Let’s talk about a goal-setting device that's easy to remember and implement but also provides the best odds of achieving success - the SMART goal.
The Power of SMART Goals
What separates a garden variety goal from its SMART brethren? Five key attributes. A SMART goal is:
- Specific
- Measurable
- Achievable
- Relevant
- Timed
Why are these characteristics important? Let's start with specificity. Overly broad or vague goals can be challenging to achieve. We often don't know where to start - so we never do. Specific goals, however, seem far more attainable. While the vague goal of "losing 50 pounds" seems like an enormous undertaking, a particular goal such as "cutting out soda and sugary treats for one week" seems far more realistic. The same logic applies to financial goal setting – rather than setting a goal of "saving more," you could aim for a specific goal such as "increase monthly savings by $200."
SMART goals are also measurable. Without some way to gauge our progress, we quickly lose interest in our goals. We need the psychological boost that marking progress toward a goal provides. It allows us to view a larger goal in smaller segments and track our success as we move forward. If you can't measure it, you can't manage it.
Goals that aren't achievable are, by definition, doomed to failure. While it might be nice to fantasize about being a millionaire in five years, the odds are probably against it - it's unrealistic for most people. Yet many of us can divert five percent of our income into an IRA, which is a simple act that has made millionaires out of countless people over a longer time horizon.
Relevant goal setting is also critical. Failing to meet unrealistic expectations is a form of self-sabotage. Start with smaller goals that are well within your power to realize, then work toward more complex goals as you gain confidence and momentum. Realistic goals help maintain motivation and ensure continuous progress without leading to burnout.
Finally, SMART goals are timed - yet flexible. Assigning a deadline to your goals creates a sense of urgency and helps prioritize tasks. A realistic schedule lets you track your progress and provides positive reinforcement once it's completed. However, it's essential to avoid becoming so wedded to specific deadlines that you lose sight of your larger financial goals. The destination, rather than the journey, matters the most.
The Challenge
As part of your New Year's financial tune-up this week, take up the challenge to create a series of SMART financial goals. Begin with immediate, small-scale goals you can accomplish daily over a week. Adhere to the SMART framework to ensure each goal is structured for success.
Once you're in a rhythm of accomplishment, you can expand the scope of your goal setting and create a list of longer-term goals you can revisit on the next New Year's Day. By putting some serious forethought into the design of your goals, you dramatically increase your odds of success. Whether aiming to bolster your savings, reduce debt, or invest wisely, the SMART approach is your ally in turning financial dreams into reality.