"A goal without a plan is just a wish.” — Antoine de Saint-Exupéry
You have goals! Setting and monitoring strong financial goals is important. But where do you start, and how do you make them effective?
Search the internet for goals of any kind and you will immediately read about SMART goals (Specific, Measurable, Achievable, Relevant, Time-based). With the help of a CFP® professional, not only can you create and think through your SMART goals, but you can also take them to the next level. Here’s how.
SPECIFIC — Getting specific with a goal usually involves beginning with the end in mind. Is the goal for college, retirement or a large purchase? Simply setting a goal to save more is a good starting point, but setting a concrete target can make the goal real and achievable.
Tip: Write your goals down. This is the simplest step, but perhaps the most critical. Goals can be as simple as a list on a piece of paper or, ideally, a written financial plan with projections. Once these goals are written down, keep your list handy to remember what you are saving for.
MEASURABLE — Once you have identified your goals, it’s time to quantify them to make them measurable. How much will be enough, and at what rate do you need to save? Quantifying goals allows you to monitor progress, stay on track, and make changes if your goals or circumstances change. It also allows you to see if the goals you set are attainable.
Tip: Use specific benchmarks to track your progress. By creating benchmarks, you can track how your progress is coming along and adjust as your environment changes. For example, you might aim for savings of one to three times your household income by age 30 and five to eight times your household income by age 50. Benchmarks such as these will give you feedback on whether you need to make adjustments, such as saving more or changing your portfolio.
ACHIEVABLE — Be careful not to set your financial objectives too high. Instead, determine achievable steps. During the planning process, this is the reality check on whether the goals you are setting are possible by projecting future values.
Tip: Be realistic in your projections. Make sure when you are projecting goals out 5, 10 or 30 years into the future to keep your return rates in check. It would be perfectly fine to achieve your goals sooner than expected!
RELEVANT — After you set the big-picture goals (to retire, be debt-free, and so on), check to see what financial steps you can take that are relevant to the larger goal. These are the smaller steps to the larger destination. For example, if you have a goal to be debt-free, a relevant step may be to increase your credit card payments or pay down student loans.
Tip: Prioritize your goals. Review your goals and the steps relevant to them, and then put them in order of priority. This will help when it comes to saving for a goal that is coming up sooner, or when working to pay off high interest “bad debt” before lower interest “good debt.”
TIME-BASED — Once you have decided on your goals, establishing the time range to meet these goals is vital. Some goals may have more flexibility than others. For example, there may be flexibility on buying a new car, but college start dates are usually not as flexible.
Tip: Set a time horizon for every goal. It’s important to know the time range for your financial goals. This applies no matter how flexible the goal is. “Someday” is a popular refrain when stating goals, but those goals inevitably get pushed back on a regular basis. Most goals can be categorized as short-term, medium-term or long-term, but no goal is short-, medium- or long-term forever. For example, retirement may be a long-term goal when you’re 25 but will likely be a shorter-term goal when you’re 60. The timetable for your financial goals will evolve over time, and you can always reassess the time horizon for the goal if needed. It’s important to stay flexible and adapt your time horizon to meet your changing needs and priorities.
When you are ready for assistance to help you establish and talk through your goals, a CFP® professional can be a great partner in goal setting and creating SMART goals. CFP® professionals are prepared to help you create a plan to make your goals a reality. Visit LetsMakeAPlan.org to find a CFP® professional in your area.