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The Ultimate Guide to the Financial Hierarchy

The Ultimate Guide to the Financial Hierarchy: All you need to know There is a basic theory in psychology postulated by well-renowned psychologist Abraham Maslow known as the Hierarchy of financial needs.

The Ultimate Guide to the Financial Hierarchy

This theory explains the natural tendency of humans where people need to have their basic needs fulfilled before going to the higher level of needs. Well, this means that you need to focus on your basic necessities first and then move further.

Heading towards attaining higher goals and sacrificing your basic needs can make life stressful and uncomfortable. What’s the point of having a BMW in your garage when you are struggling to meet your daily needs? As per the theory, the hierarchy of needs can be stated in ascending order:

  • Physiological
  • Safety
  • Belonging
  • Esteem
  • Self-Actualisation

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Understanding the concept of Hierarchy of financial needs

The hierarchy of financial needs is a simple and smart approach to setting priorities that can give you financial stability in your life. Yes, it is true that each and every individual have their own unique and different circumstances. But, this model or theory is applicable to all regardless of your demography and financial situation. Be it an individual starting their first job career or a person starting your own business, Maslow’s theory on financial needs fits all.

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When it comes to financing, your focus must be on finding the way to pay your bills not on planning to invest your money. The first step is to figure out the ways how you will be carrying out all the basic needs without ignoring others. Start with the lowest and most crucial point and then move forward.

Financial Hierarchy of Need

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So, this is how Maslow’s theory of financial hierarchy needs can be represented in a pyramidal form. Now, let us get understand the pyramid one by one.

Basic needs

The first level of the pyramid focuses on the basic needs where the person has to focus on their daily life requirements. You can say that this acts as the foundation for your financial status that is very necessary if you want to attain stability in life. Well, this mainly covers all the daily needs such as food, clothing, rent and other utilities that are mandatory for you.

Also, if you want to reach the topmost level of the pyramid, you have to make the base super strong. Learn to use less for your living and rely only on genuine needs.

Financial security

It does not matter how much you earn in your life, what matters the most is how you spend it. Life is unpredictable and there will be ups and downs across the journey. This means that during the odd or out of the blue situations, you should be mentally and financially ready to tackle it. For this, start building an emergency fund as early as possible. If needed you can go with a 2000 pound loans in order to boost or give a kick start to your emergency fund.

Building assets

A financially capable man is one who knows how to increase their wealth. Thus, if you want to live a stable life, then you have to build your assets. There are various ways you can follow in order to increase your wealth such as investing in the stock market, real estate, mutual funds, and many others.

Life Betterment

Life is all about moving ahead and learning from your past mistakes. Each one of us has certain financial goals in life that we want to achieve such as buying home, car, staring your own business and others.

Hence, it is your sole responsibility to put your best efforts in reaching the goals that you have in your mind. Now, taking big steps like starting a business requires big funding which you can get by applying for installment loans. You will have adequate funds in your hands required to start the business and you can simply repay the debt in installments.

Financial independence

This is the stage of life that is not difficult to reach. It demands all other levels be very strong as financial independence is not an easy feat to achieve.

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This means that you have built a very strong financial resource. So, that you can easily live your life with your additional source of income such as pensions, passive income, investment, royalties, and many others. It requires utmost dedication and complete efforts from the starting and can take decades to reach the level.

Legacy

Ultimate Guide Financial Hierarchy: This is the final phase when you can start thinking about the well being of others. This is the stage where you start donating and contributing to the society that leaves your legacy even after you are gone. You can help your own grandchildren or children in managing their expenses.

Wrapping up, these were the overall idea of the hierarchy theory of financial needs that you should understand and that can help you attain financial stability in life.

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