You have probably heard of the phrase, “Set SMART Goals.” where S.M.A.R.T. stands for Specific, Measurable, Actionable, Realistic, and Timely. Now let’s apply that to your family’s financial goals and use it to really learn how to manage your money and pay off debt fast. Sit down with your partner and write down your own SMART financial goals (if you’re a single professional it helps to do this with a close friend with whom you can work toward your individual goals together and hold each other accountable).
Specific – Your goal must be well defined, like “I will save $10,000 in 5 years,” rather than arbitrary like, “I want to save more money.” Define a specific financial goal. Here are some examples:
● Get out of credit card debt, totalling $11,500, by July 2012
● Save $5,000 to pay for second honeymoon in 2013
● Save an additional $500 per month for tuition to get masters degree
Measurable – Your goal must be measurable so you can track your progress toward achievement. For instance, say your goal is to have $5,000 saved in 2 years time and you currently have $465 in your savings account. Then you need to save $4,535 more ($5,000-$465) in 24 months, which equals $188.96 per month ($4535 / 24). So, each month, you should put $190 into your savings account.
Actionable – This is how you outline the steps that will get you to your goal. If your goal is to save $5,000 in 2 years (what we just outlined above), then you know that you need to save $190 per month, every month, for 2 years. You could manually make the deposit into your savings account each month, or you could set up an automatic transfer from your checking account to your savings account. Most corporate employers offer direct deposit, so you could file the paperwork to have $95 from each bi-weekly paycheck deposited directly into your savings account.
Realistic – It’s always important to set yourself up for success – to allow yourself to achieve. This is why goals must be realistic to foster a sense of accomplishment. When you have accomplished smaller goals, you’ll find yourself even more motivated and excited to accomplish bigger goals. This is why knowing how to set a budget is important when it comes to achieving financial goals. Your budget will tell you what you can realistically save each month or how much more you can put toward your credit card bills.
Timely – Notice how each goal outlined above has a date or length of time attributed to it. Your money saving goal cannot just be, “I want to save $5,000.” It must have a deadline attached to it, otherwise you could just say to yourself, “I can’t save this month, so I’ll just save next more month,” and you’ll never reach your goal. It’s important to set short term (up to 1-2 years), mid term (up to 5 years) and long term (10 years or more) goals. If your long term goal is to own your own home, then your short term goals will build the foundation for doing so.
So take the time now, to outline your Specific goals that you can Measure with Actions in a Realistic and Timely manner. Create your own game plan for getting out of debt quickly and managing your money for the future. I’m just a phone call away and can help you get started.