Without a directional bearing, we are a car with no map, or a rudderless boat. We wouldn’t know if we are moving forward, backwards, or just spinning in circles. And if we’re not moving towards in a specific direction, then we really don’t know where we’re going. This is where financial goals are important.

Just as we need a map to get from point A to point B, setting goals shows us how to get where we want to go. Additionally, we need some real-time information, more like a GPS. We can increase our chance of success by boosting the information we include in our goals.

The acronym SMART gives us the guidance and direction we need to work toward our goals. SMART goals are:

What are SMART Goals?

This concept for goal setting is not new – it’s been around for a long time. You have likely heard of this before. But have you tried it in relation to your financial goals or life goals? Let’s break it down.

S stands for specific. Anytime you’re making a goal, you want it to be very specific. You don’t want to say: I’m going to lose some weight. That’s too vague. Instead, you want to say: I’m going to lose 50 pounds.

M stands for measurable. In our example we can measure 50 pounds using a scale.

A is for attainable. We want to make a goal that’s attainable, otherwise we can become frustrated if our goal is out of reach. Fifty pounds may sound way out of reach and not be a reasonable goal. Sometimes it’s better to start with smaller, achievable goals. Maybe your initial goal should be to lose 15 pounds. Small wins are psychologically positive and more motivating than large, un-attainable goals.

The goal needs to be relevant – R – to you. Losing 50 pounds may not be relevant if you only weigh 120. Maybe you need to lose 5 lbs. That would make more sense in this case.

And T is for time bound, or timely. We want to add a suitable time element to our goal so that we have an ending date; something to strive for. Our goal might read like this: I will lose 15 pounds in three months.

Examples

An example of a smart financial goal might be:

I will invest $1,000 each month until I retire at age 65 so I will have a million dollars in my investment account.

Here are some other examples that you can use to create your own SMART goals.

• We will go to the grocery store no more than two times per week.
• I’ll save $50 each month until Bobby is 18 so we’ll have 50% of his college costs on hand.
• Set an automatic draft to savings of $25 a month for car tires when they are needed.

Writing goals using the SMART acronym is a very rational and logical way of making decisions. Having this structure gives you the focus and direction that you need to get started.

Let’s work through one last example together.

“I want to save for vacation.” This is a vague statement, so we need to make it more specific. “I will save for a cruise to the Bahamas.”

Now, we need to make it measurable – “I will save $5,000 to go on a cruise to the Bahamas.” While measurable, that number may feel daunting. Let’s rephrase: “I will save $500 a month to go on a cruise to the Bahamas.”

Finally, let’s set a date. “I will save $500 each month for the next 10 months to go on a cruise to the Bahamas in April of 2023.”

That’s a SMART goal!

Thanks to Pam Horack, CFP® for this post. Pathfinder Planning LLC is a registered investment advisor in North and South Carolina. We serve young adults and working families by providing personal financial planning and asset management for a simple fee. www.pathfinderplanningllc.com

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