We created our signature wealth calculator application to help you make a plan for your financial future. And every good plan has goals – studies have proven that if you have a goal you are aiming for, you are more likely to achieve your definition of success.
Making financial goals can seem difficult initially, but if you use the “SMART” method, it can be easier. SMART stands for: Specific, Measurable, Attainable, Relevant, and Time-Bound. Let’s walk through how SMART goals can help you have a prosperous financial future.
Having specific goals can support you in making clear-headed decisions on where to put your investing funds. When you have a specific goal, you can always check yourself: does this investing decision help me get closer to this specific goal?
Here is an example of goal that is not specific: I want to retire early and happy.
What does early mean? What does happy mean? It’s all very vague. If you told a financial advisor that was your goal, they wouldn’t have any idea how to help you.
Here is an example of a goal that is very specific: I want to retire no later than 62 years old, with a retirement ‘salary’ of 30k dollars a year, after taxes, which will pay for my beach cottage mortgage and daily needs.
Isn’t that much clearer? Can’t you start to picture that you have put some thought into what is required to get that cottage and have that amount of money each year.
A smart goal is one that you can measure. I’ve alluded to this in the previous example – you can’t measure what “early retirement” means, or what “happiness” means. It is totally OK to want those things, but frame them in a context that is measurable.
Let’s use a different example. Here is a goal that is not measurable: I want to work less in retirement.
What does less mean? Reframe that in a specific way: When I retire, I only want to work in my daughter’s flower shop 1 day per week for additional income, so I am free to work on hobbies and personal pursuits the other days of the week.
Wow, now that’s a goal that you can get your arms around – and get excited about!
Not to rain on your financial future parade, but it’s important to remember to choose goals that are realistic. That’s exactly where the wealth calculator comes into play – you can run the numbers to give you an idea of whether you’re on track to retire with a 30k salary or if you’ve got a bit more savings to do.
I think that you should choose the goals you want, and then figure out habits and practices to help you get there. So if you’re finding that your current goals are totally not attainable, ask yourself what can you do now – immediately – to start to steer you closer towards your financial dreams? Changes now can have big impacts later – don’t despair, take action!
The world relevant – in this case – is just saying that you should be mindful not to setup goals for your financial future that are tied to things in your life that are unrelated.
For example, let’s say that you have a personal goal of saving enough money to go on vacation to Italy next summer. This is a short-term goal that is not relevant to your long-term goal of retiring at age 62. These two goals do have a relationship, of course — your annual salary needs to put money into both of them — but be sure to avoid the problem of overlapping all of your money-related goals together in a big clump. You’ll just end up overwhelmed and afraid of working towards your financial future, instead of excited and empowered.
Last but not least in our SMART goal journey is time-bound. This is very important for financial goals, because when something happens can greatly affect how much time you have to accumulate wealth.
Here are some examples of goals that are almost meaningless without a timeframe:
I want to buy a house.
I don’t want to work when I am old.
What do those mean? Time adds so much clarity here:
I want to take advantage of low interest rates and buy a house within the next 2 years.
I want to build an investment portfolio that ensures I can retire by 60 – I’ll save more now in order to not have to work at all later.
Can you see how you actually can take next steps and action with the second set of goals?
I hope these prompts have helped you better phrase your financial goals. Do you have a SMART financial goal to share? Leave it in the comments or post it on our Facebook page – we’d love to cheer you on!