A key component of a sustainable financial plan is making goals SMART—specific, measurable, attainable, relevant, and time-based.
Let’s face it: Mom knows best. Wear a hat in the winter and sunscreen in the summer. Don’t play ball in the house. Don’t stick your tongue on a frozen flagpole.
But when she said “Don’t get smart with me!” she wasn’t talking about your financial goals and aspirations. When it comes to money goals, most moms would agree, it’s good to be SMART.
What does that mean? Let’s break it down.
According to a goal-planning study by TD Ameritrade, those with a financial plan are three times as likely to be confident they’ll reach their retirement goals. They also have higher goals for retirement than those without a plan and almost double the current savings toward retirement. One key component of a solid, sustainable financial plan is making it SMART:
But before setting that SMART plan, you need to know where things currently stand. And what better time to do that than the present? Grab those tax documents, pay stubs, investment statements, expense receipts, and credit card tallies. What do you have, what do you owe, and how much are you spending each month? Have your expenses stayed in line with your income? If not, perhaps you could use a refresher on budgeting.
The first step toward getting SMART is understanding your overall financial situation as of today. Why’s that important? You’ll see in a moment.
Want to play it SMART? Do like the chess masters do. Plot the game all the way to its ending and play the game in reverse—right back to where you are now.
Let’s illustrate with a financial goals example. Suppose you’re just starting out, and your life plan looks something like this:
Notice that these steps are all specific, measurable, and time-based. This plan may be relevant to your goals. But is it attainable? That’s where your goal planning and budgeting come in. Ask yourself, “What can I do right now/this month/this year to help achieve each of my goals?” Then ask yourself the same questions next year, and the following year, and the year after that.
How do you play this game in reverse? You could start with a financial calculator such as the TD Ameritrade Retirement Calculator, which can help you set your goals, gauge your progress, and keep you on track. And if you need hands-on assistance, consider setting up a complimentary goal-planning session with a TD Ameritrade Financial Consultant.
You’ve analyzed your income and expenses, and you’ve got your budget in place. You’ve set up your life plan, perhaps with help from a professional. And you’ve worked backward to today. Can you get where you’d like to be with your current and expected future household cash flow?
If not, what tweaks will you need to make? Are we talking small, like exchanging the daily caramel macchiato for home brew in a travel mug? Or will it take something more, like dialing back your vacation expenses or selling the car and taking the bus around town? Alternatively, you might choose to reconsider some of your goals. You could opt for a more modest house, wait to expand the family until your goals are on track, or perhaps even plan to extend your working years past age 65.
There are many ways to go about making your goals attainable. You just need to find the right formula for you.
Don’t feel you have the willpower to stick to your budget? Put it on autopilot. The Consumer Federation of America said the easiest and most effective way to save is automatically. Company-sponsored 401(k) and other retirement plans can deduct savings from your paycheck automatically. And remember, a company match (if your employer offers one) is there for the taking, so be sure to take full advantage of it. Your bank may also allow automatic transfers between your checking account and a savings or investment account.
One final note: It’s important to review your financial goals periodically to make sure you’ve accounted for any changes, for better or for worse. Did you plan for three children and end up with two, or four, or more? That may determine the house size you need, and it will definitely affect the amount you need to save for college educations. Or maybe a job opportunity requires relocation.
The point is, your plan will need an occasional tweak. But if you stay focused on your end goals, you’ll get there. Just remember to stay SMART. Mom’s orders.
Schedule an appointment with a Financial Consultant.
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
The third parties listed above are separate from and not affiliated with TD Ameritrade, which is not responsible for their services, policies, or commentary.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.