SMART Goal

How can goal setting help you manage your money?

Goal setting is important to financial planning →

Financial Planning - managing money continuously through life in order to reach financial goals →

Financial Goals - specific objectives (or goals) that are accomplished through financial planning →

Setting financial goals will help you make day to day spending decisions

S = Specific

• Clear defined end result

• Final goal = state exactly what plan you have for the money involved

Ex:

Current Goal

• I will reduce my debt

SPECIFIC Goal

• I will reduce the amount I owe on my car loan

M = Measurable

• Determine exactly when you will know that the goal has been met

• Financial goal = state the exact dollar amount

Ex:

Current Goal

• I will reduce the amount I owe on my car loan

MEASURABLE Goal

• I will reduce the amount I owe on my car loan by $1,000

A = Attainable

• Create a step-by-step plan outlining exactly how the goal can be reached

• Financial goal = Often determined by a spending plan or budget

Ex:

Current Goal

• I will reduce the amount I owe on my car loan by $1,000

ATTAINABLE Goal

Lacey has an extra $100 to spend:

• I will reduce the amount I owe on my car loan by $1,000 by paying an extra $100 per month

R = realistic

1. Examine the consequences of that goal 

2. Consider the trade-offs and opportunity costs

3. Trade-off - giving up one thing for another

4. Opportunity cost - the value of the next best alternative that you will give up as a result of your plan

Ex:

Current Goal

• I will reduce the amount I owe on my car loan by $1,000 by paying an extra $100 per month.

REALISTIC Goal

• Lacey has determined that paying her car loan is more important than any other use of her money. The opportunity cost of paying her car loan is higher than the alternative of saving that money

T = time bound

• Specifically state when the goal will be reached

• Consider whether your goals are short-term or long-term

  • Short-term goal – attained in less than one year

  • Long-term goal – attained in more than one year

• Financial goal – make sure to consider your long-term financial needs when setting financial goals

Ex:

Current Goal

• I will reduce the amount I owe on my car loan by $1,000 by paying an extra $100 per month

TIME BOUND Goal

• I will reduce the amount I owe on my car loan by $1,000 in 10 months by paying an extra $100 per month

What is Austin’s final SMART goal?

Austin will save $600 for college. He has decided that he willing to spend

$25 less on entertainment every month in order to save

$25 per month for the next two years

S: Austin will save money for college

M: Austin will save $600

A: Austin will spend $25 less on entertainment every month in order to save that

$25 instead

R: Austin has determined that the opportunity cost of saving money is more valuable than spending an extra $25 on entertainment every month

T: Austin will save money for the next two years

Summary

S - State exactly what is to be done with the money involved

M - Write the exact dollar amount

A - Create a step-by-step plan outlining exactly how the goal can be reached

R - Think through the trade-offs and opportunity costs to analyze the consequences of your goal to make sure it isn’t unattainable

T - Specifically state when the goal will be reached