Financial Planning Fundamentals: Implementing SMART Objectives
Introduction
Setting a Financial Goal – where do we start? It’s always a tricky area to navigate. We’re faced with many difficulties when attempting to set goals, such as defining the goal, measuring success, dealing with unknowns, variables, achievability, and so on. But it’s crucial to delve into the details, as goals provide us with a sense of direction and a point of reference to return to if we stray off the path we’ve paved to lead us toward our desired results. For the second insight of our Financial Planning series, I aim to provide you with a tool to establish your own goals and maintain your commitment to them.
SMART Goals
A well-known tool to help in the department of goal setting is SMART goals:
- Specific: Goals should be clear and specific, answering the questions of who, what, where, when, and why.
- Measurable: Goals should have criteria for measuring progress and success, such as cost, and timing.
- Achievable: While goals should be challenging, it’s important that they are also realistic and attainable.
- Relevant: your goals should be relevant and meaningful to you.
- Time-bound: Each goal should have a timeline or deadline to help maintain focus and urgency.
Let’s look at an example of a SMART goal:
Objective: Save money for a house deposit
- Specific: I would like to buy a house for £300,000 with a 10% deposit, amounting to £30,000 by age 30.
- Measurable: I will save £200 per month and aim for an average annual return of 5%.
- Achievable: I have analysed my budget, and I can afford to save £200 per month. I will also consult with my Financial Advisor to optimize my investment strategy.
- Relevant: Saving for a house is essential for my peace of mind, knowing I own my home, and providing a safe environment to raise my future family.
- Time-bound: I am currently 20 years old, so I have 10 years to achieve this. I will review this annually and adjust my contributions where necessary to help me stay on track.
The above example clearly provides a strategy for getting from point A to point B. It provides clear and precise objectives and actionable steps to help you get there. It also offers a sense of direction, steering you towards what you’ve identified as important during this process. Identifying what’s important to you will help you prioritize and make better decisions. Once you’ve identified what’s important, you’re less likely to do things that lead you away from your goals.
Once you have set your goal, it’s essential that you do not let it gather dust but regularly reflect on it. This will allow you to make adjustments and refinements, helping you adapt to changing circumstances; as we all know, life doesn’t always go according to plan.
Accountability Partner
Why not find an accountability partner? A study carried out by The American Society of Training and Development (ASTD) found that sharing a goal with someone increases your chance of completing it by 65%. If you have a specific accountability appointment with a person you’ve shared it with, your chance of success will increase by up to 95%. So, once you’ve set your SMART goal, share it with someone. This could be a friend, a family member, or your Financial Advisor.
Conclusion
The strategy we have discussed does not guarantee that you will achieve all your goals. However, if you follow the steps correctly, you will get closer to your desired outcomes and set out a clear roadmap to follow. Setting a SMART goal is a step in the right direction.
At Tanager, we work with our clients to establish SMART goals and determine the necessary steps to accomplish them, reviewing these on a regular basis to ensure they are on track. We take the time to ask the important questions, listen carefully to discover what is important to you, and collaboratively draw up a tailored plan that you can follow.
Reference:
American Society of Training and Development (ASTD) Study on Accountability (2018): https://www.afcpe.org/news-and-publications/the-standard/2018-3/the-power-of-accountability/
Disclaimer:
This is not advice or a recommendation. You should consult with your tax attorney and accountant to determine whether any of these actions are appropriate in your circumstances.
Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. Past performance is not a reliable indicator of future results. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your initial investment.
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