In 1954, renowned management consultant Peter Drucker wrote a book called The Practice of Management, in which he introduced a process known as management by objectives (MBO). MBO was a simple yet groundbreaking way for business managers to define and convey specific objectives to the organization’s team members, as well as to prioritize these objectives and achieve them on time. Twenty-seven years later, George T. Doran wrote an article¹ for the November 1981 issue of Management Review in which he further simplified Drucker’s principles. He developed a practical mnemonic device in order to assist managers in writing specific, measurable, attainable, relevant, and time-bound (SMART) goals and objectives for their organizations. While there have been many variations of Doran’s S.M.A.R.T. goals written over the years, in which each of the five letters is assigned a slightly altered – albeit synonymous – word, the foundation of his (and Drucker’s) management philosophy endures today.

Few of us may find ourselves in a position of management at an organization where goal-setting is one of our primary responsibilities. However, whether we acknowledge it or not, each of us has been placed in a position of management over our personal and family finances. It is our responsibility to define, prioritize, protect, and ultimately leverage each dollar that comes under our control for the benefit of our short-, intermediate-, and long-term goals. To that end, perhaps Drucker’s and Doran’s principles are directly applicable to our job description. With the New Year approaching, now is an excellent time to evaluate the vision you have for your financial future and set some specific, measurable, attainable, relevant, and time-bound goals.

Specific – How?

“I’d love to retire with no debt at age 60 with proper asset protection and leave a moderate inheritance for my children.” Too often, we carry a vision like this around in our minds without ever stopping to construct a written plan to get there. This example may at first appear to be an ordinary vision statement for one’s future, but beneath the surface there are at least seven of the 10 Key Financial Planning Disciplines represented, each of which carries with it a set of circumstances unique to the individual, and thus a unique list of goals that must be specifically articulated. For example, “I’d love to retire at age 60” requires both investment and retirement planning, and likely a touch of income tax planning. The vision is an excellent and necessary starting point, but from there one must be persistent in asking the question “How?”

Q: How do I retire at age 60?
A: Accumulate enough money to ensure that I can support my standard of living and other one-time or estate goals.

Q: How do I know what my ideal “enough money” number is?
A: Enumerate all potential expenses and run simulated retirement projections.

Q: I have my number; how do I reach it?
A: Given my current investments, time horizon, and expected rate of return, invest “x” dollars monthly.

Obviously there are other pieces to be considered throughout the above example, but we can quickly see how asking this one-word question can help to transform a general vision into a list of specific goals. Asking “How?” with regard to each of the different aspects of a vision statement will not only expose holes in one’s current plan, but will also provide a checklist of goals that must be achieved in order to realize one’s ideal future.

Measurable – How much?

Occasionally, we may work through this line of questioning and conclude something like, “I ought to invest a greater portion of my income each month.” We finish with what should have been the penultimate answer. “I should pay down my mortgage more aggressively,” “I’d better purchase more liability insurance,” “I want to leave my children an inheritance.” We fail to ask the oftentimes most difficult and time-consuming question, “How much?” We’ve all probably heard the phrase, “What gets measured gets done.” As difficult as that final “How much” question may be to answer, it is the necessary final step in detailing specific and measureable goals. Continuing the above example, perhaps after further analysis, we conclude that in order to retire at age 60, “I must save $2,500 a month over the next three years.” Until we quantify them, we can’t accurately label our proclamations as goals. They remain floating statements, and they cannot land until we attach a value: a marker by which we can measure progress and success.

Attainable – How much is too much (or too little)?

Although we want our goals to be well-defined and measureable, it is also wise to set up parameters when establishing the value by which we’ll measure success. “I want to retire at age 50 and leave $1.5 million to each of my four children when I’m gone” may not be an appropriate goal for a 48-year-old with three kids in high school and one in college. In the same way, “I want to save $2,500 a month over the next three years” may not be an appropriate goal for a 24-year-old earning $3,000 a month. Understanding and accepting one’s current situation and being honest about what may be possible is sometimes a difficult practice, but these are critical considerations to be made when setting goals. If we set our goals beyond what our calculator tells us is possible, we’ll probably burn out quickly and revert back to a life void of goals and documented progress. On the other hand, setting overly simplified goals that require little or no discipline results in unrealized potential. The sweet spot of setting specific and measureable goals lies in a small area where challenging and attainable overlap.

Relevant – Why?

We’ve answered the questions “How,” “How much,” and “How much is too much?” The relevance criteria answers the question, “Why?” It ties our financial goals in with the vision we have for the rest of our lives. Why do you want to retire early? Perhaps you set a goal to “retire at age 60” when you were in a position that drained you emotionally or when you worked for a supervisor with whom you couldn’t see eye to eye. If circumstances have changed and you now find yourself in a rewarding position in line with your passions, maybe retiring early isn’t the path to greater fulfillment. Why do you want to leave an inheritance for your children? Perhaps charitable goals that once seemed like “left-over” goals have steadily become a higher priority for your future and beyond. Asking “Why?” of each of our specified goals forces us to align our finances with our present circumstances and our future wishes. Our financial goals should not be the end vision we have for our lives, but rather a method by which we support the vision we have for our lives.

Time-bound – By when?

Finally, our goals ought to be set with an end date in mind. This is much easier for some goals than it is for others. The clock starts ticking on a number of goals when we declare, “I want to retire with no debt at age 60.” With five years left on the mortgage and three years left till 60, some relatively quick math will give us the new monthly amount we must allocate to the mortgage. Other goals are more difficult to capture within the bounds of time. For example, the answer to the question “By when will I need proper asset protection?” is “Before it’s too late” (i.e., now). The answer to the question “By when should I have my estate documents drafted?” is “Before you die” (i.e., now). Nonetheless, diligent financial planning requires prioritization of those goals for which the answer to the question “By when?” is “Now.” Unlike ongoing, autonomous goals, such as “Save $2,500 a month for the next three years” or “Allocate $1,100 to the mortgage each month for the next three years,” goals that ought to be accomplished now tend to result in a checklist. Prioritization of these checklist goals is often subjective, but a financial advisor who understands your values and your full financial picture can help walk you through your options and devise a written plan.

Write It Down and Follow a Process

A model S.M.A.R.T. goal would sound something like: “In order to spend more time with my family (Relevant), I want to retire at age 60 by saving $2,500 a month (Specific, Measureable, and Attainable) for the next three years (Time-Bound).” Each goal that flows out of one’s vision statement ought to follow a similar syntax. Furthermore, studies have shown – and most of us will intuitively understand – that goals have a higher likelihood of being achieved when they are written down and when consistency is built around an established process.

Writing our goals down is no more complicated than it sounds: If you have a pen and a paper you can quickly boost your probability of success into a higher percentile. On the other hand, following an established process may take considerably more resources and years of trial and error to achieve. Fortunately, our team has dedicated the better part of the last 34 years to learning how to help our clients efficiently and effectively pursue the vision they have for their future. We believe Savant can help guide you in clarifying, organizing and prioritizing the specific goals that begin to make your vision a reality.

Author Casey A. Christianson Financial Advisor

Casey has been involved in the financial services industry since 2015. He earned a bachelor of arts degree in business/economics from Wheaton College, graduating with magna cum laude honors.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

Savant Wealth Management is a Registered Investment Advisor. Different types of investments involve varying degrees of risk. Savant’s marketing material and/or rankings should not be construed by a client or prospective client as a guarantee that they will experience a certain level of results if Savant Wealth Management is engaged, or continues to be engaged, to provide investment advisory services nor should it be construed as a current or past endorsement of Savant Wealth Management by any of its clients. Please see our Important Disclosures.