5 Stages of the Hierarchy of Financial Needs

hierarchy of financial needs

There are different stages we undergo in life, the same is true when it comes to our financial needs. You may have heard of of Abraham Maslow’s Hierarchy of Needs but today, I’ll be introducing you to the Hierarchy of Financial Needs.

DependentFinancial Dependency

The first stage that we all go through is financial dependency. Let’s face it; no one is born independent. We all have to rely on our parents or guardians for provision and care. To some degree, we are still always dependent on others for care, support and trade. This, however, should not stop us from trying to move up the hierarchy of financial needs. Getting out of the first stage is crucial especially when entering adulthood.

Financial Independenceindependent

The second stage in the hierarchy of financial needs is becoming financially independent. This means that you are capable of earning an income that can support your lifestyle. This income may come from an employment, a certain service you offer, a business, investments or some combination of them. During this stage, you should start building up assets so that you can move on to the next stage.  

Boss babyFinancial Security

Once you have saved up enough and made proper investments, you can be considered to be financially secured. At this stage of the hierarchy of financial needs, you already have an emergency fund, insurance policies, investments and a house you can call your own. At this point, you can tolerate some economic setbacks like market crashes or the loss of a job. In fact at the higher end of this stage, you can already opt to retire.

Financial Freedomrich freedom

Financial freedom is not just being able to afford early retirement; it is being able to afford not just your needs but also your wants. At this stage, if it’s travel you enjoy, you can go do that. If buying expensive cars makes you happy you could do that too. This stage means that you have the freedom to choose what you do because you are being rewarded for the wise financial choices you’ve made. You are now reaping the fruits of the investments that earn you a big enough passive income to afford you the luxuries you desire.

AbundanceFinancial Abundance

This is barely a need and honestly, there aren’t many people who reach this stage. At this stage your needs change. The focus is not just on the self and the immediate family. One who reaches this stage thinks generations and of wider people to benefit the wealth that he/she has amassed. The equivalent of this stage to the revised version of Maslow’s hierarchy of needs is transcendence.

Action Plan

  1. Determine where you are at the hierarchy of financial needs.
  2. Set a limited time frame when you should be able to move up. (For example: If you are financially independent, you can make it a goal to be financially secure in 5 years.)
  3. If you haven’t yet, start investing and get insurance (I don’t normally try to sell with my articles but if you need help deciding or planning, contact us or click on this link to get a quote: <insert link> )
1 comment… add one
  • This is a very good tips especially to those new to blogosphere, brief and accurate information… Thanks for sharing this one. A must read article.

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