How to Make S.M.A.R.T Goals with Personal Finances
With the end of March arriving, many may have already abandoned the financial goals and resolutions set at the New Year. If you’re looking for a way to stay on track or a method to help get “back on the horse” with your personal finance goals, consider making SMART goals in your financial plan.
What are SMART Goals?
SMART goals are defined as:
How applying the SMART Goals method can improve your personal finances.
SMART goals can improve any personal financial plan you may have. For example, if you want to save more money, consider reviewing your monthly budget. “Luxury” or “flex” costs are expenses you typically pay each month, but could do without.
Improve or update your monthly budget by using our free budgeting tool.
Pick a specific financial goal and clearly define it. Think of “S” as the what, why, and how of the SMART model.
What: Save more money
Why: To afford a down payment on a home
How: Review budget and cut out any unnecessary monthly expenses. (i.e. monthly subscriptions for entertainment/fashion will save me $120 a month.) Create a new savings account and set $120, plus $100 of “luxury” budget each month to down payment savings.
Your financial goal should be measurable. Set smaller, short-term financial goals for yourself as you reach the last financial milestone of your goal in order to have a more successful result.
By December 31, 2020 have $6,000 saved for down payment. Have first $1,300 by six months at $220/month goal. $2,600 by first year and review savings goals if necessary.
Financial goals should be challenging, but achievable. For example, don’t move funds from your fixed, necessary expenses in order to save more. Plan your financial goals to be focused on meeting your most basic “needs” as well as your “wants”.
In order to reach this goal, cut your “luxury” and unnecessary flex expenses. Because the funds are being saved for a larger personal financial goal and aren’t impacting necessary expenses, and the timeline for your goals are set, this appears to be an achievable goal.
Keeping a financial goal realistic goes hand-in-hand with the achievable step. When you plan the realistic aspect of your goal, consider the timeframe and results you’ve set as expectations. Do they make sense for your current lifestyle or are you willing to make necessary changes in order to achieve your ultimate financial goal?
In this example, you’re simply moving funds you don’t need for necessary bills and won’t interfere with basic needs. There may be more packed lunches and less nights out at the movies, but it’s a realistic financial goal.
Have you calculated the amount of money and length of time needed to reach your goal? You may need to adjust the time and/or money saved each month in order to reach your financial goal.
The example of $6,000 in two years to save for a down payment is a great way to review the timely aspect. Is two years enough time to save this much money? According to our goal setting, it is. Will $6,000 be enough for the home as a down payment in two years? This number may change because a lot can happen in two years.
Don’t be afraid to adjust your SMART financial goals if they’re set for six months or longer. If your personal financial goal includes making a large purchase, like a new home, it may be wise to include checking out the market every three to six months while your savings goal is in place.
Get Your SMART Goals Ready
ABECU is ready to help you reach your personal financial goals. Open an account today. Questions about our services? Call our Member Contact Center at 877-325-2848.
How do you plan to use SMART goals to reach your personal financial goals in 2018? Share your goals in the comment section below!