Setting S.M.A.R.T. Financial Objectives
How to Establish SMART Financial Goals. We are initially excited about these goals, picturing how amazing they will be when achieved. It is thrilling! But as soon as we encounter a few obstacles, we become disheartened. Sometimes we yield up far too quickly.
How, then, can we set and attain financial objectives? Setting S.M.A.R.T. financial objectives is effective.
What Are SMART Financial Objectives?
You are undoubtedly already familiar with the S.M.A.R.T. formula: specific, measurable, attainable, realistic, and time-bound. However, can you use these variables to increase your likelihood of attaining your financial objectives?
Let’s study how each of these factors can be used.
Specific Your objective must be clear, general, and precise. Ask yourself how achieving this objective will improve your financial circumstances. You can only obtain it if you know what you want.
Measurable Make your financial objective quantifiable so that you can assess your progress and overall success. Quantify your objectives to know where you stand and when you’ve achieved success.
Achievable One of the most significant obstacles to achieving an objective is having unrealistic expectations. Taking actionable measures to improve your financial situation is the surest way. If this requires taking smaller steps, so be it. One can always establish a new objective!
Realistic Assess the steps you intend to take to achieve the objective when setting it. Consider whether these measures are feasible, given your current situation. Setting unattainable dreams typically results in disappointment and surrender.
Time-based sets a deadline for yourself to achieve this objective. This will encourage you to follow through, prevent procrastination, and hold you accountable.
Examples of SMART Financial Objectives
Let’s analyze four examples of S.M.A.R.T. financial objectives that illustrate how they can help you acquire financial security.
First Example: Repaying Your Credit Card Debt
Specific
Let’s analyze the situation. Your specific objective is to pay off all of your credit card debt.
Measurable
How much is your credit card bill right now? This number (such as $3,000) will make your objective measurable.
Your new objective is to repay your $3,000 credit card debt completely.
Achievable
To accomplish this, you must take actionable actions that allow you to track your progress.
To successfully repay your $3,000 credit card balance, you will pay $300 plus interest per month. You will also temporarily cease using it to avoid acquiring additional debt.
Realistic
Evaluate the steps you intend to take to attain your objective. Your goal is achievable if you are prepared to work extra hours, reduce your entertainment budget, and avoid borrowing more money. Consider reconsidering your strategy if you want to receive a promotion or gain money on a betting app.
Time-based
You will reach your objective in ten months by paying $300 monthly plus interest on your debt.
Second Example: Saving for a home’s down payment
Specific
Be as particular as feasible. Your objective is to save enough for a home’s down payment.
Measurable
Determine the exact amount of the down payment you intend to make. Consider what you anticipate paying for a residence, and save 20% of that amount. As an illustration, your objective may be to save $20,000 for a down payment.
Achievable
$20,000 is a substantial quantity, so you must establish goals to achieve it. For instance, you must save approximately $556 per month to purchase a property in three years.
Realistic
Use a budget calculator to figure out your monthly savings potential. Consider practical methods to earn additional income or reduce expenses to reach your budget goal.
Think about extending your timeline or shopping for a less expensive home if saving $20,000 in the time frame you’ve selected is entirely unrealistic.
Time-based
Determine a realistic timeline for your objective based on your monthly savings goal and the amount you need to save.
Third Example :Budgeting for the Establishment of an Emergency Fund
Measurable
According to experts, your emergency fund should be sufficient for three to six months. Consider how much money you need to support yourself each month to determine how much yours should be worth.
For example, your new objective will be to create a monthly budget to fund a $6,000 emergency fund entirely.
Achievable
Utilize a budgeting calculator to determine your current financial situation. Next, please select and implement the best budgeting technique for you using a budgeting application.
As a result, you can contribute $250 per month to your emergency fund.
Realistic
If you are over budget and battling to make monthly payments on outstanding debts, your current objective may need to be revised. Rather than saving for an emergency fund, you should prioritize budgeting to pay off debt.
Time- based
Setting aside $250 per month, you will attain your goal in two years.
Fourth Example :Retirement Planning
Specific
Retirement planning is too general. It is much more specific to save for retirement by contributing a minimum monthly amount to your 401(k).
Measurable
You can measure your monthly performance by donating a percentage of your income. The new objective is to contribute 15% of your income to your 401(k).
Achievable
Setting up salary deductions for your 401(k) is a practical step to help you reach your objective.
Realistic
To determine if this objective is achievable given your current financial situation, ask yourself if you can survive on a 15% smaller pay check. If you still need to, you can reduce your monthly contribution or expenses.
Time-based
Starting your retirement savings early is a must. This is a long-term objective, but you can also set intermediate goals. After one year, how much do you anticipate having in your 401(k)? In five years?
