How to Set SMART Financial Goals

Setting financial goals isn’t a whole lot different from other life goals. If you want to lose 20 pounds, for example, you might join a gym or plan healthier meals. If you’re struggling with a particular course in school, you may commit to studying harder or even get a tutor. You do this because you know that results don’t magically materialize—you need to do some work to achieve them. This applies to money management, too. The more planning and effort you put in, the better the results will be and the better you will feel about them, because, hey, you earned it!

Why Setting Financial Goals is Important

Setting financial goals can substantially improve your overall financial situation. Starting with goals is incredibly useful - they help focus our attention on what's important and filter out distractions. One of the primary benefits is improved budgeting. With specific financial targets, it's easier to create a budget aligned with your aspirations, allowing you to track spending and savings more effectively.

Having goals serves as a powerful motivator. Knowing your efforts are leading toward a specific objective can provide the drive and determination needed to maintain fiscal discipline. Data shows that people who write down SMART goals are more likely to achieve them, enhancing their experience.

Setting financial goals often leads to more financial independence. By systematically working toward your targets, you can reduce debt, increase savings, and ultimately achieve a level of financial independence that affords more opportunities and less stress.

Other benefits of setting financial goals include:

• Encourages accountability and progress tracking

• Provides a clear roadmap for financial decisions

• Facilitates the management of debts effectively

• Helps prioritize spending

• Enhances financial security for unforeseen expenses

Let's explore the steps you can take to set effective financial goals.

How to Set Financial Goals

1. Be S.M.A.R.T. with Your Financial Goals

Defining your financial goals is the first step—and you want them to be SMART:

• Specific
• Measurable
• Achievable
• Relevant
• Time-Bound

Instead of just thinking, “I want to save more money,” set a specific goal, like “I want to save $1,000 by the end of the year.” This way, you can track your progress. Plus, watching your savings grow monthly helps keep you motivated and on track.

"How can someone determine if a financial goal is realistic and achievable?"

To stay motivated and ensure the goal is met in a timely manner, it's important to keep the goal realistic and achievable. This means that you will need to assess your time, finances, and mindset. Some questions to ask yourself: Is this goal achievable in the time assigned? Is my budget capable of handling this assignment of funds? Do I have the energy/motivation to remain disciplined and meet the goal? It's ok to adjust if you find you were a little too ambitious in the planning process. Give yourself the best possible chance at success! 

Anna Guglielmi, Accredited Onboarding Credit Counsellor, Credit Canada 

S.M.A.R.T. Financial Goal Examples

Save $5,000 for an Emergency Fund Within 12 Months

• Specific: The goal specifies the exact amount of money ($5,000) to save and the purpose (emergency fund).

• Measurable: Progress can be tracked by regularly monitoring savings, making sure the fund is growing towards the $5,000 target.

• Achievable: Depending on your income and expenses, assess if saving approximately $417 per month is realistic.

• Relevant: Building an emergency fund is crucial for financial security, and helping manage unexpected expenses like medical emergencies or car repairs.

• Time-Bound: The goal is time-specific, with a clear deadline of 12 months to achieve the savings target.

Pay Off $3,000 in Credit Card Debt Within 10 Months

• Specific: The goal clearly identifies the amount to be paid off ($3,000) and the type of debt (credit card).

• Measurable: You can measure progress by monitoring monthly payments and watching the debt decrease over time.

• Achievable: Based on your budget, determine if allocating about $300 per month toward this debt is feasible without compromising other financial obligations.

• Relevant: Reducing credit card debt is important as it decreases interest payments and improves credit scores, paving the way for more financial opportunities.

• Time-Bound: The goal is time-bound, with a concrete timeframe of 10 months to ensure the debt is paid off systematically.

Setting SMART goals is the first step towards taking control of your finances. Our GOLD Financial Coaching Program provides you with the support you need to work towards your financial goals. Learn more about our GOLD Program.

2. Define Your Short and Long-term Goals

Short-term goals are objectives to be completed in a year or less. For example, to save for annual payments like property or income taxes, estimate the annual cost, then divide by twelve. Set up a savings plan to deposit that amount monthly, either automatically or manually. This ensures the money is there when needed, avoiding reliance on credit or further debt.

An intermediate goal is a plan to achieve within one to five years, while long-term goals are typically five, ten, or more years away, like saving for your child’s education or retirement. Starting early on long-term goals boosts savings growth. 

