All of us have certain goals in mind that we wish to achieve. These can be long-term goals, ones that we hope to reach 20, 30 or even 40 years down the line, or short-term goals that we wish to accomplish before the year’s or month’s end.
Financial goals can be both the hardest and most worthwhile of all the goals you could set. Why? On the one hand, planning for financial freedom in the future can mean making sacrifices in the present. However, seeing your hard work and effort pay off when those financial goals become a reality can be incredibly worthwhile.
In this article, we’ll define financial goals, explore why it’s important to set SMART goals, and share examples of SMART financial goals to develop – and achieve – for yourself.
What are financial goals?
Simply put, financial goals are the touch points and milestones you wish for your money to achieve on a certain timeline. Financial goals can include building an emergency fund, saving for a down payment on a house, paying off credit card debt or student loan debt.
Financial goals can also pertain to goals that aren’t about reaching a specific dollar amount or negative debt balance but rather improving your financial situation overall. This can mean improving your financial literacy, understanding personal finance, or setting parameters for personal finances.
What are SMART financial goals?
If you’ve set personal goals before, you may be familiar with the SMART goal framework.
Smart goals stand for Specific, Measurable, Achievable (or Attainable), Realistic (or Relevant and Time-Bound.
Coined by George T. Doran in the early 1980s, this method was initially outlined in a paper titled “The S.M.A.R.T. Way to Write Management Goals and Objectives.” The framework was meant to be used as a tool for companies to set and achieve goals. The SMART goal framework has been utilized and modified to help others achieve an array of goals – and can be especially helpful for financial goal setting. Here’s a look at how to set SMART financial goals.
Specific
What financial goal are you trying to achieve? What is your motivation? Drilling down on the specifics of your financial goal helps you realize what will need to happen for you to achieve it.
When will you find the time to work on this goal? Who else needs to be involved in the process? What tasks need to happen before the goal can be reached? Having a plan starts with identifying specifics – which is why this step is crucial.
Measurable
Setting a measurable financial goal makes it easy to track your progress, evaluate if you’re on track, and pivot when necessary. For example, does your goal come with a certain dollar amount you’re trying to hit? If so, this gives you a measurable starting point to determine progress along the way.
For financial goals that are more education-based, such as improving financial literacy, consider measuring success with specific topics you wish to gain an understanding of, then plot your progress from a time perspective.
Attainable
Smart financial goals can be large-scale goals. But if they are not attainable, working toward it will likely feel frustrating and leave you with a sense of defeat. For a financial goal to be achievable, it needs to be attainable.
Retiring with a million dollars is an attainable goal — but if you’re starting that retirement plan at 60 and wish to retire at 65, you may need to reevaluate. When setting financial goals, determine what you’ll need to do for this goal to become a reality – whether that’s an allotted amount of time, a level of education or a certain dollar amount saved.
Realistic
Is the financial goal you’re setting possible to achieve? If not, what factors within your control are preventing you from hitting it? If you want to win the lottery, for example, you should know that math is not on your side. There’s a slim chance of it happening, and chasing success means spending money you may never see again. If the motivation behind winning the lottery is to live without having to work again, consider setting financial goals that set you up to earn passive income to make this happen.
Timely
Even long-term smart financial goals need to have a target end date to work toward. If saving for retirement is on your list, it can be tricky to know exactly how much you’ll need to save to do so. The exact date may need to shift, but having a target end year or range of years in mind keeps your goal time-bound and helps to frame the necessary work and steps that need to take place for it to happen.
When building your smart financial goal plan, try working backward from the date you want to achieve it. Then, create a framework that outlines the necessary steps and smaller measurable goals along the way.
Is setting SMART Financial goals important?
Setting goals is important for plenty of reasons. Having them to work toward reminds you of why you’re making changes to spending habits, making you more mindful about saving money. Staying focused on the personal financial goals you have makes the pain of budgeting and saving feel more worthwhile, providing you with more motivation and insight on why you’re doing so.
