Setting smart financial goals

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.

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There are 25 comments to "Setting smart financial goals".

  1. LifeAndMyFinances says 12 April 2011 at 04:58

    Goals ARE extremely important! You may hit them or you may not, but you are guaranteed to get more done when you have a goal in front of you.

    My wife and I had a goal to get out of debt, and since we knew the “out-of-debt date”, we both worked so well together in acheiving it! In fact, we got out of debt a month earlier than we planned!

  2. Pamela says 12 April 2011 at 06:39

    I’ve been thinking about goals lately and why some are so hard to reach. So this is a very timely post for me, Sierra.

    I just started reading Succeed: How We Can Reach Our Goals by clinical psychologist Heidi Grant Halvorson.

    In it, she states that if you take a different approach depending on the kind of goal you’re trying to reach, you’ll be more successful.

    Willpower goals (save money, eat less, exercise, quit smoking) are reached more easily by thinking of the big picture. “I’m going put my wallet away now so I can buy a house for my family later.”

    But goals that have us doing things that are new to us or difficult should be expressed concretely and broken down into small steps.

    An example would be learning how to invest and setting up a balanced portfolio. Your steps might include: first I’m going to order prospectuses, then I’m going to read them, then I’m going to compare each investment to my chart suggesting a good balance (you can tell I know so little about investing I can’t even come up with good examples.)

    Apparently keeping a big picture view of hard tasks paralyzes us.

    I’m only a short way into the book but I’ve already learned a lot about why we fail at some goals and succeed at others.

    • Tara says 13 April 2011 at 07:48

      Pamela, those aren’t bad first steps at all! Even trying to break it down into steps is a good first step!

      Before you invest, it’s a good idea to understand how the purposes of each potential investment (i.e. by reading the prospectus). Then you determine which asset classes you want to invest in and how to allocate between them (domestic stocks, large stocks, small stocks, international stocks, bonds, REITs, etc.). Lastly, pick where you’re going to open your account and go ahead and open it with the balances you determined from your asset allocation percentages.

  3. Dan says 12 April 2011 at 06:53

    Manager Tools ( advocates MT goals (a coincidence in name) because SMART goals are often not applied correctly. By definition, a “measurable” and “timely” goal will be specific, attainable, and realistic as well.

  4. No Debts, No Regrets says 12 April 2011 at 07:12

    This is so on target! The only thing I’d like to add is that in addition to setting goals you need to allocate the time to implement them. When set my goal to become debt-free, I decided to treat it like a part-time job or a hobby, devoting as much as 10-20 hours a week to this goal. I set up an account on to combine all of my accounts in one place and reviewed it every day. I set up my budget in the Debt Buster spreadsheet (free on my blog), and monitored that daily as well. And I monitored my checking account and online bill-pay to make sure I didn’t bounce any checks, or pay anything late. A few late fees will easily undo all your good work!

    Since then, I’ve started to tend to my 401k in a similar manner (although you want to be careful not to over manage your investments).

  5. Laura in Cancun says 12 April 2011 at 07:23

    I’m a bit stuck with goals at the moment… not sure what I want financially or career-wise, but when I figure it out I’ll use this 🙂 Thanks!

  6. Bridget says 12 April 2011 at 07:33

    SMART goals are great.

    Are you still doing your “affirmations” too? They seem to be opposite concepts.

    • Tyler Karaszewski says 12 April 2011 at 08:33


      • Nicole says 12 April 2011 at 08:35


  7. Bill says 12 April 2011 at 07:36

    I’ve noticed some people change the “Realistic” to “Relevant” in the SMART goals system. I’m in favor of this because I’ve always had trouble explaining the difference between realistic and attainable to college students (my previous audience). Plus, in the heat of an enthusiastic goal setting retreat is easy to get off-course and helpful to ensure each goal meets the purpose/mission of the person or organization.

  8. El Nerdo says 12 April 2011 at 08:09

    Speaking of timely goals, crime has been increasing in Argentina in recent times. Hurry before things get out of hand, or wait until they get better? Hmmm…

  9. Tyler Karaszewski says 12 April 2011 at 08:32

    As far as I can tell “attainable” and “realistic” are the same exact thing in this list, and are only both there to make the acronym catchier.

    This is my current goal.

    • Tara says 13 April 2011 at 07:52

      That’s an awesome goal! My goal is to retire at 50 with no mortgage, so then I calculated how much I need in retirement savings to do that, how much I need to save each month/year to reach that goal, and how much I need to save to have a down payment in 5 years. Working backwards like that made it much easier than just thinking that I should save a lot of money for the sake of saving. I’m an engineer – I need numbers and problem solving, not hand waving.

  10. retirebyforty says 12 April 2011 at 08:59

    This system works well with short term goal. What about long term goal like early retirement or becoming a millionaire. These are attainable, but it will just take a long long time. It might seems like a day dream at first, but if you keep at it, it’ll become a reality.

