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Financial literacy is an incredibly powerful tool, no matter where you fall on the income bracket. Whether you’re a barista, CEO, self-employed gig worker, or anything in-between, figuring out your financial weak spots — and how to improve them — is a pivotal key to success.
One of the best ways to become good at money is to create goals, specifically SMART goals. But what is a SMART financial goal? Creating SMART (specific, measurable, attainable, relevant, and timely) financial goals opens so many doors and will help guide you on a clear path towards financial autonomy.
Below, we’ve broken down five actionable goals every self-sufficient adult should have checked off or at least in their direct line of vision. Some of these goals are short-term, while others are gradual, lifelong practices to implement as soon as possible. You might be surprised how much these goals matter.
For instance, your credit score decides more than you might think. Everything from home loans to approvals for renting and even your monthly expenses can take a severe hit if you have poor credit history.
Aside from making regular loan payments above the minimum due, paying your rent, heating, internet, and electric bills on time will help boost your credit score. Additionally, if you don’t pay for your car insurance, your credit won’t be affected, but you may see considerably higher rates.
It’s important to remember financial goals don’t happen overnight. Holistic shifts in how you view and use your money take time to implement, and that’s okay. The more information and financial skills you have and develop at any stage, the better off you will be.
We’ll give you all the tools necessary to get your bank account under control and working for you. This task might seem daunting but relax as much as you can. Money comes, and money goes. With some ingenuity, careful spending, and self-control, you’ll at the very least be working towards tomorrow.
Be patient and kind with yourself, and remember it’s never too late to get started on SMART financial goals.
5 Examples of SMART Financial Goals
SMART Financial Goal Example #1:
Improving Your Credit
Paying off debt (and thus improving your credit score) should be your first and foremost SMART financial goal. While it’s crucial to be putting something into your savings, if you’re in debt, it’s more important to get rid of the balance than build your reserves.
Without aggressive and active payments, you’ll lose a lot of money to interest over time. If you’re stuck with bigger financial burdens, talk to your lender about consolidating your loans or lowering your credit card interest rate. These slight shifts will contribute to your ability to pay back what’s owed and boost that credit history at the same time.
Besides paying off your debts, do what you can to avoid multiple “hard pulls” of your credit history. This happens when you apply for loans, on rental applications, and any other time a business needs to check your credit report. Each pull temporarily lowers your score for about six months. So choose carefully.
Just remember that whether it’s college loans or credit card debt, a smart financial goal example would be to just — pay it off.
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SMART Financial Goal Example #2:
Filling the “Three Buckets”
After you’ve taken on paying off your debts and building your credit, it’s time to start saving SMART. No matter what, you should always be putting away between 10-20 percent of every paycheck you get into your long term savings. Think of this money as invisible and untouchable. Over time, it’ll add up.
As for what to do with the rest of your income, think of each of your accounts (checking, primary savings, long term savings, etc.) as buckets. Each bucket is designated for something a little different: monthly expenses, emergency savings, long term savings, etc. Once a “bucket” is full, you move onto the next, which will help you live life with financial comfort, room for spending, and savings down the line.
Your first goal is to fill bucket number one, your primary checking. This includes monthly expenses like food and rent, transportation, and discretionary spending money. Keeping this bucket full is key to building credit (and generally avoiding eviction and late fees).
If you aren’t able to manage paying off these expenses with room to spare, something needs to change—whether that’s looking for a cheaper living situation, a better paying job (and/or side hustle), or finding more monthly savings.
Ideally, you should be budgeting about one-third of your monthly income to housing and base expenses, leaving you with a good deal of room to manage your remaining money. An easy budget goal to increase your primary checking amount is to cut out unnecessary expenses like eating take-out.
Once you’ve solidly taken care of bucket number one, it’s time to plan for the worst. Bucket number two is for emergency funds. Hopefully, no car accidents, unexpected medical bills, or other significant expenses ever pop up for you. But, they do have a way of appearing when you least expect it.
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Maintaining a solid buffer of readily available cash for these unforeseen circumstances can quite literally save your life in a pinch. Ideally, you should shoot for about three thousand dollars in this account. A financial strategy to continue to add to this account is to add a set amount from each of your paychecks until you reach your goal.
Once it’s full, leave it be. When your next car repair, home improvement project, or other big-ticket item appears, you’ll be glad you left that money alone. And each time you empty bucket two, it should become a primary financial priority to return it to an adequate, stable level.
If you’re cruising along with enough money each month for what you need, and you’ve hit your emergency buffer fund cap, it’s time to focus on long term savings. This includes travel funds, saving up for new tech, or other larger experiential and/or any personal spending that doesn’t make sense in your monthly budget.
Set SMART goals to invest in the things you want, and when you’ve earned them, enjoy it!
