Money & Finance,  Professional Development

How to Set SMART Financial Goals

Last Updated on May 11, 2021

Since we can’t exactly snap our fingers and magically become independently wealthy, it means we’ve got to make goals. But setting and sticking to your goals isn’t always the easiest thing to do. So here is a guide on what constitutes a SMART goal, how to go about making one, and 5 financial goal categories to help you get the juices flowing.

What are SMART financial goals?

Keep your eye rolls to a minimum. Acronyms are the worst – we know. But this is actually quite helpful in terms of goal setting. 

Specific

Most of us would say we’d like to be rich. Well, that’s great and all, but what does that really mean? In no way is that statement specific enough to be actionable. What is rich exactly? Are you rich when you can afford a Rolex? When you no longer have any debt? When you have $1 million dollars in your retirement account?

Goals have to be specific. If they aren’t specific, you won’t know what you’re working towards.

Measurable

Goals also need to be measurable. This goes hand in hand with being specific. Let’s say you want to implement a goal of paying off your student loan debt. A measurable and specific goal would detail that you want to pay off $50,000 of your student loan debt. By stating a specific figure, you can easily reference your progress, and thus measure how far you’ve come in working to achieve your goal. 

Achievable

Creating achievable goals means you’re striking a delicate balance of challenging yourself while keeping it realistic. Making sure your goal is achievable shouldn’t dissuade you from setting up lofty goals, but it will usually require a tradeoff between time and magnitude. 

If you’re aiming to save up a million dollars, you’ll need to give yourself a long enough timeline to make it feasible – maybe for you that’s 10 years. Or, if you’re aiming to achieve a goal quickly, you’ll need to be careful of how much you can realistically expect to accomplish in a short time span – i.e. a goal to save $5,000 in 6 months.

Relevant

Relevance is essential when it comes to SMART financial goal setting. It may seem obvious that you’d need to select goals so that they align with what you really want, but it’s easier to get distracted than you might think. Keep your eye on the prize and make sure the goals you set contribute to the life you want to create. If they don’t, you’ll end up wasting time and money. 

For example, if your ultimate dream is to be your own boss and start a business, you probably shouldn’t have any conflicting, intermediary goals about climbing the corporate ladder with your current employer. No, we’re not trying to say that getting a promotion at work is a bad thing. But if that promotion gets in the way of you dedicating the time and resources you need in order to set up your business – then yes, that’s a problem.

Time-Bound

Lastly, SMART financial goals need to be time-bound. For those of us who are deadline-oriented (i.e. procrastinators), this is especially important. If you don’t set a deadline for your goal, the best case scenario is that you complete your goal more slowly than necessary. The worst case scenario is that you never achieve it, because without a deadline, you’ll be inclined to push it off, let other things take precedence, or just never get around to it.

Example of a SMART financial goal

So what’s a good example of a SMART financial goal? Here’s one to help you start brainstorming:


I will pay off $10,000 of student loan debt by November 30, 2021 by allocating an extra $200 per month towards my loan payments. The additional $200 per month will be deducted from the discretionary “fun” money category of my budget.


That’s a SMART financial goal because it’s specific – you’re paying down $10,000 of your student loan debt. It’s measurable since it is in quantitative terms. It’s achievable because you know you can reallocate discretionary funds from another segment of your budget. It’s relevant because it’s increasing your overall financial health. And finally, it’s time-bound because you’ve given yourself a concrete deadline. 

How do you set SMART financial goals?

So know that we understand what constitutes a SMART financial goal, how can we go about setting them?

Understand your current financial situation

First things first, it’s important to understand your overall financial health. We’re setting up SMART financial goals, afterall. And if you don’t know where you currently stand, it would be near impossible to create a specific, measurable, achievable, relevant, and time-bound goal.

If you don’t have a good understanding of your finances, now is the time to get everything out on the table and take a good solid look. If you already track your net worth, this will be very simple. If not, you’ll need to pull together all your financial statements and account balances so you can get an accurate picture of where your money is and where you want it to be.

Consider what you want

Next, you’ll want to take some time to really consider what you want and what’s important to you. Goals have to have meaning – otherwise, why would you put all the time and effort into achieving them? After you’ve determined what you ultimately want, only then can you start to develop goals which will help get you there. 

Prioritize what’s possible and most important

Chances are you might end up with a pretty big list of dreams and desires. Here is the point where you’ll want to prioritize what’s possible and most important to you. Sure, it would be amazing if we could all achieve everything we’ve ever dreamed of. But, there’s a reason the phrase ‘burning a candle from both ends’ exists. We don’t have infinite time, money, and resources, so you’ll need to prioritize what truly matters to you. 

Break big goals down into smaller goals

Finally, once you have your prioritized set of goals, evaluate each one to see if it needs to be broken down into more than one goal. This aligns with the measurable and achievable aspect of SMART goals. Having too broad of a goal can be detrimental for two reasons:

  1. It can decrease your motivation since it might seem too lofty to be feasible
  2. It can be difficult to measure your progress because there may be too many metrics to track

By breaking really large goals into smaller goals, you can not only help yourself keep up momentum, but also more easily keep yourself on track and measure your progress.

Separating especially large goals into short term (<1 year), medium term (1-5 years), and long term (>5 years) time spans can also be beneficial.

What are 5 SMART financial goal categories to think about?

If you’re still wondering what some SMART financial goals could be, below are 5 categories to explore. 

1. Create and maintain a budget

If you don’t already have a budget in place, create one. The point of a budget is education and awareness. And no matter how well you think you manage your money, a budget can only help you understand where your financial strengths and weaknesses are. 

2. Build up an emergency fund

Everyone needs an emergency fund. Why? Because life happens. Whether you lose a job unexpectedly, get into a car accident, or experience a natural disaster, you need to be prepared for the unexpected. Setting a goal to build an emergency fund with 3-6 months worth of expenses is certainly a SMART financial goal. 

3. Save for retirement

Even if you love your job, you still won’t want to work forever. And if you don’t save for retirement, no one else is going to do it for you. Saving up for retirement is particularly time sensitive, so setting SMART goals with short, medium, and long term sub-goals will be immensely beneficial. 

4. Pay down high interest debt

While there are good types of debt and bad types of debt, high interest debt is particularly detrimental to your financial health. Setting goals to quickly and efficiently eliminate sources of high interest debt (such as credit card debt and payday loans) will drastically help you improve your overall financial health.

5. Increase your financial literacy

At the end of the day, the only person you can count on, is you. Setting a goal to increase your financial literacy will pay you dividends for the rest of your life. Whether that’s investing in a class, broadening your reading list, or setting up appointments with a financial advisor, you will only benefit yourself by learning more about your finances and becoming educated on what opportunities are available to you. 

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