Setting SMART goals and objectives gives you a clear path forward.

It’s good to have goals, especially in personal finance. Without goals, you are less likely to save and less likely to budget daily in order to control your money. And while any goal is good to have, SMART goals really provide the roadmap you need to be successful.

What is a SMART goal?

The SMART goals acronym stands for:

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-Bound
SMART goal definition

It effectively means that any financial goal you set should have a defined end point that you can reasonably expect to achieve in a specific amount of time. You should be able to track your progress as you work to achieve the goal and it should help you reach a meaningful end point that improves your financial situation.

What’s the difference between a SMART goal and a regular goal?

A standard goal simply expresses a desire, such as, “I want to save money.”

The problem with a goal like that is that it’s not defined in a way that fosters success. You may save money out of a few paychecks, but there’s not any motivation built into the goal. Instead, your goal should be more specific:

  • “I want to save $100 per month for 6 months so my family can take a debt-free vacation.”
  • “I will open a Roth IRA this month and set up automatic contributions of $200 per month to feed my retirement fund $2,400 over the next year.”
  • “I want to save $100 per month for one year to replace my laptop without relying on credit.”

All of these goals still support your ultimate goal to save money. But they give you specific amounts and specific amounts of time you have to accomplish what you want to achieve. It works the same way with a goal to pay off debt. Becoming debt free is a great aspiration but you need a goal that’s defined to help you get there:

  • “I will pay $500 per month for 12 months to eliminate my $5,000 credit card debt within the next year.”
  • “I will make 3 extra payments of $1,000 each this year on my auto loan to eliminate the debt in-full before the end of the year.”
  • “I will consolidate my debt with using a balance transfer credit card and then pay off the balance in the first 12 months before the 0% APR introductory period ends.”

How to set a SMART goal

Step 1: Decide what you want to do

This means focusing on what the end game of your financial goal. If you want to save, what are you saving up to do? If you want to eliminate debt, where do you want to start? The more specific you make the end point of your goal the easier it will be to define the rest of it.

Make sure to note the total amount of money you need to accomplish your goal, if applicable. This will be important later as you set a timeline for goal.

Step 2: Assess your available cash

Most financial goals require capital to make them happen. This means you need to evaluate your budget and cash flow to see how much money you have available. If you want to save $5,000 in a year, but you only have $100 available, the goal is not reasonable.

Review your budget to see how much money you have available for this new goal. If you already save money each month then you may be able to allocate some of those funds. If not, you may need to tap your free cash flow or eliminate some discretionary expenses in your budget. In any case, see what you have available so you can plan accordingly.

Step 3: Set a timeline for success

Now divide the total funds you need to achieve your goal by the amount of money you have available every month. This gives you a basic timeline for accomplishing your goal. Remember to give yourself some leeway. If you use every dollar of your available cash flow, this may cause problems later. If you have an unexpected expense come up, you may delay your goal.

With that in mind, you may want to pad the timeline for your goal by a month or two just in case something comes up. So if you can accomplish your goal in 10 months, give yourself a year to finish. This way you can stay on track even if something happens along the way.

Step 4: Set milestones

If you have a large goal that will take more than a year to accomplish, set milestones that you can aim to achieve along the way. For instance, if you need to generate $3,000 to achieve your goal then you set $1,000 milestones every six months to make sure you stay on track.

Step 5: Start the work, measure your progress

Now that you have your goal set, you can start working. Make sure to keep track of your progress; this will help you stay motivated. And don’t feel bad about celebrating small victories! Measuring your progress lets you see that you’re actually moving forward. Each time you hit a milestone, it will give you that much more motivation to aim for the next milestone.

3 SMART Goal Tips

#1: You can have more than one goal at once

Always make sure to set SMART goals

You want SMART goals to be defined and limited to a finite amount of time; but that doesn’t mean you can only have one SMART goal at a time. In a balanced financial life, your focus should not be narrowed to a single aspect of your finances. You need to save money for the short-term at the same time you save for retirement; you should work to improve your credit as you eliminate debt.

This means you can have several SMART goals at once. You can have one goal for sticking to diligently to a budget for 6 months so you can improve cash flow. At the same time, you may work to eliminate debt on 3 of your credit cards, which would play into a goal of improving your credit score by 50 points.

#2: Reevaluate SMART objectives if your financial situation changes

Whether the change is positive or negative, you should reassess SMART goals anytime there’s a change in your financial situation. If the change is negative, such as losing your job, then you may need to scale back on your goals while you look for new employment. On the other hand, if you get a raise at work that means you may have more cash available. As a result, you can adjust your timeline to get to your goal sooner.

Even if you have a new expense that comes up, make sure to see how it will impact your goals. A new expense for a new extracurricular activity for one of your kids may not seem like much. But you may need to adjust your budget and goals to account for the change in your finances.

#3: Set new goals anytime you achieve one

Part of the logic behind setting SMART goals is that it keeps you motivated to make positive choices for your finances. It’s like financial inertia that once you start moving forward, you can keep that forward momentum going. That means that once you accomplish a SMART goal you should immediately set another one in its place.

Try to keep goals in the same category. If you complete a savings goal, set a new savings goal. This helps ensure that you concentrate on all areas of your finance instead of focusing solely on one.