Benjamin Franklin is quoted as saying,
“If you fail to plan, you are planning to fail!”
While those words may seem harsh, in many ways there is a good bit of truth to this logic. Personal financial planning — whether you engage a professional or manage your own money — is a tool that leads to more informed financial decision making and hopefully better financial outcomes. Goals force us to determine our desired destination. A plan provides us with a road map that will show us how to reach that destination. With personal financial planning, those goals are primarily related to accumulating and distributing our wealth and our financial plan provides the details on the steps we will take to be financially successful. SMART goals have become the standard for goal setting in all areas and personal finance is no exception.
If the end result of good financial planning is the achievement of our financial goals, then perhaps the best place to start in our journey is to identify those goals. In 1981, George T. Doran published a paper in Management Review titled “There’s a SMART Way to Write Management Goals and Objectives“. In it, he introduced the SMART acronym that suggested that well written goals should be:
The best goals incorporate all of these elements to help us formulate a plan for achieving those goals. Think about the idea of a goal as a destination. The more specific we can be about where we want to go, the more efficient a travel plan we can create. The more we can measure or quantify our hopes and dreams, the easier it will be to know if we’ve attained them — or how much farther we have to go. Setting goals just for the sake of setting goals is truly a waste of time. Why set Pluto as our destination if in our gut we know that reaching Pluto is not likely in our lifetime? Similarly, just because technically we could reach Pluto in our lifetime, are we willing to put in the work that it would take to get there? Lastly, don’t just think ‘pie-in-the-sky’ here. Set target dates for these destinations as opposed to saying “someday I want to visit Pluto.” Categorize your goals. What do we want to achieve in the short term — within the next year? What do we want to achieve in the medium term — after this year but within five years? How about in the long term more than five years from now?
This is the way we should be thinking about goals. Let’s follow Dr. Doran’s advice and be SMART about writing our financial goals so that we can reach our financial destinations. For more information about SMART goals and a FREE printable worksheet click here