One thing that I have learned in the last one year where my life has taken a drastic turn after deciding enough is enough of living from paycheck to paycheck is:
1. Changing your spending habits can make you richer
2. You need to set and attain SMART financial goals to help you get to track the steps you take.
What are SMART Financial Goals?
Just because you want to get rich, retire early or start running your business is not a goal, it is a wish. A goal has particular characteristics that make it powerful. Financial goals like any other goals can fit in the SMART Criteria.
o Specific
o Measurable
o Attainable
o Realistic
o Timely
This SMART system which was first discussed by George Doran and we have been taught about it since we were children. So, today I am going to take you through this
Why Set Financial Goals?
Any successful person you know whether in business, career or even in my area of interest, personal finance, they will tell you that the differentiating factor between successful and unsuccessful money management lies in knowing what you want to accomplish and getting the right way of doing it.
It is through these great goals and proper planning of your finances that you can be able to attain your dreams and ambitions not forgetting that you have also made most of your money.
Before you can even set your financial goals, you will need to have a personal budget, which I discussed with you in some articles with you. This is because, with a budget, you are able to have better view of your money, knowing what goes where, what percentage you spend and also what percentage goes to savings it is through a budget that you can be able to see what you need to cut down on and what areas of your money need to be improved.
Then, after that, you sit down and start to strategize on how much you will spend and save in order to achieve your desired goals.
Setting Financial Goals the SMART Way
Remember when I talked about VISUALIZING your future when we were discussing how to start saving? I would like to take you back again this time, have a pen and paper to write down your goals or even refer to my article
While using the SMART Criteria, a financial goal will need to have the money value, time frame and a value of measure attached to it.
So to brain storm:
o Think long term 10 to 30 years from now, what do you think will make you smile? Is it fully owning your home? Is it to retire early? Getting that holiday home near the white sandy beaches of Diani? Is it to travel the world? I know someone who would love this
o Think Medium term 3-5 years from now. Is it to save up for college? Building a good emergency fund? Pay off your student loan? Getting a car?
o Think Short Term 6 months to 1 year from now, is it to get an appliance? To go on a vacation? Pay off that credit card? Get that guitar? Heck, even that French or Spanish class you have been dying for.
o Think even more close home, three months from now, Increase your contribution to that pension/retirement fund, take up that life insurance/education plan, get a gift for someone, even that fancy shoe you have been dying to have
So, how do we translate the SMART System to your financial goals?
SPECIFIC
This is the first characteristic of a financial goal is to be specific. What does this mean?
The goal needs to be rather particular rather than general. This means that the goal is clear and free from ambiguity. This means that you know what is expected of you and your money, why it is important, who is involved, where it is going to happen and what characteristic of it is important.
The SMART Goal will need to answer five question
o What? What do you want to achieve? Can you describe that goal in 5 words or less? Say you want to live debt free, or save to retire by 40 or that down payment for your house. Just a goal without any meat in it
o Why? What is the purpose of your goal? Why do you want to retire so early?
o Where? From where will you be working on the goal? This is usually a minor issue but depending on your goal, it can be major, say to get that MBA or MSC, that is major.
o Who? Will other people get involved to help you achieve your goal? Will you need other people to make it happen?
o Which? Are there things that can hinder your goal? What are they and how will you counter them?
MEASURABLE
It implies that the goal has a much-defined definition of success. This means that there is a target to it that you can actually measure.
You need to have a very solid criterion in which you can measure the progress towards the achievement of your goal. The reason behind this is that you will not know if you making progress if the goal is not measurable and how far you are from achieving the goal. This will help you stay on course, reach your target on time and basically to be happy about achieving your goal.
You will need to ask yourself this question:
o How Much? Just how much do you need to retire early? How much do I need in debt am I and how much will I need to pay in order to finish paying for it?
o How many? There are some goals that can be measured by getting the how many part right. This is another way of answering the how many questions e. g your date, your savings, your books, your net worth just to mention a few.
ACHIEVABLE
A goal is achievable if you can attain it. It means improvement from where you stand currently and it not as much as a pipe dream.
The goal needs to stretch you but not to the extreme. This means that the goal is not way below a normal performance neither should it be too far our out of reach.
Once you determine what is important to you, you will soon start figuring out the ways in which you can turn them into reality. You will acquire the attitude, the skill, ability and the financial ability to make it real.
This can even make you more opportunity aware and start identifying opportunities previously overlooked. This will help bring you closer to achieving your goal.
Research Research and more Research. This will need you to spend more time with your goals and see if it is possible and if there is room to wiggle.
If you want to lose 5Kgs you cannot do that in a day but over a period of time, you can. What this means is that you can change a goal from unachievable to achievable by making some minor adjustments to it, decreasing the target or increasing the timeline.
REALISTIC
What differentiates a realistic goal from an achievable one? This will largely depend on the people around you.
Many are the times you will be needing help to help you achieve your goal. Be it in the form of resources, a voice of reason, mentor you will need that support system. If your goal aligns itself the other goals, this is a relevant goal.
Say I want to save 50K for an extravagant vacation, this is an achievable goal but is it realistic for you who is married and probably with three children?
A goal is achieved if you hold everything else constant such as, you ignore those around, assume maximum assistance but this is usually not the case.
You can edit a goal at this stage by taking into consideration the people in your life and who will be providing the resources that you will use to get that goal.
Will the goal eat lots of your time or other resources and how will it affect your family, loved ones, social life? The question now becomes, is it realistic? If it is money, it means you take it away from some place in your budget, is it realistic to do so?
So, sit down with yourself, make a list of the resources and people that you will need to help you in your goals, are these people going to give you their time, resources are they okay if you take some of the same away from them?
TIMELY/TIME BOUND/TIME-LIMITED
All of the greatest goals have a time line attached to them and they have to be complete within a specific time frame. This ensures that enough pressure is applied to enhance consistency when you are working on your goal.
A time frame will demand your commitment and it will help prevent it from being over taken by the day to day life. This will also set a sense of urgency.
This will need you to ask the when question and this will take you to brain storm for goals and their classification
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So you will break it down into this chart:
What can I do to achieve it today
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What can I do to achieve it this week
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What can I do to achieve it his month
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What I can in the next three months
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What can I do to achieve it mid-year
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What can I do in the next 12 months to achieve it
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The point is to break down the goals into small progressive steps that are not huge, after all, a journey of a thousand miles does begin with a single step
Let’s do an example here:
How can I pay off my debt?
Using the SMART System
Specific: I want to pay all my debt
Measurable: I will pay by debt to Zero from the current 100K amount
Attainable: It is because other people have done it before
Realistic: Can I make any noticeable progress towards it with my current look of my income? Are the other persons in my life on board with it? If so, why not.
Time-bound: Come up with a number, compute your loan repayment and even do an amortization schedule, then know that by September, 2018 I will be done.
Then Measure your goal and track your progress
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