Personal finances 101: how to get organized and set SMART financial goals

Financial basics: where to start

There isn’t a single best way to organize your finances; instead, there are many things for you to consider and decide which apply to you, including:

• Calculate your income and spending—Start by tracking your spending habits and consider cutting down where you can. Create a budget to ensure you’re spending less money than you’re making. 
• Determine your net worth—Add up everything you own—such as cash, investments, and other things of value—and everything you owe—such as credit card balances, loans, etc. This provides you with a starting point from which you can measure your progress.

Once you’ve taken stock of your finances, you can start thinking about where to put any extra income you don’t need for paying your bills. Although it may be tempting to start saving for a vacation or a 90-inch television, there are a few steps you should consider to help safeguard your finances:

• Review your insurance coverage—Know which types of coverage you have, such as automotive, life, health, and renter’s/homeowners, to name a few. Consider talking to an insurance professional to ensure you have the appropriate amount of insurance.
• Get your debt under control—Look at how much you spend on debt and what your total debt owed is. Consider putting more money toward your loans or credit cards if you only make the minimum payments or feel uncomfortable with your debt.
• Build an emergency savings fund—32% of adults can’t afford to pay a $400 unexpected expense with cash they have available. Consider setting aside money for emergencies so you don’t have to borrow. 

How to set short- and long-term financial goals

With your finances organized, you can start prioritizing your financial goals, both short and long term.

Short-term goals—Think of things you want to pay for within the next one to three years, such as going on a vacation, reaching your emergency savings goal, or buying a car. Consider keeping your money for short-term goals in cash accounts or something similar, so it will hold its value and be available when you need it.

Long-term goals—List your goals beyond three years, such as saving for your child’s college education or your retirement. Because these goals are further into the future, you can consider taking on more risk by investing the money rather than holding it in a cash account. Investments such as stocks and bonds can increase and decrease in value in the short term, but over several years or longer, they have a better chance of positive returns. As the date you want your money gets closer, you could move some of your investments into cash to reduce the ups and downs.

SMART financial goal examples

Setting goals that follow SMART rules can help make it easier to plan for and see your progress. SMART goals should be:

Specific—Be precise in what you want to accomplish, not vague or general.

Measurable—Set goals that can be quantified (i.e., have a dollar amount).

Attainable—Be realistic in your goal setting (e.g., saving $100 million for retirement isn’t in the cards for most people).

Relevant—Make sure your goals matter to you (e.g., don’t put money in a college savings fund if you don’t have children in your life you want to help go to college).

Time based—Know when you want to achieve your goal (i.e., decide on a specific date).

Let’s say one of your financial goals is to pay for your child’s college education. That’s not SMART. A SMART alternative for the same goal might be “I want to have $80,000 saved to pay $20,000 per year for a four-year degree by August 31, 2036, when my child is 18 years old.” That statement checks all five SMART boxes and gives you a specific timeframe and dollar amount to target.

You have to start somewhere

Managing your finances can sound overwhelming and, at first, it takes some time to get organized. But once you do, and you know what goals you’re trying to achieve, you can focus more of your effort on executing your plan rather than creating it. Revisit your budget, net worth, and goals regularly to see if anything has changed. Make it a habit to track your progress and get the satisfaction of reaching different milestones.