How to Set SMART Goals

At some point in your life you may have thought of and written out your goals, hopes, or dreams. Goals are incredibly important. They give you something to work and strive for. They can be personal, professional, financial, etc. By the end of this post, you will know how to set SMART goals.

In various courses throughout my schooling we were given the SMART acronym as a way to develop our goals. It stands for:
S – Specific
M – Measurable
A – Achievable
R – Relevant
T – Time-bound

Here’s how you set SMART goals

First, take a moment to think about your life. Picture yourself 1 year from now. 5 years. 10 years. 20 years and so on. Where do you want to be? What do you want to happen? Is there a topic that you want to learn about or books you want to read? Do you want to continue working in the same field? Is there an instrument you want to learn? Is there any part of your personal or family life that you wish to develop? Do you want to achieve financial freedom? What skills – learning a foreign language, art, computer programming, photography/videography, etc. – would you like to acquire?

Now, brew yourself a cup of tea (or coffee) and get out a sheet of paper.

I was given the wonderful gift of organization in the form of a Passion Planner. It starts out wanting you to map out your goals for the year with this quote in mind, “If you could be anything, do anything, or have anything, what would it be?” You have 5 minutes to write down everything that comes to mind. If you need to, you can break it up into time frames: 6 months, 1 year, 3 years, 5 years, 10 years and so on. Here’s the important part: write down anything and everything. You don’t have to be realistic and you don’t have to justify what comes to mind. If it helps, you can do this a couple of different times focusing on personal goals, professional goals, financial goals, etc.

Set the timer for 5 minutes and go.

Take a minute to look over your list. My list ranges from making a meal everyday and cleaning up after myself, to saving money, to paying off our mortgage early and investing in rental properties. Choose a few items out of each time frame that you want to make a priority. I broke my time frames into 3 categories: 1 month – 1 year, 2-10 years, and 10+ years.

Now it’s time to turn our goals into SMART ones! We’ll use the vague “save money” as an example. Again, SMART goals are Specific, Measurable, Achievable, Relevant, and Time-bound.

Specific

What do I want to save money for? How about a down payment on a house.

Measurable

How much do you want to save? You may have to research how much house you can afford. The recommendation is that your total monthly debt payments, including house payment, shouldn’t take up more than 36% of your monthly income. Check out this Zillow calculator. A typical down payment is 20% of the house purchase price.  If you want to buy a $100,000 house, that’s $20,000. For a $200,000 house, that’s $40,000. 20% down is not required to buy a house but it keeps you from paying PMI (Private Mortgage Insurance) which can amount to .5% to 1% of your loan ($1,000/year for a $100,000 loan and $2,000/year for a $200,000 loan.) I’ll go more into depth about how much house you can afford in another post.

Achievable

How can you achieve this? How much money do you have to set aside each month to reach your goal? Let’s say you are looking at purchasing a $100,000 house. If you are aiming for 20% down, that’s $20,000. In order to answer how much to set aside each month, you have to decide on a time frame. Let’s say 3 years. That comes out to saving $6,667 a year, which breaks down to $556 every month. For a $200,000 house, you would want to save $40,000. That is $13,334 per year for 3 years or $1,112 each month.

Relevant and/or Realistic

Why? Why is this your goal? Make sure it aligns with you and the direction you want to go in. If you want to spend your life backpacking around the world, saving for a down payment probably isn’t very relevant to your life.

Remember when I said you didn’t have to be realistic? Well now is the time to refine the unrealistic ones. You may have dreamed about a beautiful 5 bedroom 5 bathroom house on the lake for your first home but it costs $500,000. You would need to save a down payment of $100,000, or $2,778/month for 3 years. Is that realistic for you? While it may not be as a starter home, you could build equity in a home that appreciates while you continue to save and over time you may be able to afford it!

Time-bound

Lastly, when do you want to have the money by? For this down payment we said 3 years. Breaking it down into months makes it more manageable. Timing is important. Too short and you risk not giving yourself enough time, failing you goal, and getting discouraged. Too long and you risk losing sight of the end game. It will be tempting to spend the money sitting in your account for years and years. If you are renting while you save up 20% to avoid PMI and your goal is to do it in 10-15 years, you will have paid much more in rent than you ever would have in PMI. The key is to find a realistic time that works with your budget.

We’ve just turned the once vague goal of “save money” into a SMART goal of: “save a 20% house down payment of $20,000 by saving $556 every month for 3 years.” Now work your way through the rest of your list, turning your goals into SMART ones!

Go forth and write your goals!

You may also like: 5 Ways to Stay Motivated on your Debt Free Journey

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