The process of cleaning up your finances and simply setting financial goals can seem a bit overwhelming when you’re burdened with debt and prefer to stick your head in the sand. But debt problems are not solved by ignoring them. Putting together a financial plan and setting financial goals will help you get to where you need to go a lot faster, and with a great deal of clarity.
Setting SMART goals
SMART goals are
S = Specific
M = Measurable
A = Attainable
R = Realistic
T = Timely
SPECIFIC: You goal should be specific. To say “I will pay my debt off” isn’t specific. What debt? How long will you take? A specific goal would be “I will pay off the R6000 that I owe on my credit card”.
MEASURABLE: This means you can measure your progress, ie you’ll pay your credit card off over X months. So to add a measurable angle to the above, you could say “I will pay off the R6000 that I owe on my credit card over the next 10 months.” You now have a time frame to measure your progress.
ATTAINABLE: This means that you can’t say you’ll pay off R70,000 rands of debt in 2 months when your salary is R15,000 a month. You have to spread your goals out so that they’re attainable. Also, bear in mind that you can’t take all your disposable income and pour it into your debt. Liquidity is still important. Have money to move around, even if it’s just enough to scrape by – you don’t want to be caught unawares.
Using the credit card example again: Paying R6000 over 10 months means you can break down your payments to R600 a month. (Contact your credit provider, check for interest and factor it into your payments.)
REALISTIC: Using the R70K example above, to aim to cover years of debt in 2 months is reaching way beyond your means – unless you win the lottery (good luck). In the meantime, let’s work on setting realistic financial goals so that you have a plan in place should you not scoop up amamillions in the near future. Apart from clearing your debt, your investment plans should be also be realistic. If you have R10, 000 in capital and your goal is to have R10,000,000,000 by the end of the year – mmhh, well, that’s a tad bit ambitious. Also highly unlikely; unless you’re planning on selling drugs or something (good luck with that, too). Investment goals take time. You won’t get wealthy overnight if you go about it legally. You have to be patient, that’s important. So set a realistic goal for yourself.
TIMELY: You have to have a set time for when the goal should be achieved by. “I’d like to invest, eventually” isn’t a timely goal. When is eventually? ‘Eventually’ could be any day from now till lord knows when. Have a set time by which you’ll be able to scratch that goal off your list.
Essentially your goal(s) should look something like this:
“I want to pay off my R6000 credit card by the end of October. I will pay R600 every month starting from the end of January till the 31st of October.” This pretty much covers all 5 aspects of what a goal should be.
Very important is to divide your big goals into actionable steps, and then draw up a schedule for when certain things should be done (for instance, an appointment with a financial advisor or broker).
Create a spreadsheet for budgeting, tracking your spending, and keeping track of debt payments and/or recording investment movements. If spreadsheets fill you with the fear of God (its 2014 – spreadsheets don’t bite) or you don’t have a computer / laptop, a good old notebook will do.
If you need any more guidance on SMART goal setting, click here.