SMART Goals = Achievement!

As we prepare for the season of New Year Resolutions for 2024, it is an excellent time for reviewing goals: Are they still relevant? Is the goal on track for an on-time completion? Does the goal have a plan that works with currently available resources? If the answer is no to any of these questions, there is no need to panic. As financial situations change, whether it be for the better or worse, the goals can be adjusted. Regularly reviewing goals is a great way to ensure goal realization.

The SMART Difference

Establishing financial goals is the first step to economic success, but this step is often skipped in favor of a quicker start. The SMART Goal methodology helps keep the goal alive long enough for completion. Here is a review of the components that makes a goal SMART:

Specific: Does the goal state exactly what will be achieved?
Measurable: Does the goal have benchmarks that can be achieved?
Achievable: Is this goal possible to accomplish?
Realistic: Can the goal be achieved given the time and resources?
Time-bound: What is the timeline for goal accomplishment?

Goals that do not use the SMART method are more like wishes than goals. For example, imagine Joni is 21 and wishes to retire early. Here is an example of a wish compared to a goal:

Wish: I want to retire early.
SMART Goal: I want to retire with $1.5 million in savings by age 55.

When asking the questions about the two goals, the first one does not specifically address any of the SMART Goal components. There is no specificity—what is the thing we are trying to address? Therefore, no clear plan can be derived from this simplistic statement. Here are the results of the SMART Goal:

Specific: Retire with 1.5 million in savings is exactly what Joni hopes to accomplish.
Measurable: Joni has time to change her situation to make this goal happen.
Achievable: With careful planning and discipline, it is possible to achieve this goal.
Realistic: This goal can be realistically achieved.
Time-bound: Subtract current age, 21, from goal age 55 = 34 years to achieve.

Why be SMART?

When a goal becomes SMART, planning becomes simplified, and it is easier to track progress. When taking the time to establish clear and concise goals, we can reevaluate the goal to ensure it’s on track for timely completion. For example, if Joni made a habit of evaluating her goal every year and found that she was tracking a year behind, she has time to adjust her goal. If she is only one year behind, she can make a multitude of minor adjustments.

Some of the changes she may choose are changing the timeframe to be one year later, increasing the amount or number of investment contributions, increasing the aggressiveness of investments, reducing expenses to allocate more money to investments, etc. However, if the goal was not specific and progress isn’t checked regularly, we may have been farther behind and have fewer options for adjustments.

SMART Goals are also an important way to stay on track when we have competing financial priorities or limited funds. For example, imagine running a race, and in this race, there are 4-5 hurdles randomly placed throughout the route. If we are blinded by the sun, it is hard to see the hurdles and plan for the jump. However, by wearing a cap, the hurdles will be visible and we will be better positioned to make the jump a successful one.

Now, replace the race with our journey to our goal, the sun with competing priorities, and the hurdle with an unexpected car repair. If the auto repair is a surprise, we have lost the opportunity to prepare and may not be able to clear the hurdle. However, if we have a goal in mind (like finishing the race), then we will give ourselves some time to think and plan before acting. Taking time to think and plan before jumping will ensure the solution doesn’t cause an injury that requires us to quit the race.

What can be learned from this analogy is that the easiest solution is not always the best. For example, a quick fix to pay for the auto repair are things like pawning an asset, using a high-interest credit card, or ignoring the repair until the car becomes inoperable. However, if there is a higher goal, the other, more long-term solutions that don’t derail our goals will become apparent. Possible solutions to the problem could be working an extra shift, taking public transportation for a short time, or starting a small business using our talents and abilities. On the other hand, it could be as simple as making phone calls to compare mechanic prices to find a price that fits our emergency savings budget. However we choose to solve the problem, SMART goals can help guide the path to healthier solutions.