Applying SMART Goals to Personal Finance

A few weeks ago, I was chatting with an old friend of mine about personal finance and The Simple Dollar. He was familiar with the site to a small extent, but was still peppering me with a lot of questions about my own financial turnaround and how I built various side gigs (including The Simple Dollar).

Inevitably, the conversation turned to goals. I attribute setting goals and achieving those goals to be the main reason I was able to fix my financial state and find the type of career success and flexibility I have always wanted. Goals made it possible, period.

He listened for a bit as I described some of the goals I’ve set for myself. I set a goal of debt freedom and achieved it. I set readership and writing goals for The Simple Dollar and achieved them. I set some savings goals and achieved those.

After I listed a few and then paused, he said one simple thing.

“You’re describing SMART goals.”

Now, when he said that, I thought that he merely meant that my goals were “smart,” but he quickly went on to elaborate on his point. By SMART goals, he was referring to a common practice for goal setting often used in business environments.

SMART goals are goals that embody five distinct traits – specific, measurable, achievable, realistic, and time-limited. The idea originated in 1981 in an article written by George Doran and has been expanded and remixed in countless ways ever since.

In my friend’s workplace, the concept of SMART goals is used to define the projects that his company works on, including all of the sub-projects and small individual tasks that people work on.

Most of his work, he says, is simply fulfilling short- and medium-term SMART goals that were developed as a group when figuring out how to handle and divide up larger projects. Usually, a large project has a SMART goal as a center, then it’s broken up into smaller SMART goals, and then those are broken down, and so on and so forth until people have goals that can be achieved in a pretty short timeframe, usually somewhere between a day and a week.

The thing is, that almost perfectly describes how I handle things in my own life. I have big things that I want to achieve, and so I break them down into smaller and smaller pieces until it’s something I can achieve this week. I call it my “life pyramid” and I described it in detail several months ago.

The idea of a SMART goal almost perfectly describes how I was already creating goals in my life. Those goals led me to pay off hundreds of thousands of dollars in debt, start a small side business that eventually wound up becoming my full-time gig, be an active father for three young children, maintain a strong marriage, build a strong social network, and be active in several different community organizations. All at the same time.

Of course, the foundation of all of that was getting my financial house in order. Without fixing our financial trajectory, I would have never been able to achieve those other things. In light of that, let’s focus on how to translate the idea of SMART goals into real personal finance goals that you can achieve for yourself.

In this article

    How to apply SMART goals to your personal finance


    The first element of a great goal is that it is specific. In the words of Wikipedia:

    The [first] criterion stresses the need for a specific goal rather than a more general one. This means the goal is clear and unambiguous; without vagaries and platitudes. To make goals specific, they must tell a team exactly what’s expected, why it’s important, who’s involved, where it’s going to happen, and which attributes are important.

    In other words, a SMART goal addresses the five “w” questions.

    What? What exactly is it that you want to accomplish? What is your goal boiled down to five words or less?

    For example, you might say that you want to achieve debt freedom, or that you want to save enough money to retire at age 65. Maybe it’s as simple as saving up for a full house down payment.

    Whatever it is, it’s your goal with all of the details stripped away, stated in as few words as possible.

    Why? You have a goal. Why do you want to do it? What is the reason you want to achieve debt freedom? Why do you want to retire early?

    In essence, this is meant to tie together your money and your life. If a big goal isn’t really in line with what you truly want from your life, you’re going to have a hard time finding success with it. You need to find the connection between what you truly want from your life and what this goal is.

    Where? Where will you be working on this goal? This is a pretty minor issue – and is an assumption for most goals – but it can sometimes be important. You may want to specify where you’ll exercise or where you’ll study (to avoid distraction).

    Who? What other people are involved in your goal? Who do you need to work with to make it happen?

    This can be very important for goals where successful execution requires the involvement of others. For example, when I set personal finance goals, my wife, Sarah, is inherently involved in them. It’s just simply part of the goal, whether I directly state it or not. However, thinking about the “who question” reminds me of how big of a stakeholder she really is and how her active participation will make or break that goal.

