Setting goals is vital to success. Yet, if we aren’t detail-oriented when it comes to goal setting, we will often fall flat as we fail to reach a goal that was not specifically described. To avoid this problem, many businesses create SMART goals. SMART is an acronym most often used in the business world. It stands for Specific Measurable Achievable Relevant and Time-Based (SMART).
“All successful people have a goal. No one can get anywhere unless he knows where he wants to go and what he wants to be or do. ” —Norman Vincent Peale
SMART GoalsWe will use paying off our student loans as an example of a SMART goal.
- Specific – The goal is easily described, ideally in a single sentence. (Example: Goal – To pay off our student loan debt).
- Measurable – The goal should be easily measured so that you can determine if success or failure has taken place (Example: We will pay off our $100,000 in student loans).
- Achievable – Your goal should push your comfort levels, but also be within your means to achieve. If you earn $50,000 each year paying off $100,000 in 1 year is not likely possible. The goal must be achievable so as to not discourage your progress. (Example: We will make scheduled payments of $2,500 each month towards our student loans, and use The 10% Rule for any bonus pay to place 90% towards our loans).
- Relevant – The goal must be worth achieving when involving the bigger picture of your life. If you aren’t sure what your big personal finance picture looks like, use The Kinder Questions to help you sort that out. (Example: Our goal is to eventually be debt-free. Paying off our loans is a part of that bigger goal!)
- Time-Based – It is not enough to state a goal. You need to put a time stamp on when you expect to accomplish the goal in order to push your progress (Example: We will pay off our $200,000 in 24 months)
Further Listening: Don’t miss out on the Financial Residency podcast episode where I discuss SMART goals with Ryan Inman.Putting all of that together with a SMART goal for your student loan debt might produce the following: We will pay off our $200,000 of student loan debt using $5,500 scheduled monthly payments and 90% of any bonus pay in order to pay off our student loans in 24 months after we finish training. In fact, that was our specific SMART goal for paying off our student loans. This allowed us to pay off our $200,000 in student loans in just 19 months. It’s crazy what you can accomplish when you make a SMART goal! That was our goal, though. What is your New Years resolution goal for the year? Here are some ideas.
1. An Emergency Fund SMART GoalIf you are reading this blog, I hope that you have at least created a minimal emergency fund ($1,000 – $5,000). However, this is not enough money for high-income earners. When it comes to an emergency fund, most experts suggest having 3 to 6 months of living expenses saved. In other words, if you spend $10,000 each month then you should have $30,000 – $60,000 in an emergency fund. A good New Years resolution that would following the SMART Goal format might say: We plan to limit discretionary spending until we have $30,000 saved for an emergency fund in a high-yield savings account. We plan to accomplish this in six months.
2. Retirement SavingsLikely the most popular New Years resolution is to “Save more money”. However, this doesn’t follow the SMART goal format, which makes it less likely that you’ll achieve your goal. How much will you save? Where will you save the money? What will you consider a success? How long do you have to save that money? You can see that you might have several different goals when it comes to saving money for retirement. Honestly, you should have both short-term savings goals and long-term savings goals. For example, you might make an annual savings goal to save $75,000 each year. You would specifically accomplish this goal by placing $19,500 into your 401K at work, $19,500 into your 457 deferred compensation plan, an additional $12,000 into your Backdoor Roth IRA, $7,000 into your Health Savings Account (HSA), and the remaining $17,000 into a brokerage account at Vanguard. The backdoor Roth IRA would be accomplished by June each year with the remaining money automatically taken from your paycheck/bank account each month. A longer-term retirement savings goal may involve getting to your financial independence number. For example, we plan to save $2.5 million dollars by age 45 by saving $115,000 annually (as described in our short-term SMART goal for annual savings).
3. Increase Your IncomeAfter reading through the last potential New Years resolution, you may be thinking, “I need to earn more money to save that much!” Well, my friend, that’s actually a great New Years resolution, too! This goal will look different for each person. For some, it may involve earning more money at work by picking up extra shifts or performing 1099 work in your free time (e.g. locum tenens work). For others, it may involve creating an additional income stream through a side-gig of some kind. When I first left my medical training, I had a goal of earning more money through both of these methods. I picked up extra shifts at work to earn additional W-2 income while I also started a blog that had the potential to earn money. Other people I know have pursued real estate investing, medical expert witness work, written books, or created another side hustle of some kind. Create the SMART New Years resolution that works for you!
