It’s sometimes said that saving money is a “lost art” – that, unlike our grandparents, we no longer have the desire or discipline to save for a “rainy day.” Thanks to easy credit and constant advertising, people today want things right away, whether or not they can afford it.
While it’s true that personal savings dropped to just 0.8% in 2008, the rate has since rebounded to 6.0%. What’s more, the highest rate of savings ever recorded (14.6%) was in 1975 – long after credit cards and other “easy” ways to borrow were introduced.
In reality, we simply have more choices than our grandparents did – more things to buy (computers, software and flat-screen TVs) and more ways to buy them. And because it is so easy to borrow, we need better ways to manage our money and stay out of debt.
Setting SMART Financial Goals
One of the best money management techniques is called SMART. It was designed to help you save for short-term, medium-term and long-term financial goals, without living like a monk. SMART is about setting goals that are Specific, Measurable, Attainable, Realistic and Time-Sensitive.
Specific. Everyone wants to enjoy a “comfortable retirement,” but comfortable is a vague goal that it could mean almost anything – from saving a million dollars to having just enough to live in a cardboard box. That’s why each of your financial goals must be as specific as possible. For example:
- I need to save $1,500,000 for retirement.
- I’d like $500,000 to buy a house on the beach.
- I want $9,000 to take a Caribbean cruise.
These are specific goals that give you something concrete to shoot for.
Measurable. Making “lots of money” is not a helpful goal, because it’s impossible to measure “lots.” Instead, you need to determine exactly how much money you’ll need to achieve goals such as taking the Caribbean cruise. If the cruise costs $4,500 per person, and you want to bring your husband along, your financial target is $9,000.
Attainable. If your yearly household income is $60,000, and you have expenses of $57,000, it makes no sense to plan on saving $20,000 this year. Unless you win the lottery, it just won’t happen. So, if you really want that Caribbean cruise, you’ll have to wait three years and save the $3,000 you normally spend on restaurants, DVDs and sports tickets every year. Either that, or find ways to earn extra income.
Realistic. This refers to the methods you use to achieve your goals. For example, if your goal is to have $1.5 million in the bank when you retire, saving $1 a week is not a realistic way to get there. On the other hand, putting $500 a month into an Individual Retirement Account (IRA) or 401(k) plan may do the trick.
Time-Sensitive. Time is the last, but most critical part, of SMART. To reach all of your goals, they must be linked to deadlines. Long-term goals usually involve objectives like retirement, a medium-term goal might be acquiring $9,000 for that cruise, and a short-term goal could be having enough money to buy a new dishwasher.
Let’s return to the three goals (above) using deadlines:
- I want to save $1,500,000 for retirement by the time I’m 62.
- I want $500,000 for my house on the beach by December 31, 2020.
- I need $9,000 for a Caribbean cruise by March 30, 2012.
If your goals aren’t tied to deadlines, you may never have the discipline to reach them. When they are time-sensitive, you know exactly how much money you need to save by a certain point in time.
Debt Management and Money Management Counseling
If you’re like many Americans, you won’t start SMART with a clean slate. You may already be deep in debt. If so, your first financial goal should be to dig yourself out. But if you already owe $5,000 in credit card debt, it may be wise to seek professional help and counseling.
At Delray Credit Counseling, our trained and certified professionals will develop a debt management plan to help you get back on your feet as quickly and painlessly as possible. We will negotiate with your creditors to reduce interest rates, extend payments over longer periods, waive penalties and other fees, and stop harassing letters and phone calls from collection agencies.
And because Delray Credit Counseling is a non-profit and educational credit counseling organization, we provide you with the skills and tools to make your biggest financial goals come true. While you’re in the process of reducing your debt, you can also visit our website to take advantage of money management information, resources and tools – FREE OF CHARGE! They’ll help you learn better financial habits as you work to make yourself debt free.
Give us a toll-free call at 888-338-0393. One of our certified professionals will contact you ASAP to discuss solutions to your financial problems and to help you start achieving your financial ambitions.
Your consultation is free!