    Which? Does your goal have any additional constraints? What exercise will you be doing? What financial accounts will you be using? Again, sometimes additional constraints are necessary and sometimes they aren’t, but it’s always worthwhile to think about them.


    A measurable goal is one that has a very clear definition of success. It has a target you can actually measure. From Wikipedia:

    The second criterion stresses the need for concrete criteria for measuring progress toward the attainment of the goal. The thought behind this is that if a goal is not measurable it is not possible to know whether a team is making progress toward successful completion. Measuring progress is supposed to help a team stay on track, reach its target dates and experience the exhilaration of achievement that spurs it on to continued effort required to reach the ultimate goal.

    Here are some of the questions you should consider when thinking about the measurability of your goal.

    How much? Exactly how much money will I need to retire early? Exactly how much debt remaining will I need to have in order to consider myself to have paid off my debts?

    Setting an exact number here gives you a measuring stick and a target to shoot for. Comparing that number to where you’re at now gives you an easy way to identify your progress toward that goal. If you have $100,000 in debt and your goal is debt freedom, every $1,000 you pay off is 1% progress toward that goal.

    How many? Other goals revolve around “how many” of a certain thing is achieved, which is often just another way of looking at “how much.” How many push ups do you want to be able to do, for example?

    The key thing to always ask yourself is this: How will I know when it is accomplished? This finishing line needs to be as clear as possible, and the clearest way to express that is with a number representing your goal that can be easily measured at any time. For example, your debt, your 5K time, your down payment savings, your count of books read this year, your sit-up count, your net worth, your current weight, and so on.


    An achievable goal is one that you can actually attain. It signifies improvement – and often significant improvement – from your current state, but it’s not one that is beyond the boundaries of reality. From Wikipedia:

    The third criterion stresses the importance of goals that are realistic and also attainable. Whilst an attainable goal may stretch a team in order to achieve it, the goal is not extreme. That is, the goals are neither out of reach nor below standard performance, since these may be considered meaningless. When you identify goals that are most important to you, you begin to figure out ways you can make them come true. You develop the attitudes, abilities, skills and financial capacity to reach them. The theory states that an attainable goal may cause goal-setters to identify previously overlooked opportunities to bring themselves closer to the achievement of their goals.

    The key aspect of an achievable goal, in my eyes, is research. This involves spending time to see if this goal is actually something that is possible for you to do with a little bit of breathing room added in.

    For instance, a goal of losing 100 pounds in one day is obviously not achievable. No one can do this.

    Instead, setting a goal of losing 100 pounds in one year is much more achievable. Many people have done this. It requires simply losing an average of just under two pounds a week for a year.

    Often, turning a goal from unachievable to achievable means just tweaking part of it. It might mean lowering the target number or extending the timeframe.


    What makes a realistic goal different from an achievable goal? It has a lot to do with the people around you. From Wikipedia:

    The fourth criterion stresses the importance of choosing goals that matter. A bank manager’s goal to “Make 50 peanut butter and jelly sandwiches by 2pm” may be specific, measurable, attainable and time-bound but lacks relevance. Many times you will need support to accomplish a goal: resources, a champion voice, someone to knock down obstacles. Goals that are relevant to your boss, your team, your organization will receive that needed support. Relevant goals (when met) drive the team, department and organization forward. A goal that supports or is in alignment with other goals would be considered a relevant goal.

    For example, it might be achievable for me to save $50,000 for a trip this year, but is it realistic in a two person marriage with three children running around? Not so much.

    Often, goals can be seen as achievable if you ignore the people around you or assume that they will provide maximum help. Usually, you can’t ignore them and they won’t provide maximum help to you.

