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S.M.A.R.T Goals

Setting short-term, medium-term, and long-term goals is the first step in starting a financial planning process. Then, a financial strategy is developed to meet them. The goals must be concrete and measurable; they cannot be something like, "I will save when I have enough money." Goals should be 'SMART' i.e. specific, measurable, achievable, relevant, and time-bound.

Specific

When defining goals, try to be as precise and thorough as you can. Only after that can you calculate the current cost of achieving them. If you want to be more precise, you may say “need ₹ 50 lakh by 2035 to pay off home loan" instead of "saving money to pay off loan”.

Measurable

Financial goals shouldn't be vague. They ought to be quantifiable and measurable. Once the goal is quantifiable, you can monitor your progress and determine how long it will take to achieve it.

Achievable

It's beneficial to aim high. However, financial goals ought to be reasonable. They ought to account for existing earnings, outgoing costs, and unpaid debt.

Realistic

Your goals should be in line with the overall financial strategy, the current financial situation, and your long-term goals. You will feel inspired to work towards your goals when they are realistic.

Time Bound

Goals must have a predetermined time limit in order to be accomplished. If the aim is not time-bound, other urgent goals are likely to take precedence over it.

Example of a SMART Goal

Saving for a down payment on home

If you want to buy a home in the next few years, you should be saving for a down payment. Here’s how to turn that dream into a S.M.A.R.T. financial goal.

Specific -> You want to put aside money for a down payment on a house.

Measurable -> Determine the precise amount of your down payment. Let’s say you arrive at 20% of the total value of the loan as the down payment. As an illustration, you might want to save for a down payment of ₹18, 00,000 for a home of ₹60, 00,000.

Achievable -> Since ₹18, 00,000 is a significant amount and assuming you are planning to buy the home after 5 years, you will have to save ₹3, 60,000 every year or ₹30, 000 per month for the next 5 years.

Realistic -> Analyze your financial position to find out if you are in a position to save the calculated amount for that long. If not, then you can either increase the time horizon of your goal or think of ways to earn extra income by investing in return-generating avenues and simultaneously, cutting expenses. You can also aim for a more budget-friendly home.

Time-bound -> You need to save the calculated amount for the next 5 years to arrive at the required amount to make the down payment for your dream home.

Points to note

Goals must be routinely reviewed to account for changes, and the financial plan must be adjusted to reflect the new goals.

You can set your goals with the help of an experienced financial advisor.