Making your goals S.M.A.R.T.

As I mentioned in a recent post, I did well on most of my financial goals for 2008 and fair to middling on everything else. When I set my 2008 goals, I made a half-assed swipe at making them S.M.A.R.T., but in all honesty I didn't do that great a job, and I think my overall lackluster success reflects that. That's a little ironic, because I'm actually quite a fan of the S.M.A.R.T. model and use it all the time at work; I just didn't do such a hot job of applying it to the rest of my life.

So, what's this S.M.A.R.T. business, anyway? It's an acronym for a system of goal-setting that is recognized in business and human resources as a highly efficient model for managing personal performance. Here's what the acronym represents:

S = Specific
In other words, you need to articulate what you're aiming to do. Making your goal as specific as possible helps you define what you want to do and focus your effort accordingly. Here's an example that relates to personal finance:

Non-specific goal: I'm going to save more money in 2009

A better way to articulate this goal and set a definite target is to consider what you want to do, why you want to do it, and how you intend to achieve it. Rewriting the non-specific goal to something more specific might give you something more like this:

Specific goal: I'm going to save $6,000 in 2009 to bolster up my emergency fund, and I'll do that by setting aside $250 from every bi-weekly paycheck in direct payroll deductions to my savings account.

See the difference?

Moving on.

M = Measurable
If you can't measure your goal, how do you know when or even if you succeeded? Making the goal measurable means setting interim milestones so you can track your progress. Look at the Specific goal I wrote once more: how am I measuring progress in this goal?

Specific goal: I'm going to save $6,000 in 2009 to bolster up my emergency fund, and I'll do that by setting aside $250 from every bi-weekly paycheck in direct payroll deductions to my savings account.

If you said that I'm measuring it by establishing checkpoints that occur with every paycheck, then that's a gold star for you! If I miss saving $250 at any of those checkpoints, then I either need to retool how I'm getting to my goal, or I run the risk of missing the goal altogether. As a result, the goal of saving $6,000 for the emergency fund through payroll deductions is both Specific and Measurable.

A = Attainable
Attainable simply means that it's possible. It doesn't mean that it has to be easy. Effective attainable goals are reachable, but the reach should cause you to have to expend some effort. In the case of the $6000 savings goal through payroll deductions, there's a built-in expectation that I have to adjust my spending by $250 per pay period in order to achieve the goal. This goal should be doable, but it should make me have to stretch a little to achieve it. This is where goal-setting can be tricky: if I don't have to stretch at all, it's not much of a goal. At the same time, if I have to stretch too hard, I'll lose my motivation and quit trying. By those criteria, my hypothetical example qualifies as Attainable.

If I've done my homework on goal-setting properly, all of my goals will be attainable but will require a little extra work over and above what I do in my day to day living to get there. The combination of these two factors will help me develop and sustain motivation over the course of the year.

R = Realistic
Realistic goals are goals that can be mapped to a plan. Taking a look at the Specific, Measurable, and Attainable goal I devised earlier, let's see how Realistic it is:

Specific, Measurable, Attainable goal: I'm going to save $6,000 in 2009 to bolster up my emergency fund, and I'll do that by setting aside $250 from every bi-weekly paycheck in direct payroll deductions to my savings account.

Where's the plan?

I've explicitly said that I'll do automatic payroll deductions. Implicitly, I've also acknowledged that I have to adjust my spending accordingly. (It might even be better to explicitly work budgeting into the goal; I think that depends on the person and whether he or she has a spending trigger finger that needs to get under control.)

And finally. . .

T = Time-constrained
When are you going to achieve this goal? It can be whenever you want, as long as you have a realistic and attainable deadline to work with. In the Specific, Measurable, Attainable, Realistic example above, I set my deadline for the end of 2009. That qualifies it as Time-constrained, making it a S.M.A.R.T. goal.

Why does setting time boundaries matter? For you folks inclined towards procrastination, deadlines are important. Without a sense of urgency, even with the best of intentions and early motivation, it's much harder to maintain momentum towards achieving the goal over time.

In summary: S.M.A.R.T. goals are

Specific
Measurable
Attainable
Realistic
Time-constrained

I'm working on my 2009 goals now, and I'll have the ones I can share with you posted by the end of the year. My challenge to you right now is to come up with just one S.M.A.R.T. goal (doesn't have to be financial) that you plan to achieve in 2009.

Post it in the comments and show me what you've got: let's have fun with it.