👉🏽 RELATED POST: Long Term Goals for College Students
SMART Financial Goal Example #3:
Using Interest to Your Advantage
Although it’s better to pay off your debt than to start building savings, working to have money in the bank is essential. In our world, money breeds money, and while this is a primary cause of wealth disparity and contributes to making the rich richer and richer, it’s a piece of financial knowledge many people don’t know.
In the hands of a savvy financial planner, knowing about interest can change the course of your life.
To figure out how to build interest from your savings, you’ll need to look at your bank and find what interest your savings account offers. This is why it’s so important to choose who you bank with carefully and look around before you commit.
The higher the interest rate accruing on your savings, the sooner you’ll see your money skyrocket. And as you gain a larger balance, the process of getting more money only increases in speed.
The Rule of 72
A handy trick to figure out how long it will take for your money to double in an account is referred to as The Rule of 72 by economists. First, you’ll need to find the interest (or growth rate) for a given year on your account, and then divide this number 72. For instance, if you expect a 10 percent return, it’ll take about 7.2 years to double while 25 percent doubles in 2.9 years.
The more you invest and save, and the longer you wait, the better. Compound interest and compound growth mean your interest will begin to generate interest of its own, creating a faster curve and more cash flow in the future.
These processes take time and can be easily looked past in favor of the instant gratification from spending here and now. But if you can find the willpower to put away just a little more than you are right now, you’ll see huge benefits in the future quite literally without lifting a finger.
SMART Financial Goal Example #4:
Budgeting is Your New Best Friend
Becoming an expert financial goal planner means budgeting. If you follow the steps outlined above, you’ll already be on your way to a functional budget. It’s up to you how much farther you go into creating a tracked, streamlined understanding of your income, expenses, and spending.
But every minute you devote to this process will pay off and help you succeed.
If you’ve never lived on a budget before, it can be very intimidating to figure out how your money works. It might seem easier to avoid budgeting altogether and just stick what’s worked so far. But when you decide it’s the right time to budget, you’ll be glad you did.
How to Create a Financial Budget
To start, get your free budget spreadsheet, and input your bank account history for last month into it. Divide purchases and deposits into simple categories such as bills, recreational spending, and income.
From there, you can break things down further into the type of spending it is:
- Food and dining
Looking at these numbers might surprise you and will certainly help you figure out what you are and aren’t comfortable with spending. Once you get a clear picture of how much money you are making each month and what you have leftover, divide the balance for what you’re allowed to spend.
Once you max out your monthly budget for food, clothes, or whatever — it’s time to stop spending. Staying mindful and in honest control of spending habits is critical to becoming a SMART financial goals master.
SMART Financial Goal Example #5:
Finding Savings Everywhere You Can
The final SMART financial goal is a holistic lifestyle shift toward saving more money wherever and whenever possible. You can make countless small changes that add up to a significant difference and a lot more money in the bank over the years. In your daily and at-home life, consider switching to energy-efficient options as much as you can.
Invest in compact fluorescent lights and HE appliances, which can plummet your electric bill and last considerably longer than low-efficiency alternatives. Driving defensively can save you money too, as coasting more often and gently accelerating leads to a long car lifespan and higher MPG ratings (meaning more bang for your buck).
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It’s not just how you drive, either. Car insurance costs most Americans thousands of dollars every year, and chances are you’re overpaying. Insurance is one of the most highly competitive markets, and as such, companies are constantly vying for new customers with lower rates, new discounts, and stellar coverage.
Even if you’re already insured, it never hurts to shop around or investigate car insurance discounts you qualify for. The same goes for your internet, gas, and electric bills. Sometimes all it takes is a few minutes over the phone to save hundreds of dollars every month.
Set Your SMART Financial Goal Today
What SMART financial goal will you set? Will you focus on the short-term or the long-term?
Learning to navigate the waters of our current economy is hard, but you aren’t alone. We all have to start somewhere, and no matter what your current financial situation is, it’s never too late to start working towards SMART financial goals.
Get Your SMART Goals Worksheet
Ready to set your own SMART financial goal? Sign up below to get your FREE SMART Goals Worksheet, form-fillable, and printable. It has all the questions you need to ask in order to make it SMART + helpful examples.
These five goals are the frameworks of a fiscally sound life, but by no means is it a comprehensive list.
Want to set SMART goals for your finances? Click here for 5 SMART financial goals examples and exactly how to set them for the short and long term by @autoinsurance #GoalSetting #FinancialLiteracy #MoneyGoalsClick To Tweet
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More About Guest Contributor
Kalev Rudolph is a Philadelphia based financial expert, budgeting coach, and affordable travel writer for AutoInsurance.org, a free car insurance comparison website.
Last Updated on January 3, 2021