How To Create SMART Financial Goals

If you’d asked me what my financial goals were 10 years ago I’d have probably shrugged and just said it was to be able to afford to go to Magaluf that summer. Oh, how times have changed! And it’s not just that at 11 pm now I’m in bed asleep, and 10 years ago I’d be getting ready to go out. But my financial goals and even my financial education has massively changed. And part of that is down to making SMART financial goals.

I’ve spoken briefly about SMART financial goals before in my recent post about refreshing and organising your finances.  But there’s so much more to talk about in terms of using SMART and making real tangible financial goals. So I thought I’d dedicate a whole blog post to it.

What does SMART mean?

SMART is an acronym for smart, measurable, achievable, realistic, and time-bound. The idea originated in an article written by George Doron in 1981 and has been expanded and used in loads of ways since. When I was working in retail management all of the goals we made for our performance had to be SMART goals.

Specific

When you’re creating SMART financial goals you need to begin with being specific about what you want to achieve. Think of this as your mission statement for the financial goal. For example, saying ‘I want to reduce my debt’ isn’t specific as reducing it by £10 is still a reduction, but chances are you mean more. Saying ‘To clear £5,000 off my loan debt’ is a specific goal as you’ll be able to say with certainty if you have or haven’t achieved it.

Some things you’ll need to think about are:

• Who needs to be involved? Is it a goal for just you, or for your partner/ family as well?
• What are you trying to achieve or accomplish? Don’t be afraid to get very meticulous with the details
• Why are you setting this as your SMART financial goal? How is achieving this goal going to benefit you, your finances, and your life?

Measurable

You need to be able to measure the success of your goal. If you don’t have a specific enough goal then it may be hard to make it measurable. But think about what metrics you’re going to use to determine if you meet your goal? Having something measurable makes the goal more tangible and helps you keep on track of your goal.

For example, if you want to save £10,000 in a year for a house deposit you’d measure it monthly by ensuring you’d saved £833 a month to stay on track. By having something you can measure you’ll be more likely to succeed as you’ll know if you’re on track straight away. Going back to the debt example, if you simply say you want to reduce debt how do you measure that, and what looks good if you’ve not set a specific figure?

Smart Financial Goals- Achievable

Some people call the A achievable, others attainable, but it means the same thing. Once you have a specific measurable goal in place you need to think about how will I achieve it. If you want to save money each month, how will you achieve it? Do you need to reevaluate your budget, do you need to find another job. This part is about setting achievable ways to reach your goal. This could be cutting down to one takeaway a month and saving what you’d spend. It could be cutting down two subscriptions you currently have.

It’s about making sure you have the right tools, skills, or attitudes to achieve it. If you have a bad habit of impulse spending, then you may want to work on that before you set SMART financial goals.

Realistic

The goal you set needs to be possible and realistic. It’s all well and good having high hopes and ambitions but you’ll fail quickly if they’re not realistic. Going on the example above to save £833 a month, if you work part-time and earn £1,300 a month with fixed outgoings of £400, it’s not realistic to save £833 a month.

You want to set yourself up for success and make sure it’s possible to achieve the goal you set yourself.

Time-bound

Your goal needs to be time-bound if you’re going to succeed. Having a target date to achieve your goal is important to give you the drive to achieve the goal, but also to give you something to mark your progress off from. So when you’re halfway through your time-bound SMART goal you should be halfway to achieving your goal.

If you simply said you wanted to save £10,000 but set no timespan you wouldn’t have the same drive to save every month. But if you knew you wanted to do it within a year you’d know your set monthly goals.

How to create SMART financial goals

Once you know what each area of SMART really means it should be quite simple to set up SMART financial goals. Simply think about what you want to achieve and work from the start. If you’re not that good at saving or your finances I’d suggest only having one goal on the go at once, or at least one SMART goal. But further, down the line you may have multiple goals. Some short-term goals of 1-2 years, and some much longer form.

Here are some SMART financial goals that you may be thinking about

1. Buy a house
   SMART Goal- Save £10,000 over the next two years for a deposit by saving £417 a month
2. Build up emergency funds
   SMART Goal- Save £200 per month for the next 12 months
3. Start investing money
   SMART Goal- Put £33 a month into a LISA in order to max out the £4,000 a year limit
4. Pay off your car insurance in full
   SMART Goal- Save £70 a month for the next 12 months

SMART goals will differ from person to person because what’s achievable and realistic for one person may not be for another. But having something like this in place will help set you up for success in your financial goals.

Do you make SMART financial goals?

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