4^th of December, 2020 by elmads

Did you ever wonder how budgeting principles started? what is the main driver for managing money, why other people mismanage their money and why even though people have their own personal financial goals in life, they still have the similar general goals with others, especially when you look at it in a bigger picture. In particular, when people spend and save for clothes, gadgets, appliances, home, car, travel, and retirement which are different in term of goods but when we categorize all of them in a personal level, it still falls down to classification of life needs. This is because all of the things we do with money is based on our behaviour and motivation, which reflects who we are.

These needs are based on our motivations in life, the “why” we are doing the different stuff that we are doing with ourselves, family, relative and our community. It is categorized in 5 basic categories of life needs, named “Maslow’s Hierarchy of needs” which is theorized by Abraham Maslow, an American Psychologist. The 5 basic needs are Physiological needs, Safety needs, Love & Belongingness, Esteem and Self-Actualization. Everything is attributed to our different necessities, it is met based on how we perceive and prioritize our needs. It gives us a sense of fulfilment, significance, contentment and happiness in our lives once achieved.

MASLOW’S HIERARCHY OF NEEDS

As you can see on the chart above, the 5 basic needs are structured as a pyramid, which indicates that the most important need will be at the base, in order to sustain the full structure of the pyramid. Needs lower down the hierarchy must be satisfied before individuals can attend to high levels of need. It looks very familiar isn’t it? that is because we mostly do our budgeting strategies and money management based on the same needs in our life. Let me take you deeper down the rabbit hole of Maslow’s Hierarchy of needs.

Physiological needs

This is considered the most important and the essence of our survivability, as all other needs are just secondary until this need is met. These are the usual food, shelter and clothing needs, which are principal for us persons to function and continue to do our daily activities in life. Like when we get extremely hungry we seldom are able to concentrate in our work and activities.

Our ancestors strived for food, shelter and clothing before, this is because there were no innovations to help them live a comfortable life. They know that they need to provide their physiological needs or else they will die a slow death, that is why they learned to be hunters in order to survive. Fast-forward today, our generation are not hunters anymore but we still strive to survive, by obtaining employment and other ways to have a stable income stream for us to sustain our life and purchase our basic needs. This is the reason why the essential spending are always part of every budgeting strategy. Persons who are billionaires, millionaires, even the ultra spenders or people who does not know how to manage money are still required to pay for their physiological needs to survive.

Safety needs

Once an individual’s physiological needs have been satisfied, the need for safety and security arises. People want control, predictability and order in their life, but as time passed by we learned that we cannot control everything due to unforeseeable events such as wars and disasters which hinders our safety. This is the reason why preparations for emergency cases arise. This is where our emergency fund, rainy day fund, life insurance and medical insurance came into life.

Protecting ourselves and our family throughout our life-time has always been one of our motivations to improve our lives. That is why saving money for this specific purpose is and will always be essential for each and every person in this world. I have discussed this further in my blog titled “Saving money for safety and security”. Just click on the previous link provided.

Love and Belongingness

After physiological and safety needs are obtained, the third level is social needs. The necessity to love and be loved by a person through romantic, friendly and familial relationships, plus the sense of belongingness in a social group, work or community. These needs are fulfilled by family and society.

You might be asking how does this tie up with saving and money management, well it clearly connects with our personal spending habits. Have you not spend money in giving gifts to your loved ones or friends? like a flower to your partner, clothes to your parents or relatives, something fancy and nice to your co-workers or church mates. It is a gift that signifies our gratitude and love for them because we have always felt their support, care and love through the months, years, decades or even our whole lifetime of knowing them.

That being said, there is also another side of this coin, which is spending to attain love and belongingness. This is where some people give a lot of money or gifts to obtain the approval of others in order to be a part of a community. The hardest part of it is, they spend to much of their money just to get the love they want from others instead of the love they should have first for themselves and family members.

This goes under non-essential spending, as savers allocate money for it. The money saved for a few months just to buy a gift for your friends or loved ones are one of the most exciting preparations that we do. It gives us happiness every time we see their joyful faces and by the mere thank you we receive makes our heart warm and feel loved.

Esteem needs

The fourth level of the hierarchy is the need to be confident and feel good about ourselves. With money management, it is found on how well and consistent are we with controlling our finances, either at good times and most especially during bad economic times. Nothing feels superior than coming out from crisis unscathed and even better than we were before the crisis. This is obtainable when we set up our finances systematically and consistently by prioritizing the 3 previous needs in our life.

