Want to save money in the new year? Set S.M.A.R.T. financial goals
Published December 30, 2024
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Categories:
- Saving & Budgeting
Many people will start the new year with a resolution – “I want to save more money.” But when the end of the year comes around, how do you know if you’ve achieved that goal? Are you keeping track of what you saved this year in comparison to the previous year? If you save just $1 this year compared to $0 last year, you could say you saved more money. So did you achieve your goal? Probably not. That’s why you need to choose SMART financial goals – Specific, Measurable, Attainable, Relevant, and Time-bound.
What are SMART financial goals?
S.M.A.R.T. is an acronym that stands for Specific, Measurable, Attainable, Relevant, and Time-bound. Originally developed in the corporate world for project management, this framework has been widely adopted for personal goal-setting—including financial planning. Here’s how it breaks down:
- Specific: Your goal should be clear and detailed. Instead of saying, “I want to save money,” try, “I want to save $5,000 for a down payment.”
- Measurable: Attach quantifiable metrics to your goal so you can track progress. For example, “I’ll save $416 per month for 12 months.”
- Attainable: Goals should stretch you but still be realistic and attainable. Saving $5,000 in a year might be doable, while $50,000 may not be.
- Relevant: Your goals should align with your larger priorities and life plans. If owning a home isn’t a priority, saving for a vacation might be more meaningful.
- Time-bound: Set a deadline for achieving your goal. This creates urgency and keeps you accountable.
By using S.M.A.R.T. goals, you’re setting yourself up for success with a roadmap that eliminates guesswork.
Why set SMART goals for saving money?
Anyone can say they want to save money, but saving the right way requires strategy and intention. Here are some key benefits of applying SMART. goals to your financial planning:
- Clarity and focus: Vague goals often lead to vague results. SMART goals lay out exactly what you’re working toward.
- Motivation: Tracking progress toward a measurable goal is incredibly rewarding. Every dollar saved feels like a step closer to success.
- Accountability: Time-bound goals set clear deadlines, ensuring you stick to your savings plan.
- Flexibility: The framework allows you to adjust goals based on your financial situation, ensuring they remain realistic and achievable.
With S.M.A.R.T. goals, you’ll approach money management with purpose and confidence.
Step-by-step guide to setting SMART money-saving goals
Assess your current financial situation
Before setting goals, take a close look at where you stand financially. Add up your income, list all your expenses, and identify areas where you may be overspending. Don’t forget to factor in debts like credit cards or student loans.
Ask yourself:
- How much disposable income do I have each month?
- Are there expenses I can cut back on?
- What debts do I need to prioritize?
Having a clear understanding of your finances will help you determine realistic savings goals that are attainable for you.
Define your financial objectives
Next, outline what you’re saving for. Are you trying to build an emergency fund, pay off a specific debt, or save for a big purchase? Be as specific as possible.
Here are some examples of SMART financial goals:
- Emergency Fund: “I want a $10,000 safety net for unexpected expenses by the end of the year.”
- Debt Repayment: “I want to save $5,000 by October to pay off credit card debt.” “I want to have $10,000 saved by spring to pay off student loan debt.”
- Planning the Future: “I want to save $7,000 by the end of the year to contribute to my retirement account.” “I want to have $20,000 saved in two years for a down payment on a house.”
- Big Purchase: “I want to save $8,000 for a new car by December.” “I want to save $3,000 by June to take a vacation.”
The clearer your objectives, the easier it will be to create a plan. Having a deadline helps you prioritize savings and make sacrifices where needed.
Make your goals measurable
Quantify your goals to track progress. Break large goals into smaller, more manageable milestones.
Example:
- Total Goal: Save $5,000 in one year.
- Monthly Breakdown: Save $416 per month, or about $104 per week.
This makes it easier to see how far you’ve come and how much work remains. Use this savings goal calculator to find out how much you will need to save per month to meet your goal.
Ensure your goals are attainable
Setting ambitious goals is great, but they should remain realistic. Look at your budget and determine if your goals align with your income and expenses.
Ask yourself:
- Can I realistically set aside this amount every month?
- If not, how can I adjust my goal to fit my current financial situation?
It’s better to hit a smaller goal than to abandon an unrealistic one entirely.
Make goals relevant to your life
Your financial goals should align with your personal priorities. Consider how achieving them will enhance your overall well-being and align with your long-term plans.
For example:
- Saving for a home down payment feels more rewarding if homeownership is a major life goal.
- Paying off credit card debt may take precedence over saving for a luxury vacation.
When goals resonate with your values, it’s easier to stay motivated.
Tools and strategies to help you achieve your SMART financial goals
Here are some practical resources to help you stay on track:
- Budgeting Tools: Tools like Webster First’s Money Management tool in online banking can help you monitor your spending, see where you need to cut back, and progress toward savings goals. The Debts tool can help you create a timeline and watch your path to paying off debt.
- Automation: Set up automatic transfers to your savings account or automate bill payments to avoid late fees.
- Debt Repayment Strategies:
- Snowball Method: Pay off smaller debts first to build momentum.
- Avalanche Method: Focus on high-interest debts to save money over time.
- Read more about these strategies.
- Savings and Investment Plans:
- Use high-yield accounts to grow your savings faster.
Implementing these strategies can make it easier to achieve your goals efficiently.
Overcoming challenges in SMART goal setting
Even the best plans face challenges. Common obstacles include unexpected expenses, lack of motivation, and shifting priorities. Here’s how to tackle them:
- Prepare for setbacks: Build a small buffer into your budget for unplanned expenses.
- Revisit your goals: Periodically review and adjust your goals to ensure they remain realistic and relevant.
- Celebrate small wins: Reaching mini-milestones can keep you motivated.
No matter the challenge, remember that progress is better than perfection.
Take control of your finances this year
Setting and achieving SMART goals can transform your financial health and set you up for long-term success. Whether it’s paying off debt, building savings, or preparing for a big purchase, the power is in your hands.
Ready to start savings SMART?