SMART Goals
Setting goals are not only apart of a healthy financial life, but can also positively impact your professional and personal life. Goals help us keep our lives on track, and measure the progress we make throughout the months and years. One of the most effective ways to create goals is to use the SMART acronym.
SMART is an acronym to help individuals create effective goals. The SMART in SMART Goals stands for:
Specific
Measurable
Achievable
Relevant
Time-Bound
Below, we will explore each step of the SMART Goal process through the example of a college student saving up for their first year of classes.
Specific: A goal that is specific has an exact focus. The more specific you get with your financial goals, the clearer your vision will be.
Let’s look at the example of Fiona. Fiona just graduated from high school, and she knows she wants to go to community college for two years, before possibly transferring to a four-year university. She wants to major in molecular biology. She knows she has to save money for her classes. So, to make this goal specific, she writes down:
“I want to save enough money to pay for my first year of classes.”
Upon further research, she realizes she will also need to save for books, supplies, and a monthly bus pass. So, she updates her goal as such:
“I will save enough money to pay for my first year of classes, supplies, and bus passes.”
Measurable: The most common way to make a financial goal measurable is to assign a dollar value to it.
For Fiona, she wants to take 15 credit hours per semester, in order to be a full-time student. She is an in-district student. Using the Tuition and Fees page on Triton’s website, she estimates that her first semester tuition and fees will be $5,070. She also estimates she will need $250 per semester for books and supplies. A monthly Ventra pass costs $75, which will be $750 for the school year. In total, this amounts to $6,320. To be on the safe side, she rounds this amount up to $6,500, and updates her goal:
“I want to save $6,500 for my first year of classes, supplies, and bus passes.”
Achievable: If a goal is one that an individual cannot reasonably attain, then it needs to be adjusted to the reality of the person’s financial situation. Although everyone would like to save as much as physically possible for their goals, life can get in the way. Adjusting your goals to a more reasonable level can not only help you actually achieve them, but also prevent burn out and encourage you to create more goals.
Fiona currently works 20 hours a week at $15 an hour as a fast food worker. After taxes, her weekly paycheck is $240, or roughly $960 in monthly income. Between her rent payments, groceries, and other expenses, she has $50 left over at the end of each month.
Due to the above information, Fiona does not believe she can save enough for her classes. However, she looks over her financial aid offer letter, and notices that she will be receiving $4,500 for the school year from various state and federal grants. This leaves her with $2,000 in expenses for the school year.
Still, $2,000 is a lot to ask a student like Fiona to save up for. So, to make this goal more realistic, she breaks it down further:
- She can split the costs down by semester, meaning she needs to save $1,000 by the start of her first semester.
- She thinks she can negotiate her work hours in the summer up to 25 per week, which will increase her income by $240 a month.
- By looking over her budget, she realizes she’s currently paying $25 a month for two subscription services she rarely uses.
- She understands that she can apply to scholarships through Triton’s Scholarship portal. She also explores her options for a payment plan for her first semester.
With the above information, Fiona updates her goal:
“I want to save $1,000 for my first semester. I plan to achieve this through increasing my work hours, decreasing my expenses, and looking for free money in the form of scholarships. If I cannot save enough for my first semester, I will enroll in a payment plan come Fall.”
Relevant: A goal should be relevant to the person setting it. This means not comparing yourself to others, and knowing why you are setting your goal.
Fiona briefly considers going directly to her local four-year university instead of Triton College. Her best friend from high school was accepted into said university, and doesn’t seem concerned with the costs. However, Fiona quickly realizes that the university does not have the best molecular biology program, and does not offer much financial aid to its students. So, she continues on with her current goal.
Time-Bound: In order for a goal to be effective, it must have a specific end-date. This can break a goal into short term (deadline of less than a year), medium term (one to three years) and long term (three years and beyond). By giving a specific end time, this can also help a person calculate how much they need to save per week or month to meet said goal.
For Fiona, it is currently the middle of May. Classes start in the middle of August. So, she has three months to save for classes. This breaks down to needing to save $334 a month for classes. From the above changes she plans to make, she knows she can reasonably save $315 a month. So, she updates her goal again:
“I need to save $1,000 for my classes that start in August. I will save $315 a month to help meet this goal. Additionally, I will apply to at least one scholarship per week until the beginning of the semester in order to make up for the remaining $55 I need to cover my expenses.”
Like many other financial matters, keep in mind that goals may change and evolve over time. Certain needs, like debt repayment or building up an emergency fund, may take precedent over saving for fun activities. Life can also get in the way of goals, due to emergencies, health issues, or unemployment. Ensure that you have flexibility in your goals to ensure a successful financial life.