Setting S.M.A.R.T. Financial Goals for the Year

When you're taking control of your finances, one of the most helpful things to do is to create a goal -- so long as it's achievable. Otherwise, you might find yourself unsure of what steps to take or end up stuck in the middle of the process, treading water.
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When you're taking control of your finances, one of the most helpful things to do is to create a goal -- so long as it's achievable. Otherwise, you might find yourself unsure of what steps to take or end up stuck in the middle of the process, treading water.

So, when you're deciding what you want to work toward this year, use a simple trick to avoid those missteps: Make sure your goals are S.M.A.R.T. -- specific, measurable, attainable, realistic, and timely. Using this system, you can develop goals that may take some hard work but won't leave you defeated in the end.

Before you even figure out how you'll get to your goal or when, you'll want to make sure you can form a concrete plan around it. A vague goal like "I want to be well off" lacks a firm end point, which makes it harder to determine what steps you'll have to take to get there ("well off" is subjective, and you could find yourself constantly moving the finish line).

On the other hand, a goal like "I want to put 6 months' worth of living expenses into my savings" has a built-in end point. Because of this specificity, you'll be able to calculate the amount you have to contribute, decide how long it should take you to reach that number, and determine what you'll need to put that much money in the bank.

It's important to be able to measure your progress as you work toward your goals. If you want to be better at putting money into your savings, ensure you can define what "better" means.

Instead of using a term that you can't measure, attach actual numbers to the goal, like saving a certain percent of your income or a certain amount in 6 months. That way, you won't have to rely on intuition and your own general observations to determine your progress.

Luckily, when you're dealing with finances, you'll almost always have figures and facts to help you keep track of how you're doing. Charting the growth of an investment or the decrease in your credit card debt will not only help you stay on schedule -- but it will also give you a concrete way to see your efforts paying off.

You'll want to set goals you can reach (even if they might take hard work). For instance, let's say your income is $40,000 a year, but your goal is to put $20,000 into your savings account. Not only will it be nearly impossible to achieve (unless you stop eating, that is), but you'll also feel discouraged when your hard work doesn't pay off.

Working toward a more attainable goal -- like paying off a certain amount of your student loans within a specific timeframe -- will have a far more positive effect on you both financially and psychologically. Don't chase after a result you'll never catch; creating more reasonable expectations will give you the satisfaction of crossing them off your list and moving forward.

We know what you're thinking--how are attainable and realistic different? When considering your own goals, think of realistic as what's realistic for you.

If your goal is to get involved in the stock market and make a certain amount of profit, that's fine. But remember that you won't become an experienced investor overnight, even if it would be technically possible for you to hit it big. Being realistic about your goals means taking stock of your abilities and limitations, and working with both to get the best result possible.

That's not to say you won't be able to acquire new skills or abandon bad habits as you progress. In fact, it's likely that you will change the way you handle your finances as you work toward your goals. But you'll have an easier time starting out -- not to mention a better chance at reaching the finish line -- if the plan is somewhat tailored to your life.

It's great to have long-term goals: you want to buy a house one day, you want to move to a more expensive area a few years down the line, you want to help your kids pay for college. But depending on when these events will actually happen, it may be difficult to set up a timeline for meeting them -- and that's not even taking into account the unpredictability of the future.

Focusing on short-term financial goals will pay off sooner while also helping you build the good saving and spending habits you'll need to achieve those big dreams in the long term. You want to have a goal with a clear end date. Without one, it's harder to be aware of your progress and hold yourself to a deadline.

Some financial goals can seem so big or so far off that it's hard to get a handle on them. But if you create your goals using the S.M.A.R.T. system -- and put in the work -- you can keep even the most monumental mission under control.

SALT® is a free and unbiased nonprofit-backed financial education program dedicated to giving students, alumni and families the money knowledge they need for college and beyond.

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