No doubt, setting financial goals is an essential first step toward realizing your vision for your future financial situation.
But a lot of people fall into the trap of setting overly ambitious goals without having metrics to track or measure their progress. Sometimes these goals are just too broad and vague, which makes it difficult to focus and see it through to the end.
One way to avoid setting unrealistic goals is by using the SMART goals technique.
Let’s have a look at the SMART strategy and how you can apply this to set your financial goals.
What is SMART?
SMART is an acronym that stands for:
- Specific
- Measurable
- Achievable
- Realistic
- Timely
This strategy emerged in the field of management sciences as a way for organizations to set and measure their goals. Since then, many other fields have adopted the SMART strategy because of its sheer practicality.
The SMART framework suggests that to make sure your goals are clear and reachable, each one should be:
- Specific (simple, sensible, significant).
- Measurable (meaningful, motivating).
- Achievable (actionable, attainable).
- Relevant (reasonable, realistic and resourced, results-based).
- Time-bound (time-based, time-limited, time/cost limited, timely, time-sensitive).
5 Ways to Use the SMART Technique to Set Financial Goals
Let’s look at how you can use the SMART technique to set and achieve your financial goals.
1. Set Specific SMART Goals
Make your financial goals clear and specific so you have a solid understanding of what you want to accomplish. A well-defined goal makes it easier to achieve. You can focus your efforts on the most important tasks that will get you to your intended financial target.
A viable way of setting financial goals is by trying to answer the five “W” questions:
- What do I want to accomplish?
- Why is this goal important?
- What is involved?
- What is the end target?
- Which resources or limits would I encounter?
For example, you might start with the general notion that you want to save more money or that you want to start investing for retirement. These are good starting points, but it’s difficult to meet goals without a clear target.
- Why do you want to save money – for school, retirement, to buy a house?
- How much do you want to save from each paycheck?
- What would you have to forego to achieve this target?
- Do you need to put in extra hours or take a second job?
This will give you a picture of not only what you want to do, but how you can go about achieving it.
2. Create Ways to Measure Your Progress
If your goal is not measurable, it is easy to go off track.
Creating ways to measure your progress helps you keep tabs on your financial journey. It also provides a way for you to evaluate your process. This is by identifying areas where you fall short and need to improve, and areas where you excel and can use to your advantage.
For example, if you’re saving towards a down payment for a house, you can make your goal measurable by specifying how much you want to save within an allotted time (let’s say a year).
Then you break this further down into the amount you would need to save every month or every week. This way, it’s easy to know if you’re behind your goal by looking at when you don’t meet up with your weekly or monthly target.
Assessing progress helps you to stay focused, meet your deadlines, and feel the excitement of getting closer to achieving your goal.
3. Make Sure Your Goals are Achievable
To make your financial goal achievable, identify the exact steps you’ll need to take to bring your goal within reach.
For example, in the case of saving for a down payment, one of the best ways to make your goal achievable is to set up automatic contributions.
When you automatically send the money to a separate account for your down payment, you’ll avoid the temptation to spend the money elsewhere.
On top of this, you can make your goal of saving for a mortgage down payment achievable by ensuring you can live on what’s left of your pay after your contributions are taken out.
Other avenues you can explore to make your goal achievable are by cutting discretionary spending and looking for ways to increase your income.
When you set an achievable goal, you may be able to identify previously overlooked opportunities or resources that can bring you closer to it.
4. Keep Goals Realistic
Set financial goals that are realistic for you.
It’s fine to set a challenging financial goal as this can help you push yourself, but be sure to set goals that are within reach, otherwise you can overextend – and frustrate – yourself in the process.
For instance, if you want to be married in two years, it would be exceedingly challenging, if not impossible, for someone with an ordinary income to save up enough money for a $100,000 luxury wedding.
Plan your objective instead based on what you can afford.
The average cost of a wedding ceremony and reception in 2025 was $33,000, so you might reduce your spending to that amount. To make saving for a bigger wedding more feasible, you may also postpone it for a few years.
5. Include a Timeline to Complete Your Goal
A goal is a dream with a deadline.
This underscores the importance of attaching your goal to a time. If there is no timeframe to achieve your financial objective, it is just a vague dream. There would be no incentive to go after it, since it can always be postponed.
This criteria also helps to prevent everyday tasks from taking priority over your longer-term goals.
A time-bound goal will usually answer these questions:
- When?
- What can I do six months from now?
- What can I do six weeks from now?
- What can I do today?
For instance, if you want to save $1 million by the time you retire, you can divide your retirement goal into smaller, more manageable chunks.
Setting goals for how much of your balance you’ll have paid off by certain dates will help you remain on track and make a realistic plan when it comes to paying off high-interest debt.
Benefits of SMART Goals
SMART is a powerful tool that gives you the clarity, drive, and concentration you need to reach your objectives.
By outlining your goals and picking a deadline, the SMART technique can also help you achieve them. Anybody, anyone may implement SMART goals with ease.
Drawbacks of SMART Goals
SMART goals have many benefits, but they also have some drawbacks.
Because your goal will be well-planned, for instance, you can become fixated on finishing it by a specific date. Additionally, it might make you yearn for further successes in the future and might even pave the way for a never-ending cycle of setting and achieving goals.
Making SMART goals may be too ambitious for some people. It can be a lot of planning up front, where some people prefer to play it more loosely.
Final Word on SMART Goals for Finances
Setting financial goals does not start and end with what.
You have to set a timeframe and develop ways to measure your progress.
You also have to:
- understand the resources you have
- recognize your strengths
- acknowledge your weaknesses
Taking all this into consideration will enable you to set realistic goals – and be more likely to achieve them!
Updated from Jun 6, 2024
