Recession-Proof Advice from Money Zen Expert

Written by Elizabeth Rene Tuesday, July 24 2012

Snapshot: Manisha Thakor, personal finance expert and author
Harvard Business School Grad and a favorite of “The Today Show” and CNN, Manisha Thakor believes teaching women how to take full control of their money is her dharma (her calling). Through her “MoneyZen” philosophy, she encourages women to speak up with confidence when it comes to finances. “Men hold an advantage over women because it is more accepted for them to talk publicly about money,” says Thakor. “And there’s one message I want women to know; men don’t know any more than we do, they just say it confidently.” With a “keep it real” attitude, Thakor shares crucial financial insights that are more important – in this economy – than ever before. She even lets us in on how she manages her personal finances - down to what she carries in her wallet.

Womenetics: Why have you chosen to focus your services on women and their finances?
Manisha Thakor: To me, the number one thing is we have less wiggle room to get it wrong, and the reason we have less wiggle room is we live longer. Unfortunately, right now we still earn less than men, and then we spend more years out of the paid workforce caring for kids and our parents than men do. So as a combination of all of that, we need more money because we’re living longer, but we have less because we earn less, and we’re out of the workforce for more time.

The financial steps for both genders are identical. Women are no better or worse with money than men are. We’re all confused because the financial landscape has become so complex, and very few of us receive formal financial literacy training. But my passion for women is that when mistakes are made, we’re the ones left holding the bags simply because we’re the last ones standing. I think as we watch the baby boomer generation age, we’re going to see how painfully true that statement is as we see what people are just starting to find in the data, which is a poverty crisis amongst elderly women. So that’s why I focus so much on women.

The other piece of the equation is that men are socialized to feel more comfortable talking about money. I find that men tend to be more confident in asking questions and pressing to get the information they need. I just feel that the financial services industry has not been as friendly toward women as it could or should be. Part of the reason why I’m setting up this new business, Money Zen Wealth Management, is I want to provide women this ideal, comforting environment to understand the power of their money because change happens when people who have money can then use it and put it to good use to make themselves happy and make the world a better place.

Womenetics: Can you tell us about your mantra, “Money Zen”?
Thakor: Money Zen is a term I came up with when it suddenly struck me that we don’t need any more financial information – what we need is financial wisdom: clear, simple approaches to maximizing our money. 80 percent of what you need to know can probably be summarized in a book of less than 100 pages. It’s the classic 80/20 rule, and yet we live in this sea of information that makes it feel like it’s so much more complex.

I just want people to get to a zen-like state around their money where they understand the seven basic action steps about handling your personal finances and then as you go through life, you can, from a very calm, zen-like state, take a look and say, “Which of these action steps do I need to be focusing on to deal with the issue I’m grappling with?” I found we’re all so tired of hearing the basic financial action steps. We’ve become numb to them, which is why I wanted to use mantras rather than technical phrases to get people to think about the action steps.

Womenetics: Today it seems to be more important than ever to have a budget. How do we go about creating this budget?
Thakor: First and foremost, I like to talk about – before creating it – what’s the benefit of a budget? It’s not necessarily what people might obviously think. I think the benefit of the budget is that it sets boundaries and, ironically and importantly, boundaries set you free. What I mean by that is we live in a world with so many choices, and while people often think of budgeting as this constraining, joy-restricting activity, when done correctly, what it does is set up a protective financial bubble around you to help you very quickly and efficiently make spending decisions that will enhance your joy.

The second thing I like to highlight about budgeting is that most people have no concept of what healthy spending looks like. The reason is not that we’re bad people; it’s that it’s not something that’s talked about in the sense that almost all of us have seen either the food pyramid or the new dinner plate. We may not follow it, but we have a sense of roughly how much fruits and veggies versus dairy versus carbs versus meat and protein. Then we choose for our own specific circumstances what mix we want of those basic ingredients.