4. Student Loan DebtIf you are a young medical professional reading this blog, there is an 80% chance that you have student loan debt. Hopefully, you have decided to either refinance your student loans through this site (and received a sweet cashback deal) or you are pursuing Public Service Loan Forgiveness. Regardless, you can make a SMART New Years resolution when it involves your student loans. If refinancing, you may make a resolution to pursue a student loan refinance ladder this year. Others who are pursuing PSLF may make a goal to submit their Employment Certification Form every six months to make sure that their payments are being counted by the government. This is a crucial step in pursuing PSLF in order to make sure you are on track to have your debt forgiven tax-free.
5. Asset ProtectionThis probably should have been mentioned first on this list. As a high-income earner, you need disability insurance. Period. If someone depends on your income, you need to purchase term life insurance. This is one of the most crucial (if not THE most crucial) step in securing you and your family’s financial future. Due to the importance of asset protection in your financial life, this makes for a wonderful New Years resolution if you haven’t already obtained these products. A SMART goal here could look like the following: I plan to purchase enough disability insurance through one of the recommended insurance agents on The Physician Philosopher to replace my income should I become disabled by the end of January. Additionally, when I become married and/or have children, I will purchase term life insurance as soon as possible after these events. Seriously, don’t skip this step. You need to protect your financial future.
6. Additional Money towards Your MortgagePersonal finance is personal. While some may have an aggressive savings goal with any additional money they have coming in each month while, for others, the biggest goal is to become debt-free. One of the biggest sources of debt for many people is their mortgage. For this reason, a SMART New Years resolution involving paying additional money towards your mortgage makes for a great goal. Like the savings goal above, you might have both a short-term goal and a long-term goal for paying off your mortgage. For example, you may state that you plan to make mortgage payments every two weeks for the year while your overall goal is to have the mortgage paid off in 7-10 years.
7. Following a SMART Goal BudgetOne of the smartest financial decisions you can make is to follow a budget of some kind. While I don’t personally follow a zero-dollar budget that assigns a job for every single dollar I make, this is a great way to encourage strong financial habits. In the New Year, it is likely worthwhile to sit down and to make a budget. The first step in order to do this is to understand your current cashflow. Where is your money coming from, how much do you earn, and where does that money go? The best way to start this process is to track your spending for a month or two using something like mint or personal capital.
Furhter Reading: If you’d like to learn more about the Backwards Budget that we use, you can find that here.
8. Down PaymentIf you don’t have a mortgage, one of your big financial goals may be to find one! While many people today skip this step, one of the best ways to get the lowest rate on your mortgage is to save up 20% of your home’s cost as a down payment. If this is in your future plans, making a down payment SMART savings goal for the year may be an appropriate New Years resolution.
9. No Spend MonthOne way to meet your savings goal for the year is to spend less money. A crazed, yet effective way to do this is to devote an entire month to avoiding any discretionary spending. In other words, you can opt to make a “No spend month” one of your New Years resolutions goals. Any money that does not go towards fixed expenses like your mortgage, food, childcare, student loan debt, etc… doesn’t get spent! It’s a revolutionary idea that will teach you how to be financially disciplined while also helping you accomplish many of the other goals on this list.
10. Create an Estate PlanI am amazed at the number of people I meet who are married and/or have children and yet do not have an estate plan. A key step in any solid financial plan is to make sure that you have put measures in place to take care of your family if you are to meet an untimely demise. Your family should not have to go through the time and expense of probate court while they are grieving your death. If you have not considered making a Will or trust for your family, this makes for a great New Years resolution SMART goal.
11. Financial Knowledge SMART GoalA SMART New Years Resolution that I would recommend for everyone is to read more personal finance books. After reading through the list above, if you aren’t sure why you should be accomplishing any of this, then increasing your financial knowledge may be a good goal for the year. Even if everything above was familiar to you, reading more in this space will almost certainly prove helpful. As the pastor who married my wife and I loved to say, “You can never hear true things enough!” If you are a medical professional, then I suggest that you start by reading this book. If you are looking for something else, here are some other books worth considering. Make it a SMART New Years resolution to increase your financial literacy this year!
Take Home: SMART New Years ResolutionsIn the New Year, please spend some time making goals that are specific, measurable, achievable, relevant, and time-based for your current financial picture. After all, you cannot get to where you are going if you don’t know what that destination looks like or where/when you plan to find it.
What do your financial New Years resolutions look like? Have you created SMART goals? Let us know your plans in the comments below.