Setting SMART financial goals that actually stick

You may have come across the SMART acronym in the course of your employment, but here’s a reminder of what it stands for:

In the context of your personal finances, SMART refers to setting clear, quantifiable, feasible and appropriate financial objectives, to be carried out within a defined time frame. You’re much more likely to succeed if you avoid vague, non-measurable, unrealistic and inappropriate aims with no actual deadline. Relying on SMART goals will help you stay on track as you shape your financial future.  

Examples of SMART financial goals

• Specific
  Instead of just aiming to save more money, have a clear end in mind, such as saving $20,000 towards a home loan deposit. Seeing the deposit steadily growing to a specified amount will encourage you to keep going.
  
• Measurable
  If you have debt – such as high-interest credit card debt – that’s holding you back, don’t merely say “I will pay off my debt”. Preferably say, for example, “I will pay $1,000 per month off my debt”. Each month, you will be able to measure whether your actual repayment aligns with your plan.
  
• Achievable
  It’s no good having goals you can’t possibly reach, because you will only become discouraged and be more likely to give up. Most people with a reasonable income and no debt should be able to follow the 50/30/20 budgeting guideline and devote 20% of their after-tax income to building financial security via savings. This means that if your monthly after-tax income is around $5,000, you could aim to save $1,000 per month. But aiming for $2,000 per month would almost certainly be unachievable.   
  
• Relevant
  Having cleared a credit card debt, a relevant goal would be to avoid future debt. You could aim to build a $10,000 emergency fund to cover unexpected expenses and end your reliance on credit cards.
  
• Time-bound
  Set a deadline for your target; otherwise, it will be tempting to let it blow out and take years to achieve. You could plan, for example, to build an ETF investment portfolio of $12,000 over the next 12 months.

Pulling it all together

Take a look at these examples of SMART goals for each of the above scenarios: home loan deposit, debt repayment, building savings, emergency fund, investment portfolio. Each of them is Specific, Measurable, Achievable (given a reasonable income), Relevant (to a particular situation) and Time-bound.

• Home loan deposit
  Save $20,000 (plus interest earned) towards a home loan deposit by putting $1,000 per month into a high-interest savings account for the next 20 months.
  
• Debt repayment
  Repay $1,000 per month for the next six months to clear a $5,000 credit card debt (including interest charged).
  
• Building savings
  Put $1,000 per month into a high-interest savings account for the next two years to build a solid savings amount of $24,000 (plus interest earned).
  
• Emergency fund
  Set aside $1,000 per month for the next 10 months (in a high-interest savings account) to create an emergency fund of more than $10,000 to cover unexpected expenses.
  
• Investment portfolio
  Invest $1,000 per month in appropriate ETFs using an online broker or robo fund.

To make it more likely that you will stick to your goal, you can easily automate your savings account deposit, debt repayment or monthly investment, by using the online tools provided by banks and investment brokers.

Financial advisors are advocates for SMART goals

Do you need some help in setting and sticking to your own SMART goals? Consult a financial advisor. They have plenty of smart ideas to help you build financial security.

The information provided in this article is general in nature only and does not constitute personal financial advice.