MANAGING PERSONAL FINANCES THROUGH SMART FINANCIAL OBJECTIVES

TABLE OF CONTENTS 

Introduction

What is Personal Finance?

What do you understand by Objective?

What then is Financial Objective and the various types?

Why the SMART Rule?

The relationship of the SMART Rule to Financial Objective

Conclusion

INTRODUCTION  

There is only one thing worse than not setting financial goals–setting ineffective financial goals. A perfect example of a worthless goal is, “I want to achieve financial freedom.” While it may sound good, we don’t know what financial freedom is, so how will we know when we have arrived? A slightly better goal is, “I want to be debt free.” But this goal also has shortcomings. Setting workable, practical effective financial goals may sometime be really quite easy. They just need to be SMART. A financial goal, or any goal for that matter, should be Specific, Measurable, Attainable, Realistic, and Time bound.

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WHAT IS PERSONAL FINANCE

Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. It is the process of planning and managing personal financial activities such as income.(i.e. earnings) before any deductions, spendings, savings, investments and expenses.

WHAT DO YOU UNDERSTAND BY OBJECTIVE

A specific result that a person or system aims to achieve within a time frame and with available resources. In general, objectives are more specific and easier to measure than goals. Objectives are basic tools that underlie all planning and strategic activities

WHAT IS FINANCIAL OBJECTIVE

Goals or aims that pertain to financial matters that a business aims at accomplishing during financial plan's target period. Similar thing may apply to an individual where he takes time to articulate his future plans in monetary terms given a particular target period.

TYPES OF FINANCIAL OBJECTIVE

?       Profit maximization

?       Wealth maximization

?       Value maximization

?       Loss minimization

?       Sales maximization

?       Growth maximization etc.

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WHY THE SMART RULE?

The SMART Rule are goals that embody five distinct traits – specific, measurable, achievable, realistic, and time-limited. The idea originated in 1981 in an article written by George Doran and has been expanded and remixed in countless ways ever since.

WHY THE SMART RULE?

Usually, a large project has a SMART goal as a center, then it’s broken up into smaller SMART goals, and then those are broken down, and so on and so forth until people have goals that can be achieved in a pretty short timeframe, usually somewhere between a day and a week.

RELATIONSHIP OF THE SMART RULE WITH FINANCIAL OBJECTIVE

Without fixing our financial trajectory, we would never be able to achieve those so many things or our financial objective. In light of this, it is better to focus on how to translate the idea of SMART Rule to real personal finance goals that you can achieve for yourself.

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SPECIFIC

The first element of a great goal is that it is specific. In the words of Wikipedia:

The [first] criterion stresses the need for a specific goal rather than a more general one.

This means the goal is clear and unambiguous; without vagaries and platitudes.

To make goals specific, they must tell a team exactly what’s expected, why it’s important, who’s involved, where it’s going to happen, and which attributes are important. Here are some good examples of specific goals:

 I want to be debt free.

 I want to make N100,000 from my blog.

 I want to save N2,500,000 for retirement.

MEASURABLE

A measurable goal is one that has a very clear definition of success. It has a target you can actually measure.

From Wikipedia: The second criterion stresses the need for concrete criteria for measuring progress toward the attainment of the goal. The thought behind this is that if a goal is not measurable it is not possible to know whether a team is making progress        toward successful completion. For a goal to be effective, it must be measurable. A goal to “make a lot of money” is not       helpful because you can’t measure “a lot.” One of my goals for this blog in 2019 is to make N20,000 per day. I set that goal, in part, because my wife and I decided to give 50% to charity, and we  were hoping to give N10,000. There is a saying in the consulting business that not everything that can be measured is important, and not everything that is important can be measured. As true as this is, when it comes to goals, they are either measurable or they aren’t really goals at all.

ATTAINABLE

Setting attainable goals can be tricky. But setting goals that even under the best of circumstances are not attainable will just lead to discouragement. You certainly want to push yourself and strive to achieve as much as you can. I set my 2019 goal of making N20,000 this past January. At this time, I knew that I had made just over N800 in January, so a goal of N20,000 for the year will be a stretch.

This aspect of goal setting reminds me of Casey Kasem, who always said at the end of his popular “America’s Top 40” show, “keep your feet on the ground, and keep reaching for the stars.”  This aspect of goal setting reminds me of Casey Kasem, who always said at the end of his popular “America’s Top 40” show, “keep your feet on the ground, and keep reaching for the stars.”

REALISTIC

Setting realistic goals involves the          methods we intend to use to achieve our goals. For example, a goal of having N2,500,000 at retirement by saving N5 a month under my mattress is not a realistic goal. Making N20,000 in 2019 by spending 1 hour online daily blogging is also not a realistic goal. An example of a realistic goal might be to pay off all credit card debt in 2019 by paying an extra N500 per month.

TIME BOUND

This last element of SMART financial goals is really important. Effective goals have time limits, like the shot clock in basketball. Of course, not all goals are short-term. I would define a short-term goal as less than one year, an intermediate-term goal as one to five years, and a long-term goal as greater than five years. We need all of them. Long-term goals generally involve retirement, saving for a child’s education, paying off the mortgage, and so on.

An example of an intermediate-term goal might be to save N1,500,000 in four years to buy a new car. And short-term goals are even smaller          stepping stones to our long range goals. The lack of a time element is a problem with any goal. I want to pay off all of my credit card debt by December 31, 2019. I want to save N2,500,000 for retirement by the time I’m 65.

q  A year from now?

q  Six months from now?

q  Five years from now

q  What is my deadline?

Once you’ve set that, you can start using that time limitation to start making realistic plans for the goal. What can I do today to achieve this goal?

THANK YOU & GOD BLESS

Olaoye Rafiu A.

07088493628

Olaoyerafiu.yahoo.co.uk