A path to financial success

Financial Literacy Week 2: Go for goals

Ruth Saldanha 14 November, 2019 | 1:45AM
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Ruth Saldanha: We are on week two of Financial Literacy Month here in Canada. And the theme for this week is goals. Goals are an essential part of any financial plan. In fact, if you don't set realistic goals, chances are your entire plan could fail. Karen Wallace, Morningstar's Director of Investor Education is here today to talk about goals. Karen, thank you so much for being here today.

Karen Wallace: Thank you, Ruth. It's good to be here.

Saldanha: Why should I set goals?

Wallace: Well, I think the most important thing to remember about your spending is that at some point your ability to earn income might not be the same as it is now. So, I think goals will help you understand that, like you need to set aside some money for what we think of as retirement. So, your household budget isn't always sort of a cash in cash out system. With some of your money, you need to kind of set it aside and invest for things that might come up in the future, whether that be retirement, children's education, saving for a house or something like that. It just kind of helps you be mindful about your spending, so you know to prioritize setting aside some of that money.

Saldanha: Should I save for just one goal at a time or multiple?

Wallace: You can save for multiple goals at the same time. It's just important that you sort of prioritize them. So, for instance, if you want to save for your children's college education alongside your own retirement savings, there's schools of thought that say, you can't take a loan for retirement, but you can take a loan to pay for a college education. So, you kind of have to figure out what is the priority for you in terms of your own savings and your own goals and then sort of allocate your money according to that.

Saldanha: How should I prioritize my goals?

Wallace: Well, as I just mentioned, maybe saving for a house is an important short-term goal, but maybe you have to understand that like down the road you might have financial needs that come about when you're older, when you can't work, you might have medical problems later in life. So, you might put saving for your long-term medical needs and your retirement ahead of saving for a short-term goal like a house. It all depends on what your personal situation dictates and what you believe.

Saldanha: Do goals only involve saving or also some payments like debt?

Wallace: Oh no, I think you should definitely prioritize debt payments if that is part of your budget, especially if you have high interest rate credit card debt. The average credit card debt in the – the average interest rate on a credit card in the U.S. is something like 17%, which is a very high hurdle. If you have a balance growing at 17%, you're going to have a hard time paying that down because that interest is compounding at a very, very high and fast rate. So, yeah, you need to sort of look at your financial situation holistically and figure out what your long-term and short-term goals are. And debt is definitely a piece of that.

Saldanha: Finally, what are some of your goals?

Wallace: Well, like I said, I prioritize retirement. I do have children and I want to pay for at least a part of their college education. So, that's also a priority of mine. And that keeps me busy enough with my goals.

Saldanha: Thank you Karen, and good luck with those goals. Next week, we'll talk to Karen about being a smart financial consumer. For Morningstar, I'm Ruth Saldanha.

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About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Morningstar.ca. Follow her on Twitter @KarishmaRuth.


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