How to set SMART money resolutions
By Nomi Bodlani, Head of Direct Clients for Allan Gray

Many South Africans make money resolutions at the start of the year. But come mid-year, when the optimism of the new year has faded, seeing through these goals may become tough, preventing many from realising their well-intended plans.

The trick to making resolutions stick is to set SMART financial goals, ones that are specific, measurable, achievable, relevant and time bound. The SMART approach is particularly useful when applied to finances because you can set and measure financial goals in a very objective way.

The first principle centres on setting specific goals by refining broad aspirations into well-defined targets. State what will be accomplished and the actions to be taken to achieve each goal. For example, instead of “start an investment” as a goal, set precise objectives, such as “start an investment to save R50 000 within 12 months as the first step towards accumulating for a down payment on a property in five years”. This level of precision enhances focus and helps make the goal more attainable.

The second principle emphasises the need for measurability. By setting quantifiable milestones, you can track your progress and remain motivated. For example, with a specific goal such as R50 000 you can break it down into monthly amounts or decide upfront how you will use any expected bonuses or cash lumpsums when they arrive. No matter which way you choose to save, a measurable goal enables you to monitor your own financial growth and celebrate progress along the way.

Achievability, which is the third principle, means that goals need to be realistic to maintain the enthusiasm to achieve them. Creating a financial plan and assessing your income and expenses, will help you to establish realistic goals. Following on from the previous steps, you can now evaluate very clearly whether your specific goal is achievable – ask yourself, are you realistically able to save the required amount every month? What planning needs to be in place so that you have the discipline to invest expected cash lumpsums rather than spending them?

The relevance of goals, the fourth principle, refers to aligning your aspirations with your long-term plans and personal values. By so doing, you are more likely to be committed and inspired throughout your financial journey.

The final principle centres on establishing time-bound goals. By setting deadlines, you gain structure and a sense of urgency. Crafting a timeline helps facilitate progress towards your objectives and ensures you take accountability. If you don’t have a deadline, you might find yourself in exactly the same place a year from now – not having made any progress on an important personal goal.

How to stick to your long-term plan

Of course, setting and then working towards achieving SMART goals doesn’t happen in a vacuum. External forces in the form of temptation on the one hand, and news headlines on the other, can play havoc with our best intentions.

Avoid the temptation to make impulsive decisions based on short-term market fluctuations, that might impact your investment value, or speculative trends. Instead, focus on long-term goals and stick to your plan.

While this may seem easier said than done, consider using the SMART system to set quarterly goals, guided by some of the annual finance-related calendar events.

Top tips for quarterly goal setting to foster good financial habits

  • First quarter (January – March): Kick off the year with budgeting, goal setting and reviewing your financial plan (or establishing one). A good financial plan should cover your goals over various time horizons (short, medium and long term) and ensure that your portfolio’s asset allocation is positioned to meet each of these goals. In addition to your goals and their time horizon, your risk appetite will also inform the unit trusts in which you invest. Whilst your risk appetite may have changed if you have moved into a different lifestage, remember, you need to maintain adequate equity exposure to generate inflation-beating returns over the long term. This sort of planning will set you up well for financial decision-making in the months ahead. February will be the first chance to flex this muscle, as it is the end of the tax year and the final opportunity this year to take advantage of the annual tax incentives offered by the government to encourage us to invest in retirement products and tax-free investments.
  • Second quarter (April – June): Although tax-filing season only opens in July, the second quarter is a good time to start getting your admin in order. File your tax certificates as they come in, so that they are easily accessible when you need them to complete your tax return.
  • Third quarter (July – September): July is Savings Month, a prompt to review whether you are still on track and to celebrate the progress you have made against your financial plan for the year, making adjustments where necessary. September is Wills Week; focus on estate planning and ensuring you have a valid will in place.
  • Fourth quarter (October – December): This is not called the silly season for nothing. ’Tis the season to be jolly – not the season to erode any progress you have made during the year. Your spending decisions over this period can have a significant impact on your financial goals; and with spending cues around every corner, like Black Friday and festive season specials, set yourself up for success by planning early and avoiding overspending. If you are lucky enough to get a windfall in the form of a bonus or 13th cheque, consider using some of it to settle any expensive debt, start an emergency fund or to top up a long-term investment account.

Sound investor behaviour is a key ingredient for investment success. While we all have the best intentions, sticking to them can be a challenge. A good, independent financial adviser can assist you by putting a plan in place that meets your personal goals and objective – and help you remain committed, even when the going gets tough.