This is part of a weekly series on personal finance and wealth building. If you care to read them all, please click on the ‘Building Wealth’ category on the right.
Goals are a critical first step on the path to wealth. Without goals, you are unable to build plans, budgets, or schedules. Without goals, you don’t know what success is, much less how to get there. While the words in this article are mine, the structure (SMART) and ideas are not. I’m not sure where they originated, or even where I heard it first, but here I make it as much my own as I can. (If you own or know who owns the copyrighted or original material on SMART goals, please let me know).
Goal setting became an interest of mine several years ago in the context of powerlifting. Building short and long-term plans around short-term goals that all fed in to longer term goals is an important part of training and diet for performance. I found using the SMART framework works very well for any goal setting, and certainly moving towards building wealth requires setting goals.
All goals should be SMART. Specific, Measurable, Attainable (Actionable), Realistic, and Time-bound.
Specificity is critical, and folds in to all the other attributes. A non-specific goal is difficult to measure. “I want to have lots of wealth” isn’t a good start to a goal, while “I will have a net worth of $1M” is a solid start to a goal. Also, goals should be more than “I want to be fluent in Spanish”, and instead be “I will complete a Spanish class at the local Community College”.
The only way to know if you have reached a goal is by measuring your success. In the speaking Spanish example, you measure success by completing a course, as ‘fluency’ isn’t really measurable (although you could say that the ability to pass a test could measure fluency – then the goal would be to pass the test, something that is measurable.) In the wealth context, measurable means your wealth needs to be in some medium that can be measured. Since almost everyone measures wealth in terms of dollars, this is pretty easy; although I often put goals in terms of time.
There’s no point in setting a goal that is impossible. While I’m an optimist and think that anyone can do almost anything they want by putting enough effort into it, it’s not Attainable for a 40-year-old couch potato who never played football to have a goal of playing in the NFL. ‘I will own all the property in the United States’ is not attainable.
An alternative ‘A’, and one I like enough to give second billing, although I think it fits better in time management and productivity contexts. Goals need to lend themselves to a ‘next action’. When you write down a goal, you need to be able to break it into parts to get to the point of the next thing you need to do to move towards that goal. “I will have $1M net worth” is actionable, as the first action could be to pay off your highest interest credit card, or save $100 this month.
Realism is critical. Someone who weighs 135 pounds and squats 225 pounds can’t have a goal of 1300 pounds; it isn’t realistic. No one has ever squatted that much, and certainly to get anywhere near that, this person needs to get much bigger and much stronger using more realistic goals. To say “I want to be the richest person in the world” is unrealistic, but “I will have a net worth of $1M in 10 years” is certainly realistic. The difference between Attainable and Realistic is important – attainable is a synonym of possible, realistic is a synonym of likely. If you make $10 an hour and you have no marketable skills and don’t do anything to gain them, it isn’t realistic to set a goal of being a millionaire. It’s possible, though.
Along with being measurable, goals need to have time boundaries. An open-ended goal isn’t a goal, it’s a dream. This helps greatly when breaking big long-term goals into more manageable chunks.
Putting all of it together
A solid goal: I will have a net worth of $1M by my 40th birthday. This goal meets all the requirements. You can also easily split this into many smaller shorter term goals, such as how much you will save in a time period, what you’ll sell, what debt you will pay off and when. Breaking goals into manageable sub goals is critical to success. You can then use those goals to build specific task lists that give you the next specific action you need to take to move forward.
(That process leads into a productivity discussion, which is a little out of scope, but maybe I’ll get into it. For further productivity reading, I highly recommend David Allen’s Getting Things Done.)