Setting SMART goals is the first step for budgeting. Goals can be short-term and/or long-term, and they can be personal, educational, social, financial, and recreational.

Setting financial goals starts by learning about your own financial habits by asking yourself these questions:

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Asking these questions will help you visualize a lifetime full of successes and accomplishments on which you can build your short and long term goals.

The SMART model is an acronym standing for Specific, Measurable, Attainable, Realistic, and Timely that has been widely used to set goals.

Using this model may appear easy on the surface, but it takes a lot of practice to get it just right. It is simple to state a goal of wanting to defeat debt, but unless we state the concept of defeating debt in a specific, measurable, attainable, realistic and timely fashion, the concept remains vague and not workable from a budgeting standpoint. Budgeting is not all about numbers or dollar amounts. It is the process of discovering your value systems, and unmasking your beliefs and attitudes toward your financial behaviors. It is the process of creating a SMART plan to get you to your destination of financial security and freedom.

How to

Here is an example of how the smart model works:

If you state that one of your goals is to be free of credit card debt. This would be considered a general goal. To make it SMART, you need to:

Identify the credit cards (specific)
Verify the amount owed (measurable)
Decide how much extra payment to send each month to meet your goal (attainable)
Calculate how much you can spare from your budget to pay off debt (realistic)
State when you want to reach your goal (timely)

A SMART statement would be:

I have 2 credit cards, a Visa and a Mastercard. I owe $2,400 on them combined. I would need to pay $200 each month, which I can afford in my budget, to pay off the debt in one year's time. Once I am free of this debt, I will charge only things that I need and am able to afford to pay back in full and on time by the due date of these credit cards.

You can review our module of SMART goals for more information about goal-setting.

Practice

If you want to work on your SMART goals, check out this Smart goals worksheet.

Think about paying it forward and teach someone you know how to master setting SMART financial goals.

Congratulations! You can move on to Step 2: Collect financial information

To review the full module on Budgeting, click here.