This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and raising children at Childwild.com This article is part of Financial Literacy Month at Get Rich Slowly.

Goals are critical to financial success. We’ve written about them a lot here at GRS; in fact, one of J.D.’s core tenets for getting rich slowly is “The road to wealth is paved with goals.” Not all goals are created equal, however. A bad goal can sap your energy and distract you from making progress. A good goal, on the other hand, can provide the clarity and motivation you need to attain your dreams.

What’s a smart financial goal?
Getting rich isn’t a goal; it’s a wish. A goal needs certain characteristics to have power. I like the SMART goal-setting system, which I was first introduced to as a new hire at my one and only Big Corporate Job back in the day. I’ve encountered it in a few different venues since then, and always found it useful. The SMART system teaches that goals must be:

  • Specific. Remember how I said “getting rich” isn’t a goal? For a goal to work, it needs to be specific. Don’t just aim to “save for retirement”. Do your homework and figure out how much you need to save to have the income you’ll want when you retire. Now you have a number, and that number can be the basis of your goal.
  • Measurable. Once you have a specific goal, you need to know how well you’re doing at achieving that goal. I can look at my retirement accounts and see exactly how much progress I’ve made towards my specific savings target. The same is true with other goals, like saving for a vacation or buying a house. The more specific you can be in your goal, the easier it will be to measure your progress.
  • Attainable. I’d love to write and publish a book. Doing so is on my “bucket list“. I can easily fantasize what it will be like to hold my own finished book in my hands, and display it proudly on my bookshelf. Even better if it hits the bestseller list! I’ll go on Oprah! I’ll get a six-book deal! I’ll be the next J.K Rowling! That’s not a goal; it’s a daydream. My writing goals are more concrete and attainable. They build on what I’m doing now. Each time I attain a goal, like selling a story to a particular magazine or being able to quit my day job and write full time, I get closer to being able to write that book. When the time comes, I’ll get real specific about what book I want to write and what steps I’m taking to do it. Then it will be a goal.
  • Realistic. Notice that I’ve talked here about my savings goals and my professional goals. Goals need to be realistic and related to your real life. I’d love to walk on the moon someday, but doing so isn’t a goal of mine. It’s totally unrealistic. If you want to make radical changes to your life, that’s fine. Goals can help you do that. But they need to start with small, specific, attainable steps.
  • Timely. A goal needs a timeframe. Without it, you can’t really measure your progress. When you make a goal, give yourself a concrete timeframe you want to accomplish it in. Saying, “I want to save $5,000 for a trip to Argentina over the next 18 months” is a much more attainable goal than saying, “I want to save for a family vacation.” I know exactly how much I need to save, and how much time I need to do it in. Figuring out how much to save each week becomes a simple math problem, and I can easily check my progress as I go along.

Why do I need goals?
Goals are incredibly powerful tools. J.D. wrote the other day about all the creative and flexible ways he uses the data he collects from tracking his spending. I kind of feel the same away about goals. They’re useful for a diverse array of things, from getting clarity on what you want to staying motivated for the long haul.

The process of goal-setting is a great opportunity to learn more about what you value. You get to see your dreams and aspirations take shape as clear, specific intentions with concrete, achievable steps to get to them. It helps you focus on what really matters to you, sorting your genuine aspirations out from your daydreams.

Once you’ve set the goal, figuring out how to progress towards it and achieve that progress is another learning opportunity. It’s a chance to learn more about how your goal can be achieved and make some choices about how you’ll get there. Let’s say you want to save for retirement. Once you know how much money you want to save and how many years you have to save it, you’ll want to lay out a plan to do so. This is your chance to learn about your company’s retirement plan options, investigate IRAs and study the stock market.

Goals act like a map. Once you have your goal in place and you know how you want to get there, you can check your actions against it. Whenever you go over your monthly spending, for example, you can check your progress on your goal. When you’re in a shop considering a purchase, you can ask yourself if it furthers your goal. Your goals can guide you to financially sound choices.

Finally, goals help me stay motivated. “Save 10% of my income” might be a good idea, but it’s not a very sexy goal. It’s easy to stray from that principal in the face of tempting travel plans and summer camp tuition for the kids. “Save $5,000 for Argentina”, on the other hand, is a compelling goal. I can use pictures of the locations we want to visit to help keep me energized about it, and watch the savings in my travel account slowly creep towards that goal.

How do you set financial goals? How do you use them once you’ve got them? I’m looking forward to reading examples of how readers use goals.

GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.