Hierarchy of financial needs

The theory of financial needs organizes human needs across five levels.

Essential needs (at the bottom of the pyramid) must be satisfied before progressing onto the next level.

The 5 levels in the hierarchy of Financial needs:

1. Cash flow and basic needs:

Food, housing and daily expenses. Ensuring the fundamentals are covered financially.

2. Financial safety:

Insurance and an emergency fund - to help prepare for unforeseen events and risks.
As a safety cushion, an emergency fund should cover three months of living expenses - in case of an accident, an unexpected health or family issue, or losing a job.

3. Accumulating wealth:

This includes growing investments, paying down debt, and saving for retirement.
At this level, the focus shifts to growing assets for long-term success and longevity.

4. Financial freedom:

Long-term care and children’s education are found within this category, along with retirement savings.
These financial needs are linked with esteem needs, such as self-respect and personal accomplishment.

5. Legacy:

Estate planning, tax planning, and business-succession planning all fall within this category, connecting with self-actualization in Maslow’s pyramid.

Naturally, financial needs can shift based on a given situation.

As a general rule of thumb, moving along this path can help create an enduring roadmap for financial health.

As always, book a free discovery session with an SCI Wealth financial planner to find out more.