But if you ask the average person, “What is a healthy mix between spending on needs and wants versus savings?” Most people don’t know what that formula looks like; so therefore they have no way to assess whether they’re spending appropriately. We cannot make a budget in the absence of those two larger constructs – the understanding that it actually will set you free and a simple set of rules similar to that healthy a healthy food pyramid.

So then the question becomes, “Well what are those numbers?” I have been playing around with this a lot, and the formula I think is the most powerful is one from Elizabeth Warren of the Consumer Financial Protection Bureau. She and her daughter wrote a book years ago called All Your Worth. In it, as a result of the extensive research she did as a Harvard law professor on personal bankruptcies, she came up with the balanced spending formula of 50/30/20.

Womenetics: It seems that the percentage of Americans that are unemployed and in debt is higher today than ever before. Why do you believe this is to be the case? Why is it so tempting for us to spend more than we can afford?
Thakor: I feel so strongly it has come from unrealistic media images. I feel that's what’s happened. We’ve moved from a society where we used to compare ourselves horizontally. It’s come from two things: unrealistic media images and easy access to credit.

To explain, 50 years ago our parents would have compared themselves to their friends next door who typically had similar salaries, and it was not easy to borrow money. You couldn’t just go down to your mailbox in your PJs and rip open a credit card and start spending. You had to go to a bank and look at a loan officer and explain why you wanted to borrow the money and how you’d pay it back. There were these societal safeguards that kept people from living beyond their means. Additionally, media images were very different and less pervasive at that time, so people typically compared themselves horizontally to people in similar income brackets .

Today we compare ourselves vertically; I’d like to say not just to the Joneses, but to the Catherine Zeta-Joneses. We’re looking at these stars who we read about incessantly in the media, and we’re trying to emulate their lifestyles. We’re further reinforced by seeing even things as mundane as medical and TV dramas that portray people in certain positions – law enforcement, nursing – looking at a level of grooming that is completely unrealistic given the salaries of those jobs. It’s as if we’re all aspiring vertically to things we cannot afford on our base incomes. But thanks to easy access to credit, we can afford it if we start borrowing money. That’s where I think this cycle has all started. We’re at a point where we equate success solely with money and things, rather than the humanity of oneself, and that further perpetuates this loop that I described. That’s what I think is going on.

Womenetics: Some of us use shopping as a remedy for stress or even a way to boost self-confidence. Some shop based on impulse and an inability to resist temptation. How do we take the emotion out of spending and saving?
Thakor: I think that any type of impulsive behavior -- and we all have them – to me it’s no different than binge eating or drinking or smoking. It is a natural human need to have an outlet. So when it comes to spending, I think it’s really no different than trying to get over any other sort of addictive or excessive behavior, which is asking yourself how you really feel afterwards. I would posit that for most people, when you go on a spending binge and you buy stuff because it makes you feel good in the moment, a month from now – six months from now – you’ve forgotten what you even bought. So to me the antidote is conscious spending.

Sometimes you will have a splurge, and it really does change your day or your week or your month or your life. Those are good ones. But 90 percent of people’s splurges, I find, don’t bring lasting value. So it’s shifting the mindset around that splurge to saying, “Is this consciously something that’s going to raise my joy levels in a meaningful way over a long period of time?” And if not, “Why am I doing this?” Conscious spending is not happening because we’re not trained. All the media messages train us to engage in impulsive spending because of the immediate gratification; and conscious spending, by definition, requires that you project into the future and see how that outlay will impact your joy levels not just immediately.

Womenetics: There is a theory that people spend money on debit and credit cards more easily than they do cash? True or false?
Thakor: I keep hearing that, and I will agree that there’s something very tactile about money. If you were on Amazon and you suddenly wanted to purchase items, and you actually had to pull $36 out of your wallet, it might cause you to pause and think twice. But to me, what’s causing you to pause and think twice isn’t the cash. It goes back to that conscious spending. Having that cash is forcing you to be more conscious about what you’re doing; but we live in a digital world, and that’s not always a realistic way to spend. Like, you can’t pay your cable bill with cash, but you could think consciously every time you pay that cable bill about how many channels you’re really watching and whether you really need it. I think cash has become a short hand tool for people trying to encourage more conscious spending.

