When thinking about your financial hopes and dreams, it can be all too easy to write out a list of wants — a new car, paying off student loan debt, building an emergency fund. Though you know now how to get there — budget, trim expenses, boost your monthly cash flow — the lack of planning can quickly prevent you from getting what you want or where you want to be.
Cue smart goals — a strategic approach to financial planning that helps turn aspirational dreams into reality.
What are SMART financial goals?
SMART goals are a structured method for goal-setting that can help you mold what you want to achieve into an actionable plan. The framework creates goals that are well-defined and feasible. SMART stands for specific, measurable, attainable, relevant, and time-bound.
SMART: A deeper dive
(S) Specific: When creating financial goals, specificity is key. For example, instead of aiming to “save money,” better define your goal as “boosting your savings account by $12,000 in 12 months.” Clear objectives give you an exact outcome to strive for.
(M) Measurable: Measurability supports accountability and ensures that you can track and celebrate progress. Additionally, quantifiable metrics can provide natural check-in points.
Expanding on the example from above, say your goal is to save $12,000 over 12 months. You would need to save $1,000 to hold yourself accountable monthly. If you found you saved less during a month, you would adjust the next month to compensate.
(A) Attainable: Ambition is admirable — but your goals should be realistic and achievable. Lofty goals can lead to frustration and the urge to call it quits. Attainable ones are more motivating and manageable.
It’s also important to ensure your goals are within your control. If you set out to win the lottery, no matter how many tickets you buy, there’s no guarantee of winning.
(R) Realistic: A realistic or relevant goal considers your current and near-term situation and ensures it can be met.
For example, say you want to eliminate $10,000 of credit card debt in five months. It can be doable if you revamp your budget and have a surplus of over $2000 while still meeting your living expenses.
Alternatively, it would be impossible if you only have around $500 left at the end of each month.
(T) Time-Bound: Giving yourself a timeframe can create a sense of urgency and discourage procrastination. Rather than vague statements like "someday," specific deadlines encourage commitment and help set check-in points.
For instance, "I'll save $2,000 for a vacation in the next 5 months" creates a goal that requires consistent effort, tracking, and adjusting.
SMART financial goals examples
You can leverage SMART goals to accomplish various things — from improving your financial health to helping you fund and enjoy hobbies.
Short-term goal example: Build an emergency fund. If you want to build a solid financial foundation, making an emergency fund is a sound idea. Experts say when starting, it's best to put away $1,000, then enough to cover three to six months' worth of living expenses. Decide on how much and by when, to make this specific and time-bound.
Mid-term goal example: Save for a house or investment property. Homeownership has a lot of benefits, which is why many choose to prioritize it. Depending on how much you can put away, saving can take several months or years. An example of an actionable plan to achieve this would be to commit $1,000 monthly for 12 months — or however long until you have your desired amount.
Long-term goal example: Create a debt-free retirement. Long-term financial goals are usually more substantial objectives. They often have several layers and involve strategic planning for the years ahead. In this example, you would need to document all your current — and anticipated — debts and devise a long-term strategy for paying them off.
How to create SMART goals
If you're ready to set SMART financial goals, here's how to start:
- Determine what you want to achieve: Start by forming your objective. When kicking off planning, it's okay to be vague — you'll get more specific as you work through building your goal. Do you want to pay down debt? Are you hoping to save for a kitchen remodel?
- Assess your situation: Evaluate your current financial situation and capabilities. Identify what's possible and the resources you'll need — including financial and non-financial aspects.
- Define your specifics: Once you know what is achievable, you can set a clear and measurable goal. Decide exactly what you want to accomplish and in what timeframe.
- Create a plan: Establish how you'll choose to track progress and hold yourself accountable. If you need to make lifestyle changes, such as finding an additional source of cash flow, be sure to include those in your plan.
- Schedule regular check-ins: Once you have an action plan, check-in and adjust when needed.
Financial habits to help you achieve your SMART goals
SMART goals require good money habits. Here are tips to help you reach financial success.
Create a budget and savings plan: At the heart of good financial management is knowing how your money ebbs and flows. Tracking expenses can help you trim unnecessary costs and allocate funds to achieve your goals.
Have an emergency fund: Even if your goal is unrelated to boosting your emergency funds, it’s always best to have a cash cushion to protect you against the unexpected. In addition to mitigating financial volatility, it can help prevent goal setbacks.
Break down large goals: Substantial goals can be overwhelming — especially if carried out over a long period of time. If you feel exhausted thinking about a goal or the journey to get there, you’ll likely be tempted to give up. Consider breaking larger goals into more manageable steps or objectives.
Automate savings and investments: Discipline and follow-through are easier when a goal requires less manual effort. You can create consistency in your habits by automating transfers, investments, or savings for your goal.
Monitor and adjust your progress regularly: Regular check-ins with yourself are crucial for staying on track. Furthermore, checking your progress can help you gauge what's working well and identify areas for improvement.
Seek accountability and support: Embarking on a financial journey doesn't have to be a solo mission. Share your goals with a friend, family member, or financial advisor. Having the support of others can offer guidance, encouragement, or even someone to celebrate your wins with.
Final thoughts
Whether you want to master your finances or pursue a specific dream, setting an objective is only half the journey. You can achieve what you want with smart planning and good financial habits.
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