Goals are an important part of any financial plan, whether you want to pay off credit card debt, save for retirement or go on that family vacation you’ve been dreaming about. They are like the GPS or road map in your car that help you reach your destination.
And, if you really want to increase your chances of achieving your financial goals, make sure they’re SMART, as in Specific, Measurable, Achievable, Realistic and Time-framed.
Take a goal like, “I want to save for a vacation.” It is vague and hard to measure. But by adding a few details, you can turn it into a SMART goal, as in, “I want to save $5,000 for a trip to Tahiti within ten months."
This new goal is specific because you know exactly what you're saving for: a trip to Tahiti. It’s measurable because you know how much you will need: $5,000.
It's achievable because you can break the total needed into smaller steps. For example, you will know how much you need to put aside each week or at each paycheque. It will probably lead you to reduce some of your spending, such as cutting down on buying lunch or restaurant meals.
It's also realistic because, while challenging, you can see if you need to adjust your budget to make it work.
Finally, it's time-framed, because you've set a deadline. You can almost picture yourself sitting on the beach 10 months from now in the South Pacific.
Once you’ve set your financial goals, track your progress regularly. It’s important to make sure you’re meeting key milestones toward your goals so that you can adjust for changing circumstances.
It’s also a good idea to write your financial goals down. Having a clear record of them will make them seem more real and provide extra motivation to succeed.
If you don’t know where to start, an important first step is to make a budget that clearly lays out your sources of income and monthly expenses. If you don’t already have a budget, try the new budget planner from the Financial Consumer Agency of Canada (FCAC). This free interactive tool has tips and suggestions to improve your financial situation and allows you to create a personalized budget. It generates charts showing where your money goes, and compares your spending habits with other Canadians in similar situations.
Some people feel that financial goals are only for those with money to spare. In fact, they are for everyone—every step counts. When you take the time to carefully think them through and ensure they are SMART, you take an important step forward in achieving them.