In addition to that, investing for our long term goals like for our retirement, also boost our esteem significantly when we do well with it, it compounds our confidence in investing especially when we supersede our required rate of return in a year or annually due to our investing rules and principles. For example, most people perceived the COVID19 pandemic as a life changing and life shattering event, whereas other people saw it on a different perspective, they saw an opportunity. They saw great price deals that had not been seen for almost a decade, these investors moved in fast and without hesitations, they had the courage to pull the trigger when everyone was scared. Subsequently, prices went up and these investors reap the benefits from buying below those price levels which immensely boosted their return, and even outperforming the general market’s return.

Alternately, some individuals attain their self-esteem boost by living their lives based on others opinion or shall I say, the society’s expectation of what life should be. To illustrate, some people purchase lavish and expensive products that popular celebrities wears and uses because the society deems them beautiful and successful. By mirroring these celebrities, some persons think that they will also look and feel like them, this belief will radiate towards their own mentality, henceforth increasing their self-esteem. The downside here is that, unlike these celebrities who have millions or billions of income, us average folks do not have that monumental amount, which makes that lifestyle unsustainable for us. That is why most people who keeps up with the Kardashians tend to have an initial confidence boost but at the end, looses both their self-esteem and should be savings, or worse being unhappy and unfulfilled.

Confidence always comes from knowing what we are doing in life. Knowledge, no matter how simple or complex it is, will always be a driver of growth in each and everyone of us. It gives us the conviction to do a specific endeavour or task in order to achieve what we want in our lives. We also attain confidence by doing what we love and being consistent with it, not on what others think we should be doing.

Self-Actualization needs

This is the highest level of Maslow’s Hierarchy of needs which is reaching the level of self-fulfilment and living up to our potential, which occurs usually after basic bodily and ego needs have been fulfilled. Self-actualization is different for each person depending on the career path we chose and or an endeavour we want, basically it is the feeling that what we are doing is what we believe we are meant to do in our life, that it is our calling. This can be through academics, athletics, creative skills and others more

The common ground with Self-Actualized people such as Abraham Lincoln, Mahatma Gandhi and Albert Einstein are sharing their skills, knowledge and mental attitude to others. We do not need to be as intelligent and successful as the people I mentioned above before we start to impart to others. Sharing whatever we have, either small or large in amount, has always been a way of showing that we are blessed and fulfilled with our lives. Giving back to the world what we received either monetarily, intellectually, advising or philanthropy are always a good practice because we impart growth, positivity and productiveness to the people around us. One example is Bill Gates who is currently focusing his energy to help those who are in need, mostly people who lives in third world countries. There is no better feeling than being grateful, when people thanks us for that things that we have done for the, and it also boosts the feeling of contentment and fulfilment within our lives

In conjunction, self-actualization comes in through wealth distribution. This is the amount of money that we know we can use to help others by building, teaching, and giving. It is also the money that we will leave to our family and/or business as a symbol of our legacy. This level is usually obtainable at the advance stages of life, which is more than 50 to 60-years-old or shall I say retirement age, but others attain it even during their working life. Nonetheless, giving and sharing should always be part of our financial goals and objectives, as this helps to improve and grow ourselves as a human beings both mentally and spiritually.

Maslow noted that the order of needs is not constant but flexible due to the environment and differences of every individual. An example is that some people might prioritize their self esteem before love and belongingness or even their safety needs. This holds true even with financial planning as other people prioritizes to invest more of their money than to ramp up their savings for emergency purposes. Maslow also pointed out that most behaviour is multi-motivated and he also stated that “any behaviour tends to be determined by several or all of the basic needs simultaneously rather than by only one of them.”

To sum it up

These 5 needs are the reason for our financial goals and budgeting strategies in life, the motivation to achieve more when we are able to attain the most rudimentary level of financial needs. Keep in mind that these 5 basic needs can be different for others, yet it is universally applied in each and everyone of us. Never ever live your life terms based on others dictation of what life should be, always manage your money and life in your own terms. This in turn will make your own hierarchy of needs pyramid complete. My dear readers, always remember that the highest level of financial fulfilment and independence is not the amount of money that we have saved but on how we used that money to achieve what we need and love in our life.

“Money is a means, to an end”. The amount of money you have is not an important matter. The reason and motivation you are saving that for is, which should always be for a greater purpose than money itself.

-Elmads

Knowledge is my Sword and Patience is my Shield,

Evan Louise Madriñan /elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.