1.5.1 Setting financial goals

If you want to go on a road trip, you need a good map. It's the same with your finances. To manage your money well, you need to know where you want to go. That means setting financial goals.

SMART goals

You're more likely to reach your goals if they're SMART: Specific, Measurable, Achievable, Realistic and Time-Framed. Here's an example:

• "Save for a vacation" is vague and hard to measure. How will you know if you are making progress or have achieved it?
• On the other hand, "Save $5,000 for a trip to New York within eight months" is SMART. It's specific—you know exactly what you're saving for. It's measurable—you know how much you will need. It's achievable and realistic—you can break the total needed into smaller steps (for example, saving $625 a month) that will be easier to do. And it's time-framed—you've set a deadline.

When you define your financial goals, make sure they are SMART.