If current debt levels and the state of the economy are any indication, financial success doesn't come easily for most people. While it's certainly reassuring to know that you aren't the only one with these problems, you can take further solace in the fact that you have many resources available to you. For example, goal-setting is an invaluable strategy for identifying, planning, and resolving almost any financial woe. You may have heard of SMART goals--goals that are specific, measurable, attainable, realistic, and timely.
Specificity is the first criteria of a SMART goal. Before you can set out to make a change, you must be clear on what exactly you intend to achieve. Saying something vague like, "I want to be filthy rich" does not meet this criteria, nor does "I want to retire comfortably." These are ambitious, excellent foundations, but they require clarification. Make these more specific by saying, "I want to save for a yacht" or "I want to increase my retirement contributions."
A SMART financial goal is also measurable. Unless a goal is measurable, how will you know when you've met it? You can't know, which also means you can't experience the pride and sense of accomplishment that comes from achieving your goals. Using the examples from above, you might say, "I need to save $10,000 so I can buy that yacht." Another example: "I must increase my 401(k) contributions from 5 to 7.5 percent."
For your financial goal to be SMART, it must be attainable. Whether your financial goal is realistic determines whether the goal is SMART. There's nothing wrong with setting aggressive and ambitious goals, but setting a goal that is not attainable often results in discouragement. As a result, it becomes more difficult to "get back on track." If $55,000 of your $55,500 yearly salary is consumed by non-negotiable living expenses, it is not likely that you will be able to save enough money to buy that big-ticket item.
A SMART financial goal is also realistic. Many people have difficulty reconciling this criteria with their goals, especially when the goal is not financially prudent. The idea of basking on your gleaming yacht in the Caribbean sun is undeniably attractive, but how does that interfere with your long-term financial state? Based on your retirement savings, for example, could you maintain the yacht while still having enough money to pay for basic living expenses? A realistic goal includes considerations for both the present and the future.
Timeliness is the final criteria for a SMART financial goal. It is more difficult to pace yourself while working towards achieving a goal that is open-ended or has a vague timeline. A large part of goal-setting success is being able to create a timetable and a series of smaller milestones. For example, you might say, "I will have saved $10,000 by this date 10 years from now." Another example: "I will increase my 401(k) contributions a total of 2.5 percent over 5 years." You would then break it down further: "I will increase contributions by 0.5 percent yearly for 5 years."
If this strategy seems familiar to you, it's probably because the concept of SMART goals is used to address everything from planning parties to completing projects on the job. Armed with these tactics and the drive to accomplish your goals, you can be certain that financial freedom is readily within your reach. Now that's smart!