When I was reviewing my retirement projections the other day, which is another post for another day, I was thinking that the end number can be intimidating for some people. The same could be said for creating an emergency fund. In the case of the later, it could be between $10,000 to $30,000 and in the case of the former, it could be $2 to $4 million. Those numbers are significant and can be overwhelming. The key is not trying to save the entire amount at once, but to break them down into manageable amounts. So, how can you break these targets down, so that they are not so overwhelming? You need to be SMART about it.
What I mean by being SMART, is that your goal needs to be Specific, Measurable, Attainable, Realistic and Time Based. By using this method when you set your goal, you are much more likely to achieve your desired outcome. I will walk through these items using a goal I set for myself last year and then I’ll explain how I apply them to my long-term financial goals.
A Goal Delayed
I began running a few years ago as a relatively inexpensive way to obtain my cardio exercising. I thought cycling would be more expensive as I did not have a bike and swimming would require a pool. So, I started running. Very limited at first, but I gradually worked my way up to a distance of 5 miles. But, I found that I needed something more to motivate me and create more structure to my fitness routine. That is when I decided to run a half-marathon. That was my goal and it was a SMART goal. Why was it SMART? It was specific. I was going to run a half-marathon race. It was measurable. I would certainly know if I ran 13.1 miles or not. While I was initially skeptical that I could run 13.1 miles, the goal was certainly attainable. The goal was also realistic. I did not attempt to complete an iron-man triathlon, although I have not ruled that out some day. Finally, the goal was time based. I knew the date of the race that I was signed up for, so either I would be ready, or I wouldn’t. Now, going from 5 miles to 13 miles is not a walk in the park. I found a training program that would gradually work my distance up from 5 to 13 over the course of 10 weeks. By breaking down the large goal of 13 miles into smaller more manageable increments, it made achieving the long distance much easier. Now, I would like to say that I was able to achieve my goal running the half-marathon, but that goal has been delayed. I broke my ankle 6 weeks before the race, doing something other than running. I am going to run my race this year instead.
So, I said I would talk about how you can use this method to translate those large financial goals into more manageable targets. For retirement, I look more at what I can save every year. I have calculated what I will need as my final number, but I also know what the annual savings numbers need to be in order for me to reach my goal. I measure myself against these annual targets to ensure that I am on track for retirement. These targets are specific, measureable, achievable, realistic and time based. If I fail to achieve a goal in a given year, I can then adjust my plan and see if there are any ways in which I can save additional money. Retirement is probably about 30 years out for me. What I would hate to find out is that I don’t have enough money when I’m 5 years away from retirement. So, by breaking down the large intimidating retirement goal into SMART annual goals, I am much more likely to maintain my savings plan and not become sidetracked. Maybe I’ll even be able to retire early.