How To Make A Financial Goal: The SMART Way

Are you having a hard time achieving your financial goals? You are working hard but it feels that you are not getting nearer towards your goals? If yes, then maybe you are not doing it right.

Or maybe you don’t really know how to make a financial goal properly.

In order to achieve your financial goals, you must know how to do it correctly. You should plan it logically and execute it properly. Working towards your financial goal is not really easy and often times many people failed.

But as long as you really want to reach your financial goals, you will do whatever it takes, right? And to increase the probability of reaching your goals, you should do it in a SMART way. Let me help you on how to make a financial goal that will have a higher chance of achieving it.

What is a Financial Goal

Financial goals are your plans or priorities on where and how are you going to spend the money you have for your future. It is usually based on what you need and it varies from person to person depending on what he or she prioritizes in life. Your financial goals could be for yourself, for your family members and even both.

Types of Financial Goals

Your financial goals can be categorized based on how long you can achieve them.

Short-Term Goals. This goals usually takes less than a year to achieve. An example of these is your emergency fund. Usually it is better to starts with short-term goals since its easier to achieve compared to long-term goals. When you accomplished it, it can boost your confidence.

Mid-Term Goals. Goals that will usually take one to five years can be considered as mid-term goals. Buying a new car, house renovation and alike. Sometimes, mid-term goals are goals that can help you to achieve your long-term financial goals.

Long-Term Goals. This goals usually takes more than five years to achieve. The most common example of a long-term goal is the retirement fund. The sooner you can start working on your long-term goals the better.

Importance of Financial Goals

Setting up a financial goal is important. It helps you to achieve your dream of having financial freedom. You are molding your future gradually.

Your financial goal will also serve as a map for your money on where to go. You know where you should spend your money and how much you should save. It can help you to focus more and to give time only on what really matters.

Steps On How To Make A Financial Goal

Identify Your Financial Goals

Write down what are your financial goals in life. It should be aligned on what you want to become or to achieve in the future. If you have many financial goals, write it all.

It doesn’t matter how many financial goals you have. Its simply mean that you have a plan for your future. That you really have an ambition in life and to become financially successful.

Prioritize

After making a list of your financial goals, I want you to examine those financial goals. You can ask yourself with these questions.

1. ) Which among these should I start working on now?
2. ) Is this financial goal is more important than the others and why?
3. ) How can this particular financial goal affect my current financial status?
4. ) Which of these financial goals can help me to achieve my other financial goals?

Arrange them from being the most important down to the least important. Be careful in choosing on which should come first and last.

Set Deadline

Now, after prioritizing your financial goals you should set a deadline. For how many months or years should it requires in order to reach your goal. Your financial goals can be achieved within a few months only while others may take more than 5 years.

Its is important that you should set for how long you should work on those particular goals. This can help you to be more focus and time conscious. It gives you the awareness that you should do it now instead of doing it later.

If you have a deadline, you can immediately make necessary adjustments if needed. You can always check how much money you are lacking to reach your financial goals. Do you need to increase your saving or you are still good?

Determine How Much You Need

You should know how much money you should have for your financial goals. Again, this will vary from person to person, the purpose of financial goals, and the lifestyle that you want to have.

Long-term goals require a bigger amount of money compared to short-term goals. The amount of money you needed can be overwhelming at first that you might even doubt if you can achieve it.

The key here is to divide how much money you should be making for your financial goals on a weekly or monthly basis. You can even opt to save money on a daily basis if you want.

Create A Budget

In making a budget, consider how much money you should set aside for your financial goals. Regarding how much, it will depend on the previous step. If you are still new to budgeting, here are the different budgeting methods you can choose from.

Review and Monitor

You should monitor your progress. Are you still in the track? If not, why? Trace immediately what are the possible reasons that make you off track. The sooner you were able to make adjustments the better.

It is needed that you can immediately make some corrections to avoid making it worse. However, it cannot be avoided that you need to revise your plan in achieving your financial goals. We are not certain of what will happen in the future.

How To Apply The SMART Method On Your Financial Goal

SMART is an acronym for goal setting and originated by George T. Doran.

Specific (Significant, Simple, Sensible).

For you to be able to focus and to fully give your time and effort, you should be clear and specific on your financial goals. Ask yourself with these questions:

1. ) What do I want to become or to achieve?
2. ) Why is this financial goal is important?
3. ) Who can assist me in my financial goals?
4. ) Which resources do I have and don’t have?

The more specific you are with your goal, the easier it will be for you to make a strategy.  

Measurable (Motivating, Meaningful).

For easy tracking and to be able to determine how far or near you are in achieving your goals, it should be measurable.

1. ) How much money do I need for my financial goal?
2. ) Did I already saved enough?
3. ) How much should I save every month or annually?

If you set a target amount of money, you can always monitor and assess your progress. You can spot immediately if you are not getting nearer towards reaching your target.

Achievable (Attainable, Agreed).

In setting a financial goal, be realistic on it. It is okay to set high financial goals since it can enhance yourself but it should remain possible. Do not aim to earn millions in a month especially if you are still a beginner. Unless you are lucky enough to win in a lottery. Or you already have a multi-million business.

1. ) How can I attain my financial goal?
2. ) What are the constraints in achieving my financial goal?

Relevant (Reasonable, Realistic, Results-based)

As I mentioned earlier, your financial goal should align on your other goals. On what you want to become. Otherwise, it is not wise to spend your time and effort working toward that goal.

1. ) Does this financial goal aligned with my other goals in life?
2. ) What do I want to become in the future?
3. ) How can it affect my financial status in the future?

Time-based (Timely, Time-bound, Time-limited,).

Setting a deadline is a must in making a financial goal. This helps you to be more motivated and focused.

1. ) When should I achieve my financial goal?
2. ) What should I do within a month, 6 months, or a year?

When you set a timeline, you will be forced to do only the things that have an impact or that is a requisite on attaining it.

As an example:

Let say, I want to have a retirement fund that is equivalent to Php 5,000,000.00. And I am planning to retire 35 years from now. Based on that, I need to save around Php 142, 857.12 annually or Php 11,905.00 per month.

I am being specific. My financial goal is to have a retirement fund. Is it measurable? Yes, I want to have Php 5,000,000.00 for my retirement. I believe setting aside Php 11,905.00 monthly is doable by increasing my sources of income. It is roughly equivalent to Php 392.00 per day.

It is relevant and it does align with my other goals in life. I do not want to rely on my children when I am old which is a common practice to Filipino families. And I do have a deadline, within 35 years I should be able to produce that amount.

Conclusion

Financial goals in life are important since through it you are giving your hard-earned money a direction. Every money you earn will have a purpose. You are already planning and starting working on your future – a better one.

It is also critical that you know how to make a financial goal in the right way. This minimizes the chance of not succeeding. It will also keep you away from being frustrated, wasting your time, effort and other resources.

Now you know how to make a financial goal and making it into a SMART one.

So, what are your financial goals in life?