Manisha Thakor is the founder and CEO of Moneyzen Wealth Management.
Here’s her best advice to take control of your finances:
If you were going to make one new investment now, what market would you invest in?
I get asked this question frequently, and I think it’s a very dangerous question to ask or answer. Before making an investment, the first step is to ask yourself how long you can afford not to touch that money. If it’s money you need to spend with certainty in the next five years, this question can get you into a lot of trouble by exposing those funds to ups and downs in the markets that inevitably come at the worst possible time for when you need to spend the money. If you answer, “This is long-term retirement money that can grow for the next few decades,” then my answer is to go to Vanguard and invest in an age-appropriate Target Date Retirement Fund. That’s because with one straightforward, low-cost index fund, you will get exposure to a range of asset classes, geographic regions and sectors with a level of expected risk appropriate for your age. It’s like an all-in-one foundation that has 30 SPF, a wrinkle fighter, some rejuvenating cream and blemish coverage all in one convenient application. It’s simple and it works for a wide range of situations and people.
What is the most important thing someone can do at 25 to create a secure financial future? At 35? At 45? At 55?
At age 25: Learn to live within your means. This means to set aside savings (and ideally a lot—the gold standard is 10 percent into retirement funds and 10 percent for emergency fund and near-term goals like buying a house or getting married).
Age 35: Make sure your savings are being invested in a prudent manner. Enemy no. 1 for your savings is inflation. Inflation is like a financial termite eating away at the value (aka “purchasing power”) of your money. If you have $1,000 today and it is just sitting in cash and inflation is a mere three percent, in 30 years that money will buy only what $400 does today.
Age 45: Speak with a financial advisor. Make sure your saving and spending levels are appropriate for your long-term financial goals. Ensure your portfolio has the right asset allocation and that you’ve made a conscious decision about whether or not you want to pursue an “active” or “passive/index” approach to investing. (Hint: Active is like driving in the left lane of a freeway, darting in and out of cars looking for that extra edge; passive is like driving in the right lane at the speed limit with your seatbelt on. Guess who gets there first!).
Age 55: Don’t swing for the fences. Many people in their mid-50s wake up and realize they are late to the savings game. The understandable gut response is to want to make up for lost time by pushing for higher returns. Alas, with the potential for higher returns comes higher risk. So a more prudent way to address this situation is to harness the triple action power of saving a little more, spending a little less, and planning to work a few more years. The mathematical combination of doing all three at once is powerful. It’s like going to the gym, eating clean and drinking lots of water—way more effective for weight loss than doing just one of those activities in isolation.
What are some things you think are worth splurging on?
Experiences. I think experiences (be it a meal with friends, a hike in the park, a dance lesson, seeing a play, going swimming in the ocean) are some of the best things in life worth splurging on. These activities expose your mind to new activities, stimulate your neural pathways in new directions, don’t require any storage space or insurance or upkeep and, best of all, can travel with you in the future everywhere you go in the form of memories. In today’s 24/7, always-on-but-never-really truly-connected world, experiences are priceless.
