How smart are SMART goals? Do you need to be really smart to plan your financial goals?

As most of you may know, SMART is an acronym used in the productivity context.

• S – Specific
• M – Mesaureable
• A – Achievable or Actionable
• R – Realistic
• T – Time bound

The first step in Personal Finance is to know what you need to achieve. It does not start with acquiring money or assets, but a desire to achieve your life goals such as:

• Peace of mind in case of emergency
• Afford a college education without student loans
• Go to an international destination for vacation in two years
• Start a business in few years
• Retire with enough money in the bank

Note that none of the above starts with how much money is needed. Before you go to the money part, it is very important to define the priorities in life.

For example, starting the business may be more important than the vacation. Or the vacation may be more important at this point than the retirement (for a 25 year old).

Once you define the priorities, choose the top 3 to work on first. Let’s choose one of the goals above for SMART planning.

• Afford a college education without student loans

Next step is the target amount. Now we are getting into the numbers. There are two targets we need to decide on for the SMART components.

• S – Specific. What is the total amount needed? This can be found through a bit of research of the tuition fees from a few reputed colleges.
• T – Time bound. How much time do you have? This is often very clear and age based.

M – Measurable is easy in Finance since everything is about numbers. If you just divide S by T, you have a measurable component.

• M = S / T (T can be in years or months)

A and R are the two components where the rubber hits the road.

R is for the realistic part.

• Do you have the means to set aside M every month/year?
• If not, what is the gap?

A is the actionable part.

• What do you have to do to set aside M every month for this goal?
• If it is a long term goal, how should you invest this M?

That my friend is the SMART planning and very simple if you follow the above steps.

Let’s take an example from my own goal 5 years ago.

I moved to US in 2017 and my daughter would start college in 2022.

Sending her to college without student loans was one of my goals. So we researched the in-state tuition and came up with a range of numbers.

• S = $40,000 to $50,000
• T = 4 years, i.e, 48 months (I started 8-9 months later)
• M = S/T = $1000 per month (approximate)

Now it’s very clear I have to keep aside $1000 every month from my budget. We adjusted our expenses and other goals to accommodate this without fail.

• R – Given my income and relatively frugal lifestyle, this was realistic.
• A – Actions taken.
  • I opened a 529 account and set up auto-debit from my paycheck.
  • Selected conservative investments of 75:25 bond:equity ratio.

Result:

In 2022, she has $50,000 in her 529 account and paying her tuitions every semester. And I feel great trashing the student loan offers coming through mail.

More importantly, she learnt SMART planning from me and will start her career with no debt.