure it.
A better way to go about eliminating your credit card debt is to figure out exactly how much extra you can pay every month towards your debt. Now you have a concrete figure. You know you need this amount every month. You can now work on ways to make sure you save this much to pay off your debt.
This also breaks your goal of paying off your credit card debt into smaller goals that you can attain on a measurable frame. Now you aren’t paying off all of your credit card debt, you are paying off a specific, measurable amount every month.
See what happened there?
Not only are we measuring the amount we are putting towards the credit card but we’re also measuring the time frame as well.
As you look at your goals, make sure you can make them measurable so you can tell what you are actually doing and achieving (or what you need to do to get there).
A is for Attainable
Now we’ll talk about your goal being Attainable.
Let me preface by saying that I think a person, any person, is capable of doing many incredible things. You may be truly amazed at what you can achieve if you earnestly put your mind and resources into reaching your goal.
But there are limits.
As positive as I want to be in helping you attain your goals you need to know that you still need to make a goal Attainable.
I think a big mistake we make with goals, and one of the main reasons why goals fail, is because we shoot for the moon with a goal we can’t reasonably achieve. Then when we don’t reach our goal, or we find it’s too hard to work towards, we quit and tell ourselves it’s useless.
Ask yourself – “can I actually do this/is it possible?”
If you’ve made your goal specific and measurable it should help deciding whether you goal is attainable.
It’s OK if the goal seems slightly out of reach.
The point is you are working towards something. Make a goal too easy to attain and you haven’t really changed anything about yourself, you haven’t grown. Yes, goals can help you to be more of who you can be rather than who you have been. (Yeah, I’m going there.)
Let’s look at debt.
You may have heard a person say they have a goal to get out of debt in a year. That’s an awesome goal, but it may not be attainable. Even when you make your goal specific and measurable you still need to reasonable be able to attain your goal.
Is what you are looking to achieve realistic?
The example we have been using is to eliminate a specific credit card debt. Is the plan you have in place attainable? Can you reasonably keep up with the amounts you need to save to pay off your credit card debt? Have you considered everything that can happen that might throw you off course? Will you be able to do it?
I don’t want to seem negative. You just need to make sure what you are looking to do is really within your ability and means.
It’s possible you may need to break your goal down further or change how you measure your progress to make the goal attainable. It may even take some time and experimentation to see what it takes to make your goal attainable. You may need to tweak your goal and how you measure it after some time.
That’s OK. The point is to attain your goal!
So as you set your goal, look at what your plan is and make sure it’s Attainable.
R is for Relevant
We’ve looked at making a goal specific, making sure the goal is measurable, and looking to see if the goal is attainable.
Now we will look at how relevant your goal is.
When looking at the relevancy of a goal, we’re asking ourselves “how important the goal is in the grand scheme of things?”
Is the energy we’re going to put towards this goal the best use of our time and resources or is there something else that may be better?
If your goal is to be healthier then perhaps a goal of doing a hundred sit-ups isn’t as important as eating less fast food?
We’ve been using the example of getting rid of credit card debt.
Certainly a worth-while goal, no? But is it always the most relevant? Depends.
What kind of credit card debt is this? Is it zero interest for a time period? Is it relatively low interest? What other debt do you have? Is there someplace else we can put our energy that may yield better long-term results?
What is the other debt you have? Do you have private student loans that have a higher interest rate than your credit card(s)? What is the rate on your home mortgage? How about any car loans? Would you do better working on something else first before your credit card debt?
Maybe instead of looking to eliminate your credit card debt you would be better suited to work on your career? Perhaps a career goal would help you make more money that would make paying off credit card debt easier?
I’m not saying don’t pay off credit card debt you have.
The point here is to look at the goal you have and seeing where it fits into your life and whether it’s the best use of your energy. Make sure what you want to achieve is relevant.
T is for Time Bound
We’re reaching the end of our SMART goals. (Hey, great job sticking around so far!)
We’ve gone through making the goal specific, being able to measure it, making sure it’s attainable, and looking at how relevant it is.
Now we’ll ask if your goal is Time-Bound?
A good goal will be time-bound or timely. What’s that mean? I’ll tell you.
It will have a starting point, an end point, and measurable time or milestones in-between. Time adds dimension to specific, measurable, attainable, and relevant. See how beautifully they all fit together?
By making your goal time-bound you give yourself a framework to focus with.
Without deadlines for your goals, it’s easy to let your goals drift away and be put off for other things that may seem more pressing. You need to know when your goal will end. A finish point can be a big part of whether your goal was a success or not.
Time makes your goal more specific. “I’ll eliminate this credit card debt in eight months.” Time adds the “when” to your goal when you are flushing out the specifics.
Time makes your goal more measurable. “I’ll put away X dollars every Friday then pay of N dollars extra on the 3rd of the month with my bill.” Time tells you when aspects of your goal need to be done by. It helps to keep you accountable as you measure your goal.
Time puts a bounds on the attainability of your goal. Paying off your debt by next week is impractical while giving yourself ten years may be too much time. Too little time and you may be putting too much stress on yourself while too much time may not have enough of an effect. It needs to get done in a specific time to make it a real attainable goal.
Time helps answer if the goal is relevant. Is the time needed the best use of my time?
Time is the final piece of the SMART goal strategy (Specific, Measurable, Attainable, Relevant, Time-Bound). In all, this can be an effective way to make sure the goals you set will be achieved.
Final Word on SMART Goals
Make your goals SMART and achieve all that you can! Really.
SMART Goals give you a framework to help organize your goal and make it a reality.
Now it’s your turn to put it all together.
Take the resolution or goal that’s burning in you and put a little time into applying the SMART goal strategy. I think you’ll find it helps a lot.