- Date : 02/04/2020
- Read: 3 mins
With a SMART approach, one can, not only set financial goals but track their progress too. Know how with these simple tips.
Nowadays, the ‘smart’ trend is fast catching on. We have smartphones, smartwatches, smart TVs etc. Even an individual’s IQ is informally referred to as smarts. Keeping up with the times, we shall discuss the SMART approach to setting financial goals and tracking their progress. SMART is an acronym for specific, measurable, attainable, realistic and timely. Some examples of financial goals that can be tracked in monetary terms and accordingly recalibrated, include buying a new vehicle, planning towards child’s education, saving up for a vacation, settling one’s existing debts or long-term retirement planning.
1. Specific goals: It is important to set a monetary goal that is well defined. For example, it is not enough to say that one needs to be able to sustain their current lifestyle for the next 30 years. One may plan to pay off their education loan in the 20s, self-fund a home in their 30s and go on an expensive vacation in their 40s. This would require a corpus of Rs 60-75 lakhs which is only possible by adequately investing from the get-go. Thus one might opt for a mix of equity-oriented mutual funds and safe debt instruments like PPF to attain a sizeable corpus. Along with this, one needs to have financial discipline and not spend unnecessarily.
Related: 7 Pillars of financial planning
2. Measurable goals: Financial goals are most often tangible monetary goals. This makes them relatively easy to monitor and achieve. The goals could include becoming a part of the FIRE(Financially Independent Retire Early) tribe, where one sets a target to build a certain corpus by a particular age. Alternatively, it could be earning a passive income and investing in financial instruments to achieve small joys like buying a car or funding an expensive vacation.
3. Attainable goals: This is an absolute must. Goals need to be attainable. To meet this criterion, it is important to keep track of one’s income, expenses and other outflows and gradually raise the bar to big-ticket sized monetary targets. Only when one is minutely aware of one’s financial standing is it possible for them to aim for attainable goals.
4. Realistic goals: Goals need to be rooted in reality. Making one-sided goals comprising only outflows without a well thought out income plan are bound to fail. This requires sufficient planning and gathering general knowledge about one’s lifestyle, inflation and other economic conditions.
5. Timely goals: Ideally, financial goals need to be milestones that need to be met according to a certain timeline. These goals could be precise in terms of setting a short-term goal with the time horizon of 1-3 years like preparing a monthly budget and sticking to it or paying off one’s credit card debt. In the medium term of 3-5 years, the goal could be to create a contingency fund to cater for sudden emergencies. In the long term horizon of over 5 years, the financial goal could involve a big-ticket purchase of a house property, retirement planning etc.
Besides the above approach, one also needs to delve into aspects like what is the rationale behind achieving a particular goal, the means to attainment and the timeline within which the milestone needs to be ideally met. Else, goals without a motive, goals without adequate resource planning and goals without a deadline carry no meaning! The above tips can conveniently help set financial goals and monitor their progress periodically. Have a look at this 9-Point Guide to achieving long-term financial goals to compound your understanding of good financial planning. Upon meeting a certain milestone, one could re-draw their strategy based on their revised income-expense scenario or any lifestyle upgradation and set higher and achievable monetary targets.