Knowing how you want your financial future to look can also help motivate and improve happiness and overall satisfaction in various areas of your life. For example, perhaps your current job has started to feel monotonous. A recent search into salaries for your position and experience shows that you’re being compensated well for your situation. Having a financial finish line to work toward can make your current job feel more fulfilling long after it’s become mundane.
SMART Financial goal examples
We’ve defined financial goals, outlined the general framework and discussed the importance of setting goals to achieve financial success. Now, it’s time to set smart financial goals of your own. If you’re unsure of where to start, breaking out common financial goals by time frame can help inspire you to take the first step. Here are a few smart financial goal examples broken out by time frame.
Short term financial goals
Short-term financial goals can be as short as a few months – or as long as two years. Short-term financial goals can be education-based. For example, you might be interested in getting tax advice from an expert, or learning more about investment options so you can select the right one for your financial situation. Short-term financial goals can utilize money such as an annual bonus or tax return to jumpstart.
A few examples of short-term financial goals can include:
Financing a home improvement project
Home improvement has become more and more essential over the past few years, with many employees working remotely. If there’s a part of your home that needs an upgrade, get an estimate on what it would cost to accomplish, then build out a plan using the SMART goal framework.
Building an emergency fund
No one likes to think about what may happen in the event of an emergency. While we can’t predict or prevent emergencies from happening, having funds that are easily accessible can give us more peace of mind for the future. To calculate how much you’ll need to save for this goal, calculate what six months of expenses look like for you and your family. Then, work on putting a manageable amount away each month to achieve it.
Saving for a vacation/event
Whether it’s a milestone birthday party, wedding or much-needed vacation, putting more money away for your financial journey (or to celebrate and enjoy life) are some of the most fun financial goals to reach. Working backward from your target date, determine how much you’ll need to put aside each month to reach your financial goal – then see where you can save or cut back to make it happen.
Mid-term SMART Financial goals
Mid-term financial goals should be achievable in around 2-5 years. Unlike short-term goals, these financial goals require more planning, resources and time to reach. While short-term financial goal funds can be kept in places that are easily accessible (save money using a high-yield savings account for your emergency fund), a more optimal strategy for mid-term financial goal funds might be a Certificate of Deposit or CD account – which has a higher interest return rate but requires the funds to remain in the account for an allotted period.
A few mid-term smart financial goals include:
Purchasing a car
Leasing options and car payment plans make vehicles more accessible — but this often comes with other headaches and hidden fees. Saving up to purchase a car in full is a worthy mid-term goal for those who wish freedom from monthly payments and additional expenses.
Saving for a down payment on a home
This is a worthy financial goal in any housing market but particularly useful today. There’s no better time to start saving up for a down payment on a home than right now. Using the SMART goal framework, determine where you envision purchasing a home, get specific on the type of home you’re working toward, and craft a realistic, attainable plan you can measure to achieve it.
Long-term SMART Financial goals
Long-term financial goals are the hardest to achieve – but with dedication and proper planning, they can end up being the most rewarding. These financial goals are the ones that require five years or more to achieve. Options for where you allocate funds for long-term financial goals are plentiful – investing in Roth IRAs, a 401k, or even an investment portfolio can help grow your money without requiring any effort on your part. Some long-term financial goals to consider are:
Saving for retirement
Investing for retirement is just as important as saving is. For this type of financial goal, it can be beneficial to work with a financial advisor to determine the best way to grow your money over time.
Paying off a mortgage
Completing your mortgage payments sooner than later frees up funds to use however you’d like – which makes this long-term financial goal a powerful one. Consider ways to pay more than the monthly allotment when possible and work back from your goal deadline to determine how you’ll measure success along the way.
Summary
Setting smart goals is important for our overall happiness and securing and preparing for the future. Financial goals can be difficult to set and stick to. But if you work within the smart goal format, achieving money goals becomes more attainable and will feel less like a burden. Set time aside to assess your financial situation and set your sights on what you want to achieve for your short-term, mid-term and long-term financial goals.
