In financial management studies, an effective financial goal should have 5 characteristics that could be easily remembered as SMART. The following paragraphs explain the 5 features:
1) Specific
We might be thinking about being financially free, but do you know what it takes? This objective seems too general. Our goal must be specific so that we can focus particularly on each area of financial planning and easily manage our own expectations. The specific objective usually has only one result.
For example, aim to invest RM200 per month in mutual funds and accumulate at least RM2400 in a year; or spend within our budget each month. These specific goals will have different results, but when combined, they will ensure that our cash flow is healthy. When each specific goal is achieved, we are getting closer to financial freedom.
2) Measurable
We may be working very hard, but how do we know if we have achieved our goal? Therefore, our financial goals must be quantifiable.
For example, we want to invest and accumulate RM50,000 in 2 years and the progress can be easily quantified by looking at our investment account statement.
In fact, we need to be able to measure or review progress toward the goal, such as calculating our current net worth, debt-to-income ratio, and reviewing return on investment (ROI) and our current insurance policy. It’s nice if we can keep a diary and review our current schedule.
3 available
Many people are influenced by the ‘Law of Attraction’ and believe that ‘nothing is impossible’. Therefore, we tend to set ourselves difficult goals that require a great deal of effort. However, are these goals realistic and achievable? It is important to know if the goal is within our potential and logical norm.
For example, if your goal is to reach RM1 million in a year by investing only RM1000 per month in any scheme. What are the chances that they will be achieved? In fact, such an investment scheme will require a very high ROI within a short period and often carries a very high risk. You could easily lose your capital.
The most important thing is that we should not strive to achieve unrealistic goals. This is to avoid frustration over failure that could end in big disappointment.
4) Rewards
We want to achieve a goal because we want to get something in return or else no one will work hard. As we work towards the achievement of the goal, we must be sure of the result that will be achieved and its importance for our life. In fact, it should be meaningful and enjoyable.
For example, a man wants to invest his money to accumulate funds for his son’s education in 20 years. In the future, this goal will be rewarding because his child will be able to enter higher education.
However, the rewards can be in any form, be it material, financial, relational, and spiritual.
5) Limited duration
We need adequate time to achieve our goals. It can be short, medium or long term, depending on the type of goals to be achieved. Punctuality has been an important aspect in life. Therefore, we must assign a time frame to avoid procrastination. It will be nice if we can set a schedule for everything to be done.
For example, saving for retirement would take many years because it is long-term planning and involves a large sum of money. So planning for retirement in the short term (1-5 years) might be unrealistic unless someone is willing to make a big commitment to it.
In short, time is priceless because it gives development opportunities and creates better results. That’s why the wise man always said, ‘start early and stop procrastinating’.
Summary
An effective financial goal would always have these SMART characteristics; Specific, measurable, achievable, rewarding, and time-bound. This is to ensure that our goals are meaningful and move us closer to financial freedom. Good luck in your goal setting.
