When I was young and started working, I had no idea what to do with my money, how much I needed to save and invest, and where to put it. I was lost and had no financial direction.

This was the case even though I was in stockbroking, looking at money going in and out of the market every day.

I was saving some money and buying a stock or two, but it was a bit of a crap shoot. There wasn’t a specific purpose or outcome I intended to achieve.

Sure I had dreams of making more money and becoming wealthy, or at least having a decently sized nest egg for retirement. However, I did not have any specific financial goals written down.

I truly believe that is why only after many years later when I learned about developing financial goals and had some written down, my net worth started to accelerate.

And that’s because you need to give your money a purpose.

What you will learn in this post

This post is a continuation of my developing your Financial Plan Series.

You will learn

• What are financial goals and why they’re crucial to your financial plan and decision-making
• What are SMART goals
• Why goals should be written using the SMART framework
• How to create your own list of SMART goals

What are financial goals?

Financial goals are simply a list of things describing how you would like to spend your money in the future. It could be things you want to buy, the types of holidays you want, when you want to retire, to the type of school you want to send your kids to.

Why is it important to have financial goals?

• You need targets to aim for: Goals help you know what you are doing with your life. Financial goals help you know what you are doing with your money, and what kind of life you want to live
• You need to give your money a purpose: Without a purpose, your money is “wandering aimlessly”. How do you know how much to invest, how much to keep as an emergency fund, or what is the reason for even accumulating wealth? Some people just hoard money, but goals help give meaning not only to how you choose to invest but also to how you spend
• You need to know when you can take it easy: Do you intend to grind and work until your death bed? Or do you want to be stuck in a mindset where you never have enough? Or do you want to forever feel trapped and dependent on your boss and your wage? Having financial goals helps guide you to know when you have “enough”
• You need to be able to quantify how much you need to live the life you want: Without financial goals, you don’t know how much and when you need certain amounts of money. Do you want to buy a car next year? Pay for your kid’s tertiary education in 20 years’ time? You decide your goals, which then determine your financial plan and execution strategy

How do I set my financial goals?

Your financial goals can be anything you want. Dream big. Think about what life you want to live. Then write them down as a starting point for your Financial Plan.

So let’s look into the optimal framework for setting financial goals. let’s start with this simple financial goal:

I want to be able to retire

What do you think? A nice goal to have because some people may not have the opportunity to even retire. However, there is much room for improvement in how the financial goal above is written.

There is a right way to set financial goals to make sure it is practical and actionable. That is by using the SMART goals framework.

What are SMART goals?

The concept was invented by George T. Doran in 1981 and is widely used in the corporate world today to articulate goals or objectives effectively.

The SMART acronym has evolved since the original thought leadership piece in 1981. Nowadays the widely accepted variant is:

• Specific: Targets a specific area, without being vague
• Measurable: Quantifies or defines a way to measure success
• Achievable: Needs to be a realistic endeavour, not too hard, and not too easy
• Relevant: Purposeful and delivers impact
• Time-bound: Identifies when the goal needs to be achieved

So each goal you set must pass the SMART criteria.

Let’s go through some examples, shall we? Let’s use a retirement goal as an example:

	BAD	GOOD
SPECIFIC	I want to retire	I want to retire in City X in a 5-star senior citizen centre
MEASURABLE	I want to retire with a lot of money	I want to retire with 5 million dollars of investments, which should last me 30 years at a minimum
ACHIEVABLE	I want to retire in space with my own space shuttle and 3 trillion dollars	I want to retire in Bali with 5 million dollars in investments
RELEVANT	I want to lose 10 kg by the end of the year	I want to spend on a personal trainer and nutritionist to help me lose 10 kg
TIME-BOUND	I want to accumulate 5 million dollars for retirement	I want to accumulate 5 million dollars for retirement by the age of 55, which is 15 years from now

So, let’s ensure we fulfill all the criteria, and rewrite our original goal into a SMART financial goal:

I want to retire in City X in a 5-star luxury senior citizen centre at age 55 having accumulated a 5 million dollar retirement fund.

Let’s look at some more examples, which might give you ideas for your own SMART financial goals

Every year, I want to go on 1 domestic and 1 international holiday, with each holiday lasting at least a week, totalling to 40k dollars

In 20 years, I want to be able to fund tertiary education for 2 children, preferably at a top-tier Oxbridge or Ivy League school

In 10 years, I want to buy a Porsche 911 Turbo with a 50% downpayment

In 3 years, I want to buy a 2 story house in a suburb about 20 minutes drive from work, with a budget of about 1 million dollars purchase price, with a 10% downpayment

You can write down as many financial goals as you want, but the financial goals I highly suggest at a minimum are:

• Retirement (and how you will manage your aged care)
• Property
• Wedding (yes you need to save for your wedding)
• Children’s education

These are the largest expenditures in your life, which will drive a significant amount of how much you need to save over your working life.

Frequently Asked Questions

I don’t know how much money I need for retirement!

That’s a very common challenge everyone goes through. But it’s really up to how much you need, depending on your intended retirement lifestyle. Just make sure it’s realistic, and maybe add some buffer to be safe

For now, the number doesn’t have to be perfect. You’re planning for decades into the future. It’s not going to be accurate, and things change over time.

What’s important is constantly tracking and reviewing your goals, refining them as necessary.

I don’t know how much money I’ll need for my children’s education.

Well, first you need to plan for how many kids. Then what type of schooling do you want to send them to (Public, private, etc.).

Then do some research online on the average costs of schooling. Many private / international schools publish their fees on their website. Don’t forget to estimate “education inflation” costs as it’s a 12-18 year expense.

How realistic vs ideal should my goals be?

If you’re not sure how to find the right balance, why not have to goals, a “base” goal and a stretch goal? No harm there.

Do I have to put a monetary figure for every goal?

Not explicitly in the actual SMART goal itself. But it should be something that you can estimate without the actual figure, like “I want to go to at least one country in Europe every year”. See the examples I wrote earlier in the post.

Having a rough idea of how much it costs will be important for the next step of the financial plan, creating your budget and savings/investment plan to achieve your goals.

Conclusion

By reading this post you’ve learned how to write SMART financial goals. You might be thinking, “I’ve written down some SMART goals, but what do I do with them? How do I calculate the amount I need to earn and save each month to meet these goals?”

That’s the topic I’ll cover in my next post, about “Calculating how much you need to need based on your SMART financial goals” (Coming soon)