No Excuses: It Might Be Time to Set SMART Financial Goals

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.

SMART: It’s a Mental State and an Acronym

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:

• Specific. A clear and detailed financial resolution can help you stay on track (and keep you from cheating).
• Measurable. You can’t call it an achievement if you can’t track your progress.
• Attainable. Set the bar too high and you’re setting yourself up for failure.
• Relevant. Your goals should be a means to an end.
• Time-based. Like that carton of milk in the fridge, goals should come with a “use-by” date.

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.

It’s a SMART Game: Lay Out the Pieces and Play It in Reverse 

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:

1. Set up an emergency fund with six months’ worth of income
2. Pay down $3,000 of revolving credit
3. Pay off $7,500 in student loans within five years
4. Get married, buy a $300,000 house, have a family—two kids and a dog—within 10 years
5. Save $50,000 per child by the time each is ready for college 
6. Retire with $1.5 million by age 65

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. 

Putting It All Together

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.