A Registered Retirement Savings Plan (RRSP) is a good start for anyone because your invested money is compounded over time. A Tax-Free Savings Account (TFSA) is another excellent option for saving and investing. Both these accounts offer unique benefits that can help maximize your financial growth.

While RRSPs provide tax advantages at the time of contribution, allowing your savings to grow tax-deferred until withdrawal, a TFSA enables your investments to grow entirely tax-free. This means that any interest, dividends, or capital gains earned within a TFSA aren't subject to taxes, which can significantly boost your savings over time.

Short-Term Vs. Long-Term Financial Goals Examples

3. Prioritize Your Goals – Needs vs. Wants

Consider the idea of needs versus wants when it comes to prioritizing your goals. More than half of Canadians currently have credit card debt.

When setting financial goals, prioritize essential needs over wants. Essential goals address necessities and maintain financial security, like paying off high-interest debt or saving for emergencies. These foundational goals prepare you for unexpected expenses and ensure a solid financial footing. By focusing on essentials, you create a safety net that lets you pursue discretionary goals responsibly without risking your financial health.

Common Needs:

• Paying down high-interest debt, such as credit card balances or personal loans

• Building an emergency fund to cover unexpected expenses

• Essential repairs or maintenance, like for a vehicle or home

• Recurring large expenses, such as annual taxes or insurance premiums

• Health-related expenses, including medical bills or insurance

Common Wants:

• Saving for a vacation or travel experiences

• Purchasing luxury items, like designer clothing or electronics

• Dining out

• Entertainment

• Hobbies and leisure

If you’re still struggling to make ends meet, and your goals feel unattainable, we can help. Credit Canada offers free counselling to help you live a debt-free life. Contact us today and let us help you reach your goals.

4. Break Down Goals into Manageable Steps

To achieve your financial goals effectively, break them down into manageable steps. This removes the intimidation of large objectives and simplifies the process. Start by outlining your main goal, then divide it into realistic SMART goals.

If you want to save for a particular purpose, first determine the total amount and timeline. Break this into monthly savings targets. For example, to save $20,000 in four years, aim for $417 per month. Automate savings with a recurring transfer to a dedicated account to stay on track. Monitor progress, adjust your budget as needed, and celebrate milestones.

Assess your finances to find areas to cut back and redirect funds toward your goal. This might mean reducing discretionary spending, like dining out or entertainment, and reallocating those funds.

By focusing on smaller steps, you make the goal less daunting and build confidence in reaching larger financial milestones.

5. Track Your Progress and Adjust When Needed

Monitoring your progress toward financial goals is essential for staying on track and making necessary adjustments when life throws curveballs. Regular evaluation of your goals helps you to stay motivated and allows for course corrections when needed.

Tips for Tracking

To effectively track your financial goals, utilizing the right tools and tips can make a significant difference. Here are some popular methods to consider:

• Budgeting Apps: These apps offer user-friendly interfaces that help you manage and monitor your financial activities effortlessly. Some widely used options include Goodbudget, YNAB (You Need A Budget), and PocketGuard. 

• Spreadsheets: For those who prefer a more hands-on approach, creating a financial tracker using spreadsheet software like Microsoft Excel or Google Sheets can provide a customized solution. You can design personalized templates to record expenses, income, and savings progress.

• Financial Planners: These are digital platforms that provide a comprehensive overview of your financial situation. They often include features for budgeting, tracking, and goal setting, while also offering advice and tips tailored to your financial habits.

• Manual Journals: Writing down expenses, goals, and progress can foster a strong personal connection with your financial journey.

• Automatic Bank Notifications: Setting up alerts and notifications for your bank accounts and credit cards can help you stay updated on your financial activities without manually checking them.

How and When To Adjust Your Goals

Life is full of unexpected changes, and your financial goals should be flexible enough to adapt to new circumstances.

"How often should individuals revisit and adjust their financial goals?"

Make it a habit to revisit and adjust your financial goals every 6-12 months. Some individuals may do an end-of-year analysis or others use tax time as a reminder (you already have your financials open, might as well take a look, right?). However, if your life situation is more fluid, volatile, or rapidly changing, it makes sense to review more often. 

Anna Guglielmi, Accredited Onboarding Credit Counsellor, Credit Canada 

• Life Changes: Revisit your goals after significant life events such as marriage, having a child, or changing jobs. Ensure your goals reflect new financial responsibilities or income adjustments.

• Income Fluctuations: If you experience a significant increase or decrease in income, re-evaluate your saving and spending plans to align with your current financial situation.

