How S.M.A.R.T. Goals Can Turbo-Charge Your Finances

RF-MG.Meeting-1
(c) Ryan Frailich

This is the latest part of a series by Ryan Frailich discussing financial planning for teachers. For more from Ryan, you can sign up for his monthly newsletter here

If you’re reading this, there’s a good chance that you are – or were – a teacher.  Almost every teacher is familiar with the concept of S.M.A.R.T. goals for your classroom. To provide direction in your classroom, at the beginning of the year (or unit), teachers lay out Specific, Measurable, Achievable, Relevant, and Time-Bound goals that they want their students to accomplish. To understand why this matters, it’s often helpful to compare and contrast:

Unhelpful “Goal” S.M.A.R.T. Goal
Through novel study, my 4th grade students will read for understanding & main idea better. By the end of the school year, each of my students will have improved their STEP reading level by at least 4 levels.

The unhelpful goal gives a vague sense of where you’re going, but it’s basically impossible to say if you accomplish it or not. It’s entirely subjective. The S.M.A.R.T. Goal provides clear direction, a way to measure it, and the time frame we’re shooting for. Clearly, setting a S.M.A.R.T. goal doesn’t magically mean kids learn more, but it’s a helpful first step in providing direction.

S.M.A.R.T. GOALS FOR YOUR MONEY

The same concept applies in your finances. I often talk to people who say things like “I really want to get better with my money,” or “My goal is to get rid of debt.”  However, without clear measurables or timelines, the good intentions fall apart.  Let’s look at an example:

Unhelpful “Goal” S.M.A.R.T. Goal
I want to get out of debt. I will fully pay off my $3,200 of credit card debt by January 2018.

The desire is there in the first one, but desire only goes so far. As has been widely documented, writing down goals dramatically increases the likelihood of achieving those goals. Whether you write them in a journal, on your fridge, or set them as the desktop background on your computer, having a tangible reminder of your goals builds the reinforcement that you’ll need to stick to something that requires saying “no” to some things you may want now so that you can reach the more important goal later.

The idea of setting specific and measureable goals can work across short-, medium-, and long-term financial goals.  Some examples I’ve seen either with my own clients or with family and friends include:

Short Term Goals Medium Term Goals Long-Term Goals
  • Save $2,500 in an emergency fund by end of 2017.
  • I will autopay $300 per month to have my credit card debt paid off by January 2018.
  • Save $20,000 to buy my next car in cash in 3-4 years.
  • Reduce our total spending to $3,500/month so that we can be a single-income family for the first year of our daughter’s life.
  • Save $40,000 to spent all of 2021 traveling the world on an around-the-world air ticket.
  • Save $600/month to be able to buy a $200,000 home within 5 years. (This person had about $10,000 already saved.)

Are these easy? Nope. Are these the right goals for everyone? Of course not. The goals are going to vary by your situation and by what is important to you and to your family, but the concept of laying out a clear goal and writing it down can go a really long way to achieving that goal.

MAKE YOUR S.M.A.R.T. GOALS HAPPEN

Along with setting a S.M.A.R.T. goal, there are two other steps that are going to make that goal happen for you.  The first is automation. Those who know me know that I’m a huge fan of the concept of paying yourself first, or setting aside savings for the most important things first and then spending whatever is left. By automating these savings, you’re dramatically increasing the likelihood of success because once you do it, you don’t have to think about it every month, or every paycheck. It just happens. Like magic.  

The final step is something not as many people are doing, but one that I think is powerful. Name the accounts with the specific goal.  Many banks, such as Ally Bank and CapitalOne will let you do this.  If you have a fund for travel, a fund for emergencies, and a fund for home repairs, make sure you name each of the accounts as such.  Here’s a screenshot from the accounts my wife and I have at Ally Bank:  

Screen Shot 2017-04-05 at 4.22.14 PM

Why?  Because seeing that name on the account tells your brain “Wait, stop, don’t spend this money on entering that NCAA tourney pool/a giant new TV/tickets to see Rihanna, this money is for our summer vacation and friend’s wedding.”  We all know dollars are fungible and could go to many places, but seeing a tangible reminder that you’re saving for a specific thing makes you less likely to blow that money on short term wants. Many investment accounts, such as those at Betterment, also provide this feature, so the same concept applies for those accounts. Also, writing this makes me realize that the Someday Baby Fund has a label that is out of date!  It’s now the “Oh wow, we have a baby now, man I’m glad we started this fund a long time ago to pay for all the diapers this dude is going through.”

In summary, these are the three big steps:

  1. Set S.M.A.R.T. goals.
  2. Automate the savings based on those S.M.A.R.T. goals
  3. Name the savings accounts.  

In my mind, these 3 ideas are 95% of the challenge of achieving a financial goal.  So take some time tonight and think about one upcoming goal you’d like to accomplish, big or small.  Write the goal down.  Put a date on it.  Set up the automated withdrawals to your named savings account.  And look up in a year (or three), and see how you somehow got there with just one night of work in setting up your goal!

(c) Ryan Frailich

Ryan Frailich is the founder of Deliberate Finances, a registered investment adviser in the state of Louisiana.  Information presented is for educational purposes only and should not be relied on for investment or other financial decisions.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. 

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