Setting Goals

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Goal setting is crucial for just about everything in life. If you have a goal you can track, you are more likely to reach the goal (or at least make progress towards it).

J.D. over at GetRichSlowly loves goals.

But how do you know what a good goal is?

I learned what a proper goal consists of in college in a management class. Goals must be SMART. Smart stands for:

Specific - action words such as develop, build, etc.; the goal should be easily understood, pinpointing exactly what you want to accomplish.

Measurable - specific criteria that allows for easy measurement to track progress towards the goal

Attainable - a goal cannot be completely out of your reach, but also cannot be so easy that no effort is made. A goal should stretch you, not break you, and not bore you.

Realistic - this one is pretty simple, and goes along with the goal being attainable. This means the goal is do-able. The tools for you to reach the goal are available, and the goal is not unrealistic or ridiculous.

Timely - this is often forgotten in goal setting. Your goal needs to have a very specific time or date for it to be met.

You can also make goals too wordy with all of the SMART criteria, so don’t write a novel.

Here are some examples of goals first in non-SMART wording, and then in a SMART variation. Let’s assume we are setting the goals from today, March 28, 2007.

1a. Get out of debt.
1b. Reduce credit card debt from $10,000 to $9,000 by June 1, 2007.

Analysis: The first version is very broad, and has no specifics at all. The SMART version is specific — reducing the debt by $1,000. It is measurable: dollars are measurable. You can track what your current debt is. Attainable and Realistic: This goal would stretch you. $500 per month for two months to reduce the debt. Attainable, not easy, but also not out of reach (such as eliminating all $10,000 in two months). Finally, it is timely: there is a specific date that the goal must be reached by.

Combine all of these together and you could track your progress towards June 1st, what the balance on the debt is, and what progress you have made.

2a. Get a job.
2b. Find employment as a financial analyst with a Fortune 500 company by August 1, 2007.

Again, the first goal is too broad and not specific at all. There is no timeline or criteria. The second goal is very specific — a specific job, at a specific type of company (you could go more into detail if this were your goal, say a Fortune 500 company in the banking industry). Whether or not it is attainable and realistic kind of depends on the person setting the goal. Do you currently work at a burger joint with no college education? Or do you have a finance degree from a four year university? It is also timely, with a specific date.

The best thing about goals is that you can break them down into smaller goals. Let’s use the two goals above.

Goal #1 could be broken down from reducing the debt by $1,000 in two months to a monthly, or weekly goal. Sub-goals would be reduce credit card debt by $500 by May 1, 2007, or reduce credit card debt by $125 each week. Tasks can be developed from these goals — setting up automatic payments to the credit card based on the goals.

Goal #2 is a little more difficult to break down, but here are some options. Sub-goals could be writing a resume, having resume critiqued by a career center, doing company research to target a company, etc.
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My name is Kevin and I love personal finance. I write to encourage you to eliminate debt, start a budget, and invest for retirement.

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