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Personal Finance Basics — Alpha School

Unit 1: Money Basics
Unit 2: Banking & Payments
Unit 3: Spending Wisely
Unit 4: Growing Money
Unit 5: Planning Ahead

Lesson 16: Setting Money Goals

A goal turns saving from a vague good intention into a plan with a destination. 'I want to save money' rarely works, because there is no finish line and no way to know if you are succeeding. 'I want to save 300 units for a bicycle by June' works, because it is specific, it has a deadline, and you can check your progress each month. The difference between a wish and a goal is detail — and detail is what makes saving happen.

A useful way to set goals is the SMART test: a goal should be Specific, Measurable, Achievable, Relevant and Time-bound. Specific means saying exactly what the money is for. Measurable means stating the amount, so you know when you have arrived. Achievable means the amount fits your income — a goal that is impossible only teaches discouragement. Relevant means the goal matters to you, not to someone else. Time-bound means it has a deadline, which creates gentle pressure to act. Test any goal against those five words, and weak goals will quickly reveal themselves.

Short, Medium and Long Goals

It helps to keep three kinds of goals at once. A short-term goal is months away — a gift, a trip, a new pair of shoes. A medium-term goal is one to five years away — a course, a first vehicle, or education costs. A long-term goal is more than five years away — a home, or retirement. The three kinds need different treatment: short-term money should stay safe and easy to reach, while long-term money can be placed where it may grow more over time. Saving for all three at once is not greedy; it is realistic, because life brings short, medium and long needs all at the same time. Even small amounts for each goal keep all three moving.

From Goal to Plan

Once a goal is set, work backwards. Divide the amount by the number of months until the deadline, and that is what must be saved each month. If the monthly amount is more than you can afford, you have three honest choices: extend the deadline, reduce the goal, or find extra income. All three are respectable; pretending the numbers work when they do not is the only bad option. Write the monthly amount into your spending plan, pay yourself first, and check progress monthly. Reaching a goal is satisfying in itself — and it teaches something no lesson can: that you are the kind of person who sets a money goal and reaches it.

Watch & Learn

One video to watch for this unit, from a trusted educator.

Key Terms

Goal
A specific financial target with an amount and a deadline.
SMART goal
A goal that is Specific, Measurable, Achievable, Relevant and Time-bound.
Short-term goal
A financial goal less than about a year away.
Medium-term goal
A financial goal roughly one to five years away.
Long-term goal
A financial goal more than about five years away.
Deadline
The date by which a goal should be reached.

Discussion Questions

  1. Why does 'I want to save 300 units for a bicycle by June' work better than 'I want to save money'?
  2. Which of the five SMART words do you find hardest to apply, and why?
  3. If your monthly saving for a goal is more than you can afford, which of the three honest choices would you pick — and why?

Practice Questions

  1. What does each letter of SMART stand for?
  2. Why is a deadline an important part of a money goal?
  3. What is the difference between short-term, medium-term and long-term goals?
  4. You want to save 300 units in 6 months. How much must you save each month?
  5. If that monthly amount is too much, what three honest choices do you have?
Show answers
  1. Specific, Measurable, Achievable, Relevant, Time-bound. A goal should state exactly what it is for, how much, whether it fits your income, whether it matters to you, and by when.
  2. A deadline creates a finish line and gentle pressure to act. Without one, saving can be postponed forever.
  3. Short-term goals are months away; medium-term goals are one to five years away; long-term goals are more than five years away. Each needs different treatment — short-term money stays safe and reachable.
  4. 50 units a month. 300 divided by 6 equals 50.
  5. Extend the deadline, reduce the goal, or find extra income. All three are honest; pretending the numbers work is not.
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