  11. Scott Messner says 12 April 2011 at 09:39

    “Goals act like a map”

    Exactly. Without goals, how do you know where you’re going? I have also had experience with the SMART system and think it is very useful.

  12. Lincoln says 12 April 2011 at 09:49

    One habit I have picked up since reading GRS is also evaluating goals for return on investment possibilities. Is this a goal that will help me achieve other goals, and can I quantify it? Likewise, for goals that are not capital investments, but are nevertheless enjoyable, can I quantify what I am getting out of it?

  13. getagrip says 12 April 2011 at 10:24

    One thing not often discussed is knowing when a goal is not working for you and reevaluating it. Most people just give up if they don’t reach the goal they set or even come close, but never bother to really dig in and ask why. At least with a system like this, if you set it up right, you can have a clue why.

    • DreamChaser57 says 12 April 2011 at 13:50

      I would love to see a post on vetting your goals and ultimately deciding if they work for you and your current lifestyle. My money philosophy is a hodgepodge of different perspectives, I’ve read plenty of books, peruse several PF blogs, and watch a couple of shows, one of my favorites being “Until Debt Do Us Part”. In the Debt vs. Savings debate, debt won, we’ve been making incredible progress. However, my husband works for the federal government and with the budget fiasco – I realized just how vulnerable we were. Theories mean nothing when life throws you a curve ball!

  14. K.C. says 12 April 2011 at 10:30

    I characterize a goal as more of a destination than a map. A plan to attain the goal is the map to the destination. The destination remains constant, but the route to it may change as circumstances change.

  15. Justin says 12 April 2011 at 12:36

    I agree that you have to have some kind of end point or focus for your goals.

    Saying you’ll save $5000 for a trip to Argentina is Brazil is MUCH more likely to get you off your rear than just saying you want to save 10% of your income!

  16. Sam says 12 April 2011 at 13:27

    We have been setting annual financial goals since we paid off our debt (that was our goal in 2007). We generally set up our goals at the same time we work out our annual spending plan (early in the year). And some goals stay the same from year to year, i.e. max out our 401ks and max out our IRAs has been on our goal list for many years running. Then we pick out some other goals, like house projects, or something else bigger ticket but more short term, like saving for a replacement car or new furniture.

    Once we’ve got our agreed goals, Mr. Sam puts together a handy Excel chart that is coded to I’ve got a bar chart, a pie chart, a schedule, etc. for the goals. I update our progress at least twice a month via the chart. We try to make the goals reasonable, generally we’ve been targeting $50,000 – $55,000 a year in savings goals (and really some of them are spending goals, we are saving up so we can spend) since we paid off $55,500 in debt in 12.5 months. This year we are pushing ourselves a bit more and trying for $63,000 in savings goals. And while we set the goals we don’t always reach them, which is okay with us. Sometimes we carry the goal over to the next year or sometimes we just don’t meet the goal due to circumstances.

  17. Crystal says 12 April 2011 at 13:33

    I set all sorts of goals for my blog, my life like my weight, my savings, etc. I find that stating them publicly usually motivates me to make sure to achieve them. I also make sure they are specific and measurable.

    The two big ones I am working on now is to weigh 150 pounds by July 4th (I started at 176 in January and am at 156 right now) and to make at least $15,000 this year through blogging (I’ve made about $6000 so far).

  18. Ru says 12 April 2011 at 16:31

    In my bedroom at my parents house (I’m a university student so I live at home during the holidays and in London when I’m studying) I have a shelf that hangs over my bed. When I lived here full time I taped a list of goals to the underside of the shelf, written in clear black marker so I can read them first thing in the morning without my glasses on.

    It’s out of date now, but the “Goals and Challenges May 2010” list includes:
    -feel happy (mostly achieved)
    -do something in the garden at least once a week (achieved when I’m at home)
    -save up £3000 for university (failed, but not entirely my fault due to employment problems)
    -eat more vegetables (achieved)

    Currently, opposite my bed in London so I can see it when I first wake up in the morning is just a two word goal:
    “BEHAVE. Please?”


  19. Kelley says 12 April 2011 at 17:30

    We’ve been goal-setting since 2004. I set goals for our Roth, TSP, girl’s 529’s, giving, travel, debt payoff and finally now mortgage payoff. I enjoy looking back and seeing how we’ve met those goals and when and believe that simply writing them down has helped get us where we are. I also have a friend who had “Payoff mortgage” on a post-it note stuck to her bathroom mirror. I loved that and believe that writing something down helps. I believe setting goals WITH YOUR SPOUSE OR SO in different lengths is paramount, short-term, intermediate and long-term. That way you don’t find yourselves at retirement wanting two different lives

  20. Jordan Davis says 26 October 2016 at 07:27

    I have been setting goals since i was 14 and what have just started my own Bucket List at Humdingerdays which is brilliant because it allows my friends & family to see what i have done and want to do and donate, helping to crowd-fund my Bucket List.

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