Another way you can do [conscious spending] is by using digital tools like Mint.com or HelloWallet or what I do - which is just put a slip of paper in my wallet, and I write down everything I spend money on, and I tally it up at the end of the month in an excel spreadsheet. It takes me 15 minutes, and then I can look down at the end of the month and think, “Wow. I love coffee houses, but I spent a bit too much there this month. Did it really bring me that much joy?” And if the answer is yes, then I look at another category and say, “Okay, where can I cut back?” So it’s being deliberate.

Womenetics: Money in a marriage is a real trigger point. How have you navigated that well?
Thakor: The number one thing is communication and trust. What I find is money is the pink elephant in bedrooms across America. Couples don’t talk about it. Older couples in particular just have never been taught to have that kind of dialogue. Then when they bring it up, oftentimes one partner will say, “What? Are you like Katie Holmes wanting to announce that you’re divorcing me?” That’s exactly what I think men live in fear of when women bring it up. Men don’t want to bring it up often times because they’re under so much pressure to provide, and it’s a crappy economy, and they don’t want to feel lesser by talking to their wives about what financial issues they may be having. It’s this virtuous cycle that can be broken by two simple things - communication and trust – committing to speaking honestly to each other.

Womenetics: How much money do you carry in your wallet?
Thakor: My life is a little different than most women because I am on the road constantly. I always keep $200 in my wallet because I just never know when I’m going to be in a place where I need to get a cab from an airport to a meeting, and they don’t take credit cards. I always want to make sure I have a bit of a cash cushion in my wallet.

Womenetics: What do you like to do in your spare time?
Thakor: I’m obsessed with Zumba and Tango. My husband and I recently rode his motorcycle from Lima, Peru down to Córboda, Argentina, if you could believe it – 2000 miles. We landed in Argentina, and we saw this couple at this dinner place doing Tango. It was the most amazing use of the human body I had ever seen. We came back to Santa Fe and signed up for Tango classes immediately. We’re terrible, but we have so much fun.

Womenetics: Where can women find more advice from you on personal finances?
Thakor: ManishaThakor.com and @ManishaThakor on Twitter.

More recession-proof advice from financial experts:

Not sure what financial or personal steps to take after a divorce? With more women paying alimony and child support after a split, Monique Honaman has made it her duty to provide women with tips and advice for surviving a divorce.

The burning question among women and men during the current recession is, “How do we save?” Mary Ellen Garrett of Merrill Lynch has one answer: “Just do it!” Read about Garrett’s financial advice for real women and their real-life money woes.

Current founder and CEO of The Financial 411, Teresa Dentino, was one of the first female stockbrokers to work in the US. Twenty-six years of professional financial services experience and a commitment to breaking barriers for women in the industry make Dentino the perfect person to seek for advice on budgeting, saving and investing.

A native of Connecticut, Elizabeth Rene is currently pursuing a dual degree in public relations and international affairs as well as a minor in French at the University of Georgia.

Active in an array of organizations and activities both on-campus and off, Rene was most recently recognized as C.L.A.S.S. (Continuing the Legacy of African American Student Success) Advocate of the Year for her work in an all-girls residence hall. She is also the current public relations chair for UGA Women in Business, service project head of the UGA Rotaract Club and a newly inducted member of the National Residence Hall Honorary. As a first-generation American to parents of Haitian and Jamaican descent, she is proud of her unique culture and showcases this pride through active membership within her residence hall’s cultural auxiliary, UGA’s Caribbean Student Association and Hands on Haiti. Rene also regularly volunteers her time at the Boys and Girls Club of Athens.