Creating and sustaining wealth is something that most people aspire to achieve. However, without clear and actionable goals, it can be extremely hard to make progress toward wealth and financial freedom. This is where the creation of SMART goals comes in, which ultimately should be your first step in your wealth-building journey.
What are SMART Goals?
SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Time-bound. When writing out your financial or even personal goals, you want to do your best to include all of these elements. These elements create the framework to create realistic, manageable, and achievable goals.
Example: A goal such as "I want to buy a phone" is very hard to manage. What type of phone? What price range? How will you afford it? When you will need it? Instead something along the lines of "For the next 25 weeks, save an extra $40 per week from my part-time job to buy a $1,000 256GB iPhone." will be much easier to manage and therefore accomplish! You already mapped out your action plan within the goal itself!
When thinking about financial goals, you will want to keep the following in mind to make sure they come out SMART:
SPECIFIC
What specifically are you doing? For example, do you want to learn to create budget? Open a savings account? Invest in the stock market? Being as specific as possible will help you reach your goals!
MEASURABLE
Attach a measurable number to your financial goal. Do you want to see your debt go from $5,000 to $0? Do you want to earn an 800 credit score? Do you want to save 20% of your paycheck? Make sure to include this number in your goal.
ACHIEVABLE
What action plan will you take to reach this goal? Will you use a spreadsheet program such as Microsoft Excel or Google Sheets to create a budget? Will you make a plan to pay your credit card bill? Set up automatic transfers to your investment account?
REALISTIC
Can you actually accomplish this goal? Do you have the means or the plan to pay off $5,000 of debt in 6 months? Or is this unrealistic?
If you realize that your goal is unrealistic that is ok! Try breaking down the goal into smaller goals. For example, in the situation above you could earn additional money working overtime or a side hustle? Could you try to cut back on "extra" expenses such as dining out?
TIME-BOUND
Finally, set a date for your goal. This can be next week, a month from now, 2 years, 10 years, or whatever is reasonable to you. Just make sure your date is realistic and makes sense for your personal situation.
5 SMART Goals on Your Path to Wealth
In this article, we will explore 5 SMART goals that can help you build wealth and set yourself up for future financial success. These goals encompass various aspects of personal finance, including saving, investing, debt management, income growth, and expense reduction. By incorporating these goals into your financial journey, you'll be equipped with a roadmap to guide your decisions and propel you towards long-term wealth accumulation.
Goal 1: Pay Yourself First! Save 20% of your paycheck and establish an emergency fund
Many financial advisors call this the "pay yourself first rule" since you are literally "paying yourself". No matter what you call it, it can't be denied how important it is. Create this SMART goal by figuring out when and how much your paychecks are, and then remembering to take 20% and put it away for save keeping.
Your goal in this situation is to first establish an emergency fund with 3-6 months' worth of living expenses. This "financial runway" helps to keep your mind at ease, knowing that you have money to cover you in the event of an emergency, job loss, or unexpected events such as a car breaking down. Most people keep this money in a Bank Savings Account, though there are a few other options if you want to get more creative. Just remember to keep this money as liquid as possible (easily accessible) in case you need it right away. Figure out a timeframe that works for you to determine how long it will take you to reach that 3-6 months' worth of savings.
Hint: Try enabling automatic transfers or direct deposit at your bank. This way your money will automatically be placed in your savings account without you having to lift a finger!
Goal 2: Create and live on a Budget for at least 3 months
Similarly to our first goal, wealth building starts with the basics. It is very important to create a plan for your finances and there is no better way to do that than with a budget! You can try using budgeting resources such as Mint or Empower which will do a lot of the tracking for you. You could build your own using Microsoft Excel or Google Sheet templates. Or you could also just do the old fashion way of pen and paper.
Either way, you should make a plan for your income, savings, and expenses and track it for at least 3 months. Once you get the hang of it you'll realize how much it can truly help, and will likely continue it!
SMART Goal 3: Pay off High-Interest debt in 12 months
High-interest debt (anything over 6%) is a killer to your budget, savings, and path to wealth. Make a plan for yourself to pay this off (ideally within a year if you can) so you can truly start your journey to financial freedom!
There are many strategies to this such as the “Debt Avalanche” method of paying down the debts with the highest interest rates one by one, or financial guru Dave Ramsey's "Snowball" method of tackling the smallest debts. Whatever method you choose, create a goal that follows the SMART framework.
SMART Goal 4: Invest 10% of your monthly Income
Now that you've established an emergency fund, created a plan for spending, and paid off that high-interest debt, it's time to start putting that extra money to work! Investing can take the form of many different entities so choose the one that works best for you. You may wish to move 10% of your monthly income into a brokerage account like Fidelity, Vanguard, or Charles Schwab, and invest in the stock market. Index funds are always a good move given their low risk and the historical rate of return.
Hint: Much like your savings account, you can set up automatic investments on your broker's website, setting your investment strategy on auto piolet and taking advantage of dollar cost averaging. Just be aware of the risks associated with investing and key an eye on your account.
SMART Goal 5: Increase annual income by 10%
This goal can get a little tricky, as it is usually easier to increase savings than it is to increase income. However, it is always a good idea to form a plan to increase your monthly income. This goal could take the form of asking your boss for a raise, picking up some overtime, applying for a promotion, developing a side hustle, or even switching jobs entirely. Figure out what works best for you and remember to add a time frame to it.
Final Thoughts
Creating SMART goals is a powerful strategy for achieving financial success and building long-term wealth. By incorporating these goals into your financial journey, you can establish a solid foundation for financial stability and wealth.
Remember, building wealth is a journey that requires discipline, patience, and consistency. As you progress towards your goals, regularly review your financial situation, make adjustments when necessary, and celebrate your milestones along the way. Stay focused and committed, and you'll witness the positive impact of these goals on your financial well-being.
It's important to remember that everyone's situation is unique, so feel free to customize these goals based on your individual circumstances and priorities. Seek professional advice if needed and stay open to learning and adapting your strategies as you gain more knowledge and experience. Start today!