Many experiences in life have one thing in common — they require money. This is true whether it’s something long term like renting an apartment or more immediate like buying clothes or going on vacation. In any case, a solid financial plan can help set you up for success.
One planning strategy that can be helpful for financial preparation is known as the S.M.A.R.T. method — a framework that offers tangible and repeatable steps to help you reach your financial goals.
Know what SMART is.
Researchers attribute the S.M.A.R.T. method to George T. Doran and his 1981 article, “There’s a S.M.A.R.T. way to write management’s goals and objectives.” His acronym stood for Specific, Measurable, Assignable, Realistic, Time-related. Since then, others have defined their own version of the acronym depending on the goals they were setting.
For the purpose of financial planning, we define the approach as — Specific, Measurable, Achievable, Realistic, Timely.
Understand SMART financial practices.
Specific: Start with figuring out the factors that affect your financial goal. For example, am I planning a vacation for myself, my friends or my family? Am I looking for a one-bedroom apartment or a three-bedroom house? Am I putting money away in an emergency fund? Being very specific with answers to questions like these will help set a good foundation for goal setting.
Measurable: When you know the what, the next step is to find out how much. Do your best to identify how much money you’ll need to comfortably afford your experience or goal. Next, try to determine how you’ll measure your progress and the criteria you’ll use to make the tracking effective. This could include benchmarks centered on specific amounts of money and specific dates by which you'd like to save each amount.
Achievable: The right tools can help you reach your goals faster. Try a budgeting spreadsheet to track your savings. Or maybe you’d rather use a mobile app that does a lot of the calculations for you. Think about the processes, technology or people that helped you achieve goals in other areas of your life. Can you apply any of them similarly to your financial planning?
Realistic: After you’ve worked through the first few steps, you might want to take a step back. Assess the objectives and measurements you intend to put in place. Ask yourself if they are truly achievable within the context of your life. Once you review, you may feel validated or want to change a few things.
Timely: So now you’ve set specific, achievable, realistic goals and defined what success looks like to you. The final step is determining a timeline. You may need a new car in a few months or be trying to put more money in your 401(k) by the end of the year. Having deadlines will help to keep you accountable.
Stick to SMART saving.
When thinking about your finances, the S.M.A.R.T. method can be an invaluable framework for future goals. It should help keep you on track, on time and within whatever budget you set for yourself. Not to mention, it can help you enjoy some great experiences without financial stress.