How to set short-term financial goals using the SMART method

If you’re not working toward a specific financial goal, you’ll never know if you’ve achieved it. The SMART method provides a framework for setting and measuring short-term financial goals that can help you get what you want most, whether that’s a new car or a debt-free life, while building credit and improving your overall financial well-being.

What is the SMART method for financial goals?

SMART is a framework for setting goals in which each letter stands for a core step to achieving them:

• Specific — Many goals fail because they’re too abstract. The first step in setting a SMART goal is getting specific about what you want to achieve.
• Measurable — Measuring your goals allows you to track your progress and determine whether you’ve achieved them. For financial goals, this generally means specifying a specific dollar amount you want to save or pay off.
• Achievable — Dreaming big gives you something to work toward, but setting goals you can’t actually reach can discourage you, instead of motivate you. While it’s OK to challenge yourself, goals should be realistic.
• Relevant — This is your “why.” It should be appropriate for your lifestyle and financial situation, and align with your values and longer-term financial plans. It can help you stay on track when you’d rather splurge on a night out instead of saving for your emergency fund.
• Time-bound — Without an end date, it can feel like you have all the time in the world. Setting a firm deadline gives you a reason to begin and an end date for evaluating whether you’ve achieved your goal.

What counts as a short-term financial goal?

There’s no universal definition, but think of “short term” as financial goals you want to achieve within a few months to two years. Goals that stretch beyond that are mid- or long-term.

How to set short-term financial goals using SMART

When you’re ready to set your goal, the SMART framework can help you get there.

Step 1: Identify your financial goal

If you have multiple goals, prioritize them in order of importance and work on achieving one or two at a time. After you accomplish one goal, move on to the next.

Say you want to pay off high-interest debt while also saving for a down payment on a house. You may choose to pay off your debts first, freeing up more money for a home.

Step 2: Apply each SMART criterion to your goal

When you’ve decided on your goal, make it SMART. If it doesn’t meet each requirement in the framework, make adjustments until it does.

For example, “save for a down payment on a house” isn’t measurable or time-bound. But “save $9,000 for a down payment on a home over the next 12 months” is.

Step 3: Break the goal into smaller actions

With a solid goal in place, you need a plan to make it happen. Breaking your larger goal into smaller milestones can make it easier to achieve over time. For example, if you want to save $9,000 in the next year, you could save $750 each month for 12 months. Or $500 each month, and use your $3,000 tax refund to cover the rest.

Choose actions that are reachable and make sense for your income, expenses, and pay schedule. If you need to change your spending habits or take on a side gig to meet your goal, include that in your plan.

Step 4: Track your progress

Don’t wait until the last minute to see how you’re doing. Schedule regular check-ins from the start.

Depending on your goal and lifestyle, you may choose to review your progress weekly, biweekly, or monthly. Frequent check-ins give you more opportunities to adjust your plan.

Read more >> Debt repayment strategies: snowball vs. avalanche

Examples of SMART short-term financial goals

Read more >> The Xs and Os of setting a budget: how to create a budget for the first time

5 common mistakes when setting short-term financial goals

SMART goals help you clarify what you want and how you’ll get there. But the plan only works if you follow it.

Watch for these five common mistakes that can derail your goals:

1. Not automating your goals. Stay on track with automatic transfers from checking into savings as soon as your paycheck hits. Set this up through your bank’s online portal or app.
2. Not holding yourself accountable. If you’re serious about achieving your goals, focus on taking the right actions to get there. And make adjustments if you run into unexpected expenses or other bumps along the way.
3. Aiming too high. You’re more likely to stick with goals that are realistic and attainable. And an unrealistic goal doesn’t just go unmet: Research found that savers who missed their savings target went on to spend more than people who’d set no goal at all.
4. Not planning for setbacks. Something will go wrong — a slow month or a surprise bill. Having an idea about how you’ll handle them can keep you moving forward when they do, so one bad hitch doesn’t knock you off course.
5. Not staying real about your expenses. When saving toward financial goals, you need to know where every dollar goes. That’s everything from expenses you can plan, like rent and utilities, to insurance, annual subscriptions, gifts, and other irregular expenses.

Bottom line

The SMART method gives you structure, so you’ll always know whether you’re on track. You won’t hit your goals overnight, but consistent, positive action can get you there.

Building credit fits the framework well. It too is specific, measurable, and moves on a predictable timeline with a focus on your goals.

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