It’s that time of year again: goals season, aka the new year. If you’ve got money goals on the mind, the kind of goals you set matter: make sure to set SMART financial goals this year to give yourself the best possible chance of achieving them.
When it comes to money goals, it can be all too easy to set really vague ones, like “I want to save more money” or “I want to pay down my student loans.” However, “vague” is one of the worst things you could say about a goal, and here’s why.
When a goal is vague, you can’t really tell whether you’ve achieved it or not - and it can be tempting to give yourself a free pass on achieving the results you wanted, because you’ve got plausible deniability. “Well, I did save $50 that one time… so I totally saved more money this year.”
That’s probably not what you meant by “saving more money,” is it? I didn’t think so.
So when you sit down to look at your goals for the year, especially your financial goals, the SMART goal framework is a great way to work through setting money goals that will set you up to win.
If you’ve never heard of it before, SMART is an acronym that breaks down into five guidelines for how to set effective goals. It stands for…
Here’s how you can apply those principles to setting great financial goals this year. To keep things interesting, let’s use “pay down my student loans” as a consistent example, and see how we can turn up the effectiveness on that goal to help you actually pay down your loans this year.
As we already covered, vague is a dirty word when it comes to financial goals, which is why it’s important that you be specific when you set your goals this year.
Instead of “pay down my student loans,” a specific goal would be “pay an extra $100 towards my student loans every month.” All of a sudden, you can immediately see whether you’ve been effective at achieving your goal on a month-by-month basis.
Luckily, when it comes to money, as soon as you’ve made a specific goal it’s usually very easily measurable, because you’re working with dollars and cents. You can track your progress towards your goal, and because it’s measurable, you’ll know exactly when you hit it.
For our student loan example, you’ll be able to measure your progress by tracking your loan balance as it goes down. Every extra $100 you put towards your loan balance will have a measurable impact on how much you have left to pay.
This is the give-yourself-a-bit-of-a-break section, because you shouldn’t set goals that are unrealistic. If you’re making an entry-level salary, and a big chunk of your paycheck goes to rent and food, don’t set such an aggressive debt repayment goal that you’re setting yourself up for failure. Especially while you’re just starting out, you want to set yourself up to win by setting a goal that’s attainable.
Sure, you can stretch it a little bit to give yourself a challenge, but try to remember that eating ramen for three weeks in a row was so sophomore year.
If that “pay an extra $100 towards my student loans every month” goal seems like it’ll be too much, dial it down to $50 a month. If you’re finding that you can consistently hit your $50 extra payment goal after a few months? Awesome. Bump it back up to $100 once you’re in the habit of making extra payments every month.
It’s hard to stay motivated when you’ve got goals that feel like they’re totally unrelated to your life. That’s why, especially when it comes to your financial goals, they should be directly related to things that matter in your life.
When it comes to your student loan repayment goal, try to remember why you want to pay off your loans in the first place. Is it to free up money to save towards something? Are you just excited not to have them hanging over your head? Knowing how your extra payments relate to the bigger picture of your life will help you stay on track and motivated.
This one is just as important as being specific, because if your goal is “pay an extra $100 on my student loans” with no deadline, well, you could stretch that out forever (and hopefully, you won’t have to!). You want to make sure your goal is time-bound as well, so add in a deadline for yourself as part of the goal.
For example, “pay an extra $100 a month towards my student loans” could be daunting if you don’t have a time limit on your goal. Try “pay an extra $100 a month towards my student loans until December 1st, 2017” instead, and enjoy knowing that you’ll have reached your goal before heading into next year’s Christmas season.
And hey, that sets you up really nicely to set a more aggressive goal going into 2018! Look at you, you SMART-goal-setting superstar.