They describe an observable action, behavior or achievement that is linked to a rate, number, percentage or frequency.
Most people have vague goals such as "I want to be rich" or "I want make enough money to retire".
It's not that these goals aren't "good" or worth the effort. A lot of people aspire for both.
But how do you become "rich"? How much money is "enough"? If you ask 10 people, you'll get 10 different answers.
So without some more detail, attaining these goals will be difficult.
When you aren't specific about the kind of results you want, then any strategy can be used. Which may or may not help you achieve your goal.
Instead, you could use a percent return, a savings rate, cashflow per month/quarter, or even a maximum loss/minimum profit per investment
A statement such as "buy a house" could be considered a precise description because you can clearly see whether you've purchased a home or not. You just need to tweak this example a little bit: "buy one house".
As an example, lets create a goal to "save $24,000 per year"; the dollar amount ($24,000) and rate (per year) make this goal "specific".
If your job required answering a phone, you might have the goal of answering within the first two rings.
But how would you know how often you met your goal? You would need a system or method to record the number of rings for each call. You could write it down, someone could watch you all day, etc.
Going back to our example (saving $24,000 per year), if this amount ends up in any kind of account (bank account, savings account, trading account, etc.), you probably have access to paper or electronic statements, which can measure the account balance over time.
Or, if you are disciplined enough, you could diligently balance your check book. That's what I thought...let the bank handle this one!
Assuming your statements arrive monthly (or that is how you set up your tracking system), the specific and measurable goal becomes "deposit $24,000 per year into savings account xyz123".
If your goal isn't something you have control over (like the weather), your motivation will fall rapidly. Imagine you're a high school teacher, and you tell a group of honor roll students that regardless of individual effort, all will receive a "D" at the end of the semester. How much energy and enthusiasm will they put towards your class?
If you're trying to save $24,000 per year, and your pre-tax income is $48,000 per year, reaching this goal will be extremely difficult...if not impossible.
But all is not lost. A specific, measurable, attainable goal can still be created. At this point, revisit your personal finances and figure out what you can do. For example, you could:
Remember that "realistic" does not mean easy or simple. Resist the temptation to set goals that you already know you can achieve for the sake of being "realistic".
Returning to our example, you may have chosen to increase your earned income to $54,000 per year. If your employer is laying people off to stay in business, increasing your salary (i.e. earned income) is probably not going to happen. If it does, I'm sure it will require an extraordinary amount of effort.
Since "extraordinary" is usually much more than "reasonable", the specific, measurable, achievable, and realistic goal is saving $3,000 per year.
Putting an end point on your goal gives you a clear target to work towards. Without a time period, there is no urgency to start taking action, and therefore no commitment.
Going back to our example, here are a few ways to make the goal timely:
Use a timeframe that meshes with your personal financial statements so that you can hold yourself accountable and make changes if necessary.
Saving $3,000 per year will have the same end result as saving $250 per month for 12 months. But the second goal requires your attention more often (monthly, rather than yearly) and provides you with more chances to be successful!
Safe Investing Tip:
Looking for some help with your SMART goals? Click this link and get a FREE goal setting template to help you get started!