    The best way to reformat a goal here is to take in consideration the other people in your life who will also be using the resources that your goal will eat up. When you eat up time, you take it away from other things in your life – family, loved ones, friends, hobbies, and so on. Is that a realistic choice? When you use money, you take it away from all other areas of the family budget. Is that a realistic choice?

    You can start by making a list of people and things who will have to do something to help you in your goal. Are those people willing to give up their time for you? Their money use? Are those things going to be okay if you cut back on their time or money use? Are you going to be happy trimming back on the time and money use for these things?


    Great goals are also time-limited, in that they are completed within a very specific time frame. This provides some pressure to consistently work on a goal. From Wikipedia:

    The fifth criterion stresses the importance of grounding goals within a time-frame, giving them a target date. A commitment to a deadline helps a team focus their efforts on completion of the goal on or before the due date. This part of the SMART goal criteria is intended to prevent goals from being overtaken by the day-to-day crises that invariably arise in an organization. A time-bound goal is intended to establish a sense of urgency.

    This is where you ask the sixth “w” question: when? When can I actually achieve this whole goal? A year from now? Six months from now? Five years from now? What is my deadline?

    Once you’ve set that, you can start using that time limitation to start making realistic plans for the goal.

    What can I do today to achieve this goal?
    What can I do this week to achieve this goal?
    What can I do this weekend to achieve this goal?
    What can I do this month to achieve this goal?
    What can I do in the next three months to achieve this goal?
    What can I do before the end of the year to achieve this goal?
    What can I do in the next 12 months to achieve this goal?

    I actually find it very useful to address these questions in the reverse order:

    What can I do in the next 12 months to achieve this goal?
    What can I do before the end of the year to achieve this goal?
    What can I do in the next three months to achieve this goal?
    What can I do this month to achieve this goal?
    What can I do this week to achieve this goal?
    What can I do this weekend to achieve this goal?
    What can I do today to achieve this goal?

    This way, I can start breaking down the big steps into progressively smaller ones. I find this to be key when formulating a plan and making it actionable today.

    Those questions tie into the time limited nature of your goal and force you to develop a robust plan for making it happen. I find a lot of good pressure from time limitation, particularly in the form of asking myself what I can do today to achieve the goal.

    Example: Paying Off Your Debt

    The simple goal of “paying off your debts” is a great one, but it’s not a SMART one. How can you turn it into a SMART goal?

    Specific: “My wife and I will pay off all of our debts.”
    Measurable: “My wife and I will pay all of our debts down to $0 from the current balance.”
    Attainable: This is an attainable goal. Many other people have done the same thing.
    Realistic: Is it possible to make forward progress on this goal given our current state of income? Is it something your spouse is truly on board with? If yes, then the goal is realistic.
    Time-limited: Use a debt calculator like this one to come up with this number. “My wife and I will pay our debts down to $0 by June 2019.”

    Your goal of “paying off your debts” just became a specific, measurable, attainable, realistic, and time-limited goal. You can measure your progress along the way and know that you put in the work in advance to ensure that this goal can actually work if you put in realistic amounts of effort.

    Example: Contributing to Retirement

    The simple goal of “saving for retirement” is also a great one, but it’s not a SMART one. Let’s work on that one, too.

    Specific: “I plan on contributing to my 401(k) at work so that I can get matching funds from my employer.” You’re identifying “where” and “why” quite clearly here.
    Measurable: “I plan on contributing 10% of my income to my 401(k) at work so that I can get all of the matching funds from my employer.”
    Attainable: As before, this is quite attainable. Many people have contributed that much and more.
    Realistic: Is it possible to contribute 10% of your income to a 401(k) given your current financial state? This likely means a 7% (or so) smaller take-home paycheck. Can your household finances survive? Can you make simple changes to make it work?
    Time-limited: “This week, I plan to set up a 401(k) at work with 10% contributions from me so I can get all matching funds.” You have a clear time limitation on that goal.

    Your goal of contributing to retirement just became specific, measurable, attainable, realistic, and time-limited. Time to visit that human resources officer!

    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.