• Market Conditions: Changes in the economic environment, such as recession or inflation, may require adjustments to investment strategies and savings targets.

• Achievement or Setbacks: Celebrate reaching a goal by setting new ones, or adjust existing plans if you have faced setbacks, ensuring they remain realistic and achievable.

• Priority Shifts: As time passes, your priorities might change. Regularly assess whether your goals still align with what you value most in life.

• Unexpected Expenses: If faced with unforeseen expenses, such as medical emergencies or major home repairs, reassess and adapt your financial goals accordingly. Adjust budgets temporarily to accommodate these needs without derailing your long-term plans.

6. Align Your Goals with Your Budget

A solid budget forms the foundation of your financial plan, acting as a roadmap to achieve your goals. It gives a clear view of your income, expenses, and savings while highlighting areas for improvement. By understanding your cash flow, budgeting helps you prioritize objectives, ensuring every dollar supports your long-term vision. A well-crafted budget maintains focus and discipline, preventing financial detours.

Regularly review and update your financial plan to adjust your budget effectively. Track spending to spot unnecessary expenses or savings opportunities, reallocating funds toward your goals. Include financial buffers or emergency funds in your budget to handle unexpected costs without hindering progress.

7. Avoid Common Financial Goal-Setting Mistakes

When setting financial goals, people often fall into a few common pitfalls that can hinder their progress.

• Being too vague in defining goals is a significant mistake. Without concrete and specific objectives, it's challenging to track progress or know when you've achieved what you set out to do.

• Goals that are overly ambitious or unrealistic can lead to frustration and demotivation. It's important to set goals that are challenging yet attainable.

• Failing to align goals with one's current financial situation, such as setting objectives that don't fit into one's budget or lifestyle.

• Not establishing a timeline for achieving these goals can result in procrastination and loss of focus.

Tips for Avoiding Pitfalls and Staying Focused on Achieving Goals

"What are the most common mistakes people make when setting financial goals?"

Albeit with the best intentions, individuals can find themselves falling short of their goals because they don't keep the bigger picture in mind. Make sure your goals are stepping stones to where you want to be; whether it be next month or in the next decade. Here are some tips to help you achieve your goals and plan for the next ones. 

Anna Guglielmi, Accredited Onboarding Credit Counsellor, Credit Canada 

• Break Down Goals into Smaller Steps: Divide large goals into manageable tasks to prevent feeling overwhelmed. Celebrate small wins.

• Regularly Review and Adjust: Schedule check-ins to assess progress and adjust based on life or financial changes.

• Prioritize Goals: Identify your most important goals and focus resources accordingly. Concentrate efforts where they'll have the greatest impact.

• Establish a Support System: Share your goals with someone who can offer encouragement, advice, and accountability.

By implementing these strategies, you'll be equipped to avoid common goal-setting pitfalls and maintain focus on reaching your financial aspirations.

8. Have an Emergency Fund In Place

An emergency fund is vital for any financial plan, offering a safety net for unforeseen expenses while safeguarding your long-term goals. Life is unpredictable, and unexpected events like medical emergencies, job loss, or urgent home repairs can cause financial stress.

Tips for Building an Emergency Fund

Here are some tips to guide you as you build an emergency fund:

• Determine How Much to Save: Aim to save three to six months' worth of living expenses. This provides a cushion for unforeseen events like job loss, medical emergencies, or unexpected repairs. If possible, consider extending this to nine months or a year for added security.

• Choose the Right Place to Store Your Fund: Opt for a safe and accessible account for your emergency fund. A high-yield savings account is ideal for its good interest rates and easy access. Avoid investing these funds in stocks or volatile assets, as this could risk your emergency fund when needed most.

• Understand Why It Matters: An emergency fund offers not just financial security but peace of mind. With an emergency fund, you can handle unexpected challenges without compromising long-term goals. It reduces the need for high-interest credit during emergencies, preventing debt spirals.

Lean into Support and Resources

Setting and sticking to financial goals is crucial for achieving long-term financial stability and success. Thoughtfully established goals serve as a roadmap, helping to navigate the complexities of financial planning while providing clear direction and purpose. Reaching these goals requires commitment, patience, and persistence.

Working with trusted advisors ensures your approach remains informed and aligned with your vision, ultimately empowering you to achieve your financial goals. Credit Canada offers financial counselling and goal-setting support. With personalized advice and strategic solutions, our seasoned team of certified credit counsellors is here to help. You can call us at 1 (800) 267.2272.