You have several places you can invest or store your money and competing priorities on what to save for. When you're faced with day-to-day finances, it can be easy to put your short-term needs ahead of any long-term goals. In fact, more than one-third of all Americans have saved nothing for retirement. According to a 2016 Retirement Confidence Survey conducted by the Employee Benefit Research Institute, 26 percent of Americans say they have less than $1,000 in savings and investments, and just 24 percent of Boomers are confident they'll have enough to last through retirement. That's why it's so important to be specific and clear about your short- and long-term personal and financial goals.
Creating SMART Goals
Whether you're planning for today or the future, remembering the acronym "SMART" can help ensure you pursue actionable and realistic goals. SMART goals are specific, measurable, attainable, relevant and time-based.
What do you want to achieve? Outline detailed goals and be clear about what you want. Being precise about each goal you want to accomplish, and how you want to get there, can help motivate you to stay the course.
How to: If, for example, retiring by age 65 is your long-term goal, answer these questions: What does my ideal retirement look like? How much will I need to make this happen? How am I going to get the money for this? By the time you've answered these questions, you should have an outlined plan, like: I want to retire at age 65 with $1.5 million saved.
Make Sure it's Measurable
If you can see it, you can do it. Use a financial calculator, such as the TD Ameritrade Retirement Calculator, to gauge your progress along the way and calculate the amount you still need in order to achieve your goal. With the right steps, you can see what progress you've made, keeping you motivated and committed to achieving your goal.
How to: When assessing your long-term goals, like retiring by age 65, outline precise, yearly steps, for what funds you need to save. Each year, check in on your progress compared with your goal and make adjustments accordingly.
It Should be Attainable
While your goals could be challenging, they shouldn't be impossible. Be realistic about what you want to accomplish, and do research to see if your goal is actually achievable. If it seems like it's out of reach, make adjustments to some of the variables to increase your chances of reaching your goals.
How to: So maybe retiring at age 65 with $1.5 million is a bit out of reach for you right now. Can you adjust your retirement age to 67? Can you lower how much you want to save to $900,000 instead? Or, consider ways to cut back your expenses to achieve your goal. Work to balance out these variables to get to a realistic point of achievability.
Make it Relevant
When you make your financial goals, they should matter to you. The road can get pretty rocky if you don't enjoy the journey, so your goals should not be decided upon arbitrarily. Furthermore, you will need to decide what resources will be utilized when pursuing your goal, and what other areas of your life will be impacted by your goal.
How to: When setting your retirement goal at $1.5 million by age 65, consider the other financial avenues this goal could impact. Perhaps you have a family with expenses—will this impact their financial needs? Do you have a hobby or a membership whose cost will impact achieving your goal? Will you have to rebalance your goal or give up this activity?
Give it an Expiration Date
Any goal should have a time stamp. When you create a sense of urgency, you subconsciously make a priority to stick to your goal and give your mind a realistic end date.
How to: Creating an overall deadline for your goal can help you break down the timeline into smaller, more manageable steps, such as: What can I do this week to achieve this? This month? Within the next quarter? Answer these questions honestly.
SMART goals can help you set up and make progress on your financial goals. By making sure your goals are SMART, you can be more confident that you're on track to pursue your overall financial plan and making your ideal retirement happen.
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