Setting S.M.A.R.T goals has radicalized most people’s goal-setting abilities. Beyond your day to day goals, this approach can also be used for your financial goals. But what are S.M.A.R.T goals? ‘SMART’ stands for Specific, Measurable, Adjustable, Realistic, and Time-based. Want to create the ideal financial plan for 2020? A financial plan is much more meaningful and effective if it is S.M.A.R.T. Here’s what these individual categories signify.
It is important for a financial plan to have specific numbers and targets. How much do you want to earn from a certain investment? What amount do you wish to save each month? What is the exact size of the emergency corpus you want to keep as a backup? By when do you want to retire such that you can live off of your earnings? By answering these questions specifically, you are forcing your financial plan to become detail-oriented and targeted.
Specifying your goals automatically makes you feel like your future is less vague and incomprehensible. An unspecified goal does not promote as much action as a specified goal does. Hence, create personal targets with specific goals. This helps you avoid pitfalls and stay on track as you have a clear target.
While specifying what targets you want to achieve is helpful, it is important for those targets to be measurable. Suppose you start a SIP in equity mutual funds this year. You plan to stay invested in your SIPs for three years before you withdraw. Your mutual fund provider will estimate your returns to a precise number, which will aid in your decision of whether the return on investment is good for each SIP.
Similarly, the amount of effort you put into your financial goals should yield a measurable output. That way you are certain that you are not over or underworking towards your goals. Specifying your target such that it is measurable gives you an idea of how long you will commit to your goal as well. This clarity can help you stay focused on your goal.
Additional Read: Why are SIPs an Ideal Choice for the First-time Investor?
Being a perfectionist is truly a flaw. Trying to achieve the same goal you created 20 years ago is probably not in your best interest. As your financial needs change, so will your goals. You should be comfortable making minor adjustments to your financial plan based on your current job, family status, life stage, inflation, and more. After all, finances keep evolving with time. Your goals should also be adjustable in nature and not fixed.
If you are a young investor, your financial portfolio will typically involve higher risk investments such as equity mutual funds. As you grow older, your financial plan should focus less on wealth creation and more on lower risk savings as you may have loved ones dependent upon you. High risk instruments like equity mutual funds are no longer a priority and you may adjust by reinvesting in governmental bonds, securities, and more. Goals should always be adjustable as your financial plan will evolve over time.
Additional Read: Investing in different asset classes based on their risk
Is your goal actually achievable? If your goal is unrealistic, you will constantly encounter disappointment which will ward off any healthy goal-setting behaviors in your future. Goals are meant to be achieved, hence you should ensure that your own financial plans are not too difficult to attain. If they are, adjust them accordingly as this is a recipe for failure. It is important to work hard and stretch your capabilities to improve.
But if you have unrealistic targets for your finances, you are likely doing more harm than good for your health. With an unrealistic goal, you will feel stressed, inadequate, unsatisfied, and disappointed repeatedly. So carefully select your target to be within the range of your capabilities. Most mutual funds investments for instance, can help you set a financial target right at the beginning of your investment. You can see the amount you can earn from your fund at maturity and invest accordingly for the duration that suits you.
Without a timeline, you do not have a goal as it is only an aspiration. To turn your aspiration into a goal, you have to specify it and add a deadline to it. Even with a financial plan, simply saying you want to be rich someday is not a goal. Instead, saying that you want to earn x amount by the time you are 30 years old is a goal. Hence, adding the element of time automatically creates a goal from wishful thinking. Adding a deadline also creates positive stress, which helps you act on your goal, as you have the feeling of ‘time running out.’
Try the Moneyfy app by Tata Capital to diversify your portfolio so you can achieve your SMART financial targets. The Moneyfy app allows you to set goals so that your investments become S.M.A.R.T. Choose to smartly invest in equity mutual funds, governmental bond funds, liquid funds with insta-redemption options, or start SIPs, and more conveniently from the Moneyfy platform on your smartphone. You can also analyze your portfolio, assess your investment horizon, compare the returns from different funds, and instantly redeem your funds through the Moneyfy App by Tata Capital. Start acting on your SMART financial goals with Moneyfy by Tata Capital today.