How Do I Make SMART Goals for 2024?

by: Guli Fager

Q: I don’t know how much I spend, how much I bring home, or what I’m overspending on, but my checking account is really low by the end of the month and I have to use credit cards for groceries, gas and other essentials. I want to reduce my spending this year but I don’t know where to start. What should I do?

A: Having a goal at the beginning of the year is a powerful motivator for change! And getting your arms around spending is a great thing to focus on. Research into behavior shows that goals that are SMART (specific, measurable, achievable, relevant and time-bound) are more likely to lead to change than goals that are less concrete. Here’s how each letter impacts the goal you set:’

Specific: “Reduce spending by $400 per month” is much more clear than “reduce spending.”
Measurable: “I’ll reduce streaming and subscriptions by $50 each month.”
Achievable: Start small! “I will cancel one subscription at a time.”
Relevant: “I will eventually save $4800 per year and will pay off credit cards / put that into an emergency savings account.”
Time-bound: This should be tailored to your situation. For example, if you’re routinely spending more money than you earn and accumulating balances on credit cards to pay for regular expenses, you might say, “by June, I will have reduced spending by $200 a month and will use my debit/checking account to pay for all regular expenses.” That will give you some time to
figure out how to reduce spending and adjust to the goal rather than a dramatic reduction all at once.

So, once you have a SMART goal, how do you actually reduce spending? For most clients who want to focus on budgeting, they have a general feeling that they need to reduce spending but it takes some data analysis to figure out where. I recommend looking at three months of expenses and identify patterns. Your bank and credit card(s) should generate .csv files of all of your transactions that you can download and look at in Excel or Google sheets. Most of the time, the transactions have been assigned a category, such as “food” or “shopping” and the .csv file will have a column for “category.” This will help you quickly sort through transactions by food, bills and utilities, shopping, and other broad categories (You’ll want to check and see if the categorizations are right).

I introduce clients to a tool called a “zero-base budget”: Starting from $0, how much does it cost for you to live indoors, get to work, and eat regularly? The biggest categories in most people’s budgets are housing, transportation, and food. This should include fixed loan payments like mortgage, car notes, and student loans, as well as utility bills, car insurance, medications and
health care, and so on.

But most people have different types of food expenses—groceries, restaurants, fast food/convenience, and bars/alcohol. Looking at what you spend in each of those areas will help you figure out whether food is a place you can spend less. Similarly, you might spend $120/month on cable and internet, $100 on cell phone, and $75/month on streaming services. Are there channels that are included in your cable package that you don’t need to pay for? Does your cell phone provider give you access to any streaming services? Those are common “perks” of both home internet and cell phone services, so make sure you’re not paying for something you could get for free. Otherwise, you can switch to a commercial-supported plan for a few
dollars cheaper or cancel channels you don’t watch often.

Similarly, if you take Ubers instead of public transit a lot, your transportation cost might be a
place to identify savings.

I suggest figuring out what your “nonessential” spending is—what are you paying for restaurant meals, happy hours, shopping for extras, Ubers, travel, gaming, streaming, and so on. You can either cut a small amount from each category or try to reduce a lot from one of the bigger ones—it will depend on your own spending patterns.

To achieve the goal of $400/month by June, here is a way forward that doesn’t require you to
make dramatic reductions all at once:

January: review and classify 90 days of expenses to identify how much I spend on streaming and subscriptions, meals out, alcohol, gaming, travel and shopping.

February: identify $25 from each of the categories above that I could live without—e.g., one DoorDash dinner, two happy hours, one trip to Target, etc. Commit to reducing my spending in these categories by that much this month. Apply savings to emergency fund or credit card balances.

March: Review February; how did it go? Identify which categories have more “room” for reductions. Reduce spending by $50 from at least three categories. Apply savings to emergency fund or credit card balances.

April: Review March, how did it go? Which categories of reduced spending were more or less painful than you expected? Reduce spending by $75 from at least two categories. Apply savings to emergency fund or credit card balances.

May: Review April; how did it go? What are you no longer missing? Reduce spending by $100 from at least one category. Apply savings to emergency fund or credit card balances.

June: Review May; how did it go? Aim for $400 in reduced spending across your identified categories. Apply savings to emergency fund or credit card balances.

If you’d like to talk more about cash flow, budgeting and saving, schedule a free consultation with Guli using this link:

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