You may be wondering, what are SMART financial goals? Unlike lofty goals, such as “I’ll pay off all my debts by next week,” or even pipe dreams, like “I’ll win the lottery if I play enough times,” SMART goals are grounded in reality. SMART stands for Specific, Measurable, Attainable, Relevant, and Time-Bound. First introduced in the 1980s, SMART goals have endured because their framework helps you set up your goals as actions, according to the Canadian Management Centre.
How the five components of SMART financial goals work.
Ready to get started? Here is a breakdown of each part of "SMART." Setting these goals takes some thought, and it’s worth it! In the long run or even the short term, SMART goals can really pay off.
S: Specific Financial Goals
This first part takes the most thought; don’t worry, it gets easier from here! But to begin, you need to consider the five W’s:
- Who: This is where you identify everyone who needs to be involved in the goal. This could be a spouse, a child, even the entire family. On the other hand, it may strictly be your own personal goal.
- What: Now it’s time to think about what you want to accomplish; don’t be shy about getting very meticulous. Do you want to pay down debt? If so, is it your mortgage, car payment, student loans, or credit cards? Perhaps your financial goal is to save up money. If so, be specific. Is it for college, retirement, or a vacation?
- Where: This may not apply, but if it does, make note of it. Are you looking to retire to British Columbia? Vacation in Toronto? Attend university at U of T? Remember, getting SMART is about getting specific.
- When: You’ll get more granular in the “T” portion of this exercise, but you should still have a general idea of when you want to accomplish your financial goals. If it’s saving for retirement, the timeframe will likely be more than 5 years; if it’s a vacation, you may need the money sooner, like in 3 months.
- Why: How will achieving your goal improve your life? Whether it will lead to less stress, end collection calls, improve your relationship, or earn you the education or vacation you’ve always wanted, putting this to paper offers you an endgame.
M: Measurable Financial Goals
When goals aren’t focused and have no tangible outcome, they become more difficult to achieve. This can lead to frustration, which can cause you to give up on your goal entirely. So, you need to put some form of measurement to your goal to determine whether you’re staying on track. Your particular metric could be paying off $200 per month on a particular credit card until it’s paid in full, or saving up $200 per month for five months in order to afford a vacation.
A: Attainable Financial Goals
Your financial goals should be challenging, but they still need to be reasonable. There is no sense in setting yourself up for failure as this will simply lead to more negative feelings about your financial situation. So in this step, you’ll want to set achievable goals and take note of potential obstacles that may get in your way, so you can prepare for them. Also, be sure to consider how you will handle these obstacles if they do arise.
R: Relevant Financial Goals
Have you set too many goals, making them unattainable? Or have you set some goals that could be easily discarded? In this step, determine which goals are most important to you and if you really need to focus on them at this particular point in time. For example, if one of your goals is to save up for a new smartphone, do you really need the device now, or can you get by with your old phone for another six months and use any savings to pay down debt? You may also consider what else is relevant in your life in order to attain your goal. For example, are you really using that gym membership? Or, do you really need that Starbucks coffee every morning? Perhaps you could cut them out of your life temporarily to start an emergency savings fund. It’s all about determining what makes the most sense for your current circumstances.
T: Time-Bound Financial Goals
Your financial goals need to have a target date, otherwise known as “a light at the end of the tunnel.” Your target date will give you something to work towards and will help you stick to your goals. Again, this time frame needs to be attainable; if you’re thousands of dollars in debt, don’t set your target payoff date a month away. (Unless you’re planning on working 80 hours a week or expecting an inheritance!)
Want free financial advice? Let’s get SMART together!
Now that you understand the SMART methodology, we hope you can put together a plan that will help you achieve your financial goals. However, if you discover that you still can’t put together a plan that’ll work for your situation, give us a call at 1.800.267.2272. Our certified Credit Counsellors can provide a free and confidential financial assessment to explore your debt relief options with you, including debt consolidation—which takes a very SMART approach to paying off your debts!