Goals are the foundation of your financial plan.
They help chart the course for your investments, daily habits, and your money outlook.
But sometimes, your goals can start to feel too comfortable and you lose excitement and momentum toward reaching them.
We want to help you change that.
Your financial goals shouldn't remain idle—lying dormant on a piece of paper or planning software. Instead, your goal-setting journey should be active and purposefully drive you forward while also informing your daily choices.
The trick? Adhere to SMART guidelines for personal financial goals.
What are SMART goals and how will this strategy transform the way you approach your money?
Here's everything you need to know about SMART guidelines for personal financial goals.
Breaking Down The S.M.A.R.T Acronym
Daydreaming about your goals is just phase one.
You can talk the talk all day long but with your goals, it’s also important to usher in phase two: walk the walk.
SMART goals can help you do that. They bring intention, purpose, and meaning to each goal you set. Let's take a look at what each of these letters means.
S: specific
Ditch the general, here is where you can start to narrow down your goals and give them a purpose. Instead of saying your goal is to establish an emergency fund, you could say that your goal is to save $10,000 in a high-yield savings account. That's a specific goal.
M: measurable
SMART financial goals must be measurable, meaning you have to be able to track your progress. If saving $10,000 is one of your short-term goals, you need a strategy to ensure you're staying on track. Perhaps that's saving about $850 a month for a year. This gives you a benchmark to help with your monthly budgeting.
A: achievable
Your financial goals should be attainable. If you start saving for a downpayment on your retirement house today, odds are you won't reach that 20% mark within a year or two. The average home price in Richmond, VA is about $275,000 according to Zillow. You'd need about $55,000 for a 20% downpayment. If you're starting from scratch, make your house-hunting timeline more reasonable.
R: relevant
Personal finance is all about aligning your money with your life, and your goals are a significant part of that equation. Your savings goals should be relevant to both your short-term and long-term vision for your life. Perhaps in the short term, you want to get out of credit card debt. Offloading that bad debt will help boost your credit score and put you in a better position for when you want to buy your retirement house. Being debt-free is a relevant goal that puts you in a strong financial position.
T: time-bound
Time is an important element in financial planning. Your goals should have a timeline behind them as it can help you make progress and maintain motivation. Let's say you have a 10-year time frame until retirement. You and your advisor can make a plan to prepare and maximize your money during that time.
Here is an example of a SMART goal for a young physician couple who wants to retire early.
Specific: Retire by 50.
Measurable: Create an active debt repayment plan and reallocate current spending to max out retirement opportunities from the start. Build a withdrawal plan that supports early retirement by avoiding early withdrawal penalties and investing tax-efficiently.
Achievable: This is a high-earning field (physician) that allows them to save aggressively early on and live below their means to achieve this goal.
Relevant: Retiring early is important for their future lifestyle as they want to travel and focus on creating experiences.
Time-bound: The couple has 20 years to amass their desired retirement number.
You can apply this formula to any short or long-term financial goal you have: retirement, paying for your kid’s college, creating a career you love, leaving a legacy, etc. Knowing your goals will help you make more informed and intentional financial decisions to help you reach your desired outcome.
We have a master goal document that we walk through with clients to help them start to think more deeply about the different goal categories that are part of their financial lives.
Set up a call with us and we can walk through it together.
Create Intentional Retirement Goals
Saving for retirement, especially the amount needed to support your ideal lifestyle, won't be a simple task. One thing that can help is setting specific and intentional goals about what you envision your retirement plan to look like.
Where do you want to live?
How will you spend your time?
Where will you find meaning and fulfillment?
Do you want to work?
How will volunteering or charity work fit into your plans?
The more specific you can be, the better because then we can make your plan even more tailored.
Think about it like this, there is a huge difference between buying something pre-packaged or something you get to customize, the latter is nearly always more favorable.
The example of the physician couple who wants to retire at 50 will need a different plan than a couple who wants to start a business together later in life.
Each will require different investing, withdrawal, spending, and tax planning considerations.
When it comes to retirement, it’s all about balancing your ideal life with the resources you need to help you get there.
Consider Your Asset and Debt Goals
There are two essential components to wealth building: create an investment plan and eliminate your debt. Take some time to create goals tailored to this category of your financial plan.
What are your investment goals? (retirement, vacation, building a dream house, education costs for kids, etc.)
Are your allocations properly-suited to help you reach those goals?
Is there refinancing or consolidation opportunities for your mortgage, credit cards, student loans, and other debt?
When would you like to see all of your debt paid off?
What lifestyle shifts may you need to make to reach that goal?
Remember, creating your goal is just step one.
There are several action items (some long-term some short-term) that come after to help you get there.
If one investment goal is to save up for building your dream house, you’ll likely need several years to amass enough to afford real hardwoods and a marble slab backsplash.
Think Through Estate Planning and Wealth Transfer
Estate planning is an essential component of your wealth plan, and as such, you want to handle it with thoughtfulness and care. Your financial advisor can help you shape your vision for your estate plan.
How would you define your legacy?
Do you have hopes and wishes for your estate and your beneficiaries?
How can you best protect your wealth as it passes to the next generation?
What are your best options for wealth transfer?
There are several ways that you can fortify your estate plan as your assets change hands. Our team can help ensure that the right people efficiently receive the right assets. We can help you consider the differences in value, taxes, etc. for each account to make sure you and your loved ones can make the most of any potential inheritance.
Set Family and Lifestyle Goals
Your financial goals and personal goals are inextricably linked. Think through the personal and professional goals on the horizon.
Do you hope to start or add to your family?
Will you want to save for major events like a wedding or school?
Would you like to move or purchase a vacation house?
How do you see your career progressing?
What additional education or certifications will you need to pursue those dreams?
Do you want to open your own business?
These are exciting conversations that you can talk through with your family and your advisor. We can then take your goals and map out a way to help you bring them to life.
Your Advisor Should Know Your Goals and Help Make Them Achievable
It’s not enough that your financial advisor is aware of your short and long-term goals. They should help you make smart and strategic plans to take productive steps toward those goals. Our team loves crafting unique and tailored strategies to help you live your dream life.
We’d love to help you put your goals into action. Get in touch with us to learn more!
About Mark Fonville, CFP®
Mark is the President of Covenant Wealth Advisors and a Certified Financial Planner™ professional specializing in retirement income planning, tax planning, and investment management.
He has been featured in the New York Times, Barron's, Kiplinger Magazine, and the Chicago Tribune. Learn more
Disclosures:
Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.