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2009 is almost at an end. In a year where millions of Americans have lost their jobs or had their hours cut back and workers saw their retirement balances plummet by 20% or 30%, people have come to realize the importance of having adequate reserves and manageable debt load.
One of the most popular resolutions, year after year, is to better manage one's finances. However, resolutions such as "I want to have better finances" or "I want to pay down debt" are often broken quick into the New Year, because they are too general or vague.
Instead of resolutions, then, how about setting some SMART goals that will help you usher in 2010 and build a stronger financial foundation capable of weathering future storms?
SMART goals are Specific, Measurable, Attainable, Realistic goals set in a Timely manner. For example, instead of saying "I want to save more money" (a common resolution), frame it as a SMART goal.
Here is an example of how a SMART goal would work. Let's say that "Jamie" is a single young woman making $40,000 a year. She wants to start saving for retirement. In the past, her resolution might have been "Save for retirement", but somehow the expenses of daily life always seem to get in the way. Come March or April, she might have squirreled away several hundred dollars, but in 2010 Jamie really wants to kick her savings up a notch. So here might be how she structures her goal:
Specific = Jamie will save $3,600 in her 401K this year, or $300 a month for 12 months.
Measurable = Her process is measurable by month and by year
Attainable = If Jamie sets up the 401K contributions sticks to her saving schedule of $300 a month, she will accomplish her goal. She also has the added benefit that she will be paying herself first - she can only spend her paycheck, which already has the 401K contributions taken out.
Realistic = $3,600 is a little less than 10% of Jamie's salary, and Jamie has decided that is a realistic amount for her to save and still have some money left over for shorter-term goals and fun activities.
Timely = The goal is to be accomplished in 1 year, so that Jamie can ring in 2011 that much stronger.
Other useful and common goals might be to pay down debt. Instead of a resolution of "pay down debt in 2010", a SMART goal-setter will calculate the amount of debt she can realistically pay off, divide that amount into monthly payments (to better measure her process), and give herself specific numerical targets to work toward.
However, just as life can change in unpredictable ways, it's also important to give yourself some flexibility to change your goals along with them. At the end of the year, progress is the most important thing. Even though you might not have accomplished all of your SMART goals, having the framework will help you plan out what is important to you.
Happy Holidays!
