By John McBride
Many are familiar with Abraham Maslow’s famous Hierarchy of Needs, as illustrated by a layered triangle initially published in his 1943 paper, “A Theory Of Human Motivation.” The concept has found its way into various management training programs and university courses. As we will illustrate here, the Needs Hierarchy is equally useful as a financial planning tool. Below is the order of needs, as laid out by Maslow:
- Safety
- Physiological needs (food, water, warmth, etc.)
- Social needs (love, friendship, family, community, and a sense of belonging)
- Self-esteem needs (prestige and feelings of accomplishment)
- Self-actualization (achieving one’s ultimate potential)
People move through stages of financial maturity, and the needs in Maslow’s hierarchy come into focus during these stages as outlined below.
Stage 1: Financial Discipline
In Maslow’s language, you’ve got to escape from the bear before you can discuss dinner plans with your wife. Most people learn the basics of managing money during young adulthood, between ages 18 and 30. In this stage of life, you learn to budget and manage cash flow. During this first stage, assets are simple. Extra money is put aside into a savings or money market account.
Unfortunately, some folks never move on to the next stage because they do not learn to delay gratification. When the primal need for survival is met, we all must learn to seek out stability and security. Until we learn to make this shift in behavior and thinking, the temptation to buy expensive toys or eat out at restaurants every night is too strong to resist. We “move up the hierarchy” by cultivating the desire for a financially stable household.
Stage 2: Building
When you progress past the “buy it now” phase, you have created the necessary foundation to begin building your financial future. The second stage typically carries the longest duration, stretching from ages 30 to 50. You have enough extra money every month to invest actively in your 401(k), IRA, Roth IRA, or Simplified Employee Pension (SEP) plan. The desire for stability remains strong throughout this phase as you protect against risks such as sudden job loss or health problems. Stage 2 is not a “sexy” phase by any means, but this is where the work gets done. You gradually feel safer as you put a plan in place and carry it out. If you follow the entrepreneurial path, the journey is similar in many ways, but your business is the primary asset you are building in the hopes of selling later. You are betting on YOU.
Stage 3: Fulfillment
At this stage, you have “won the game.” You finally reached your retirement goal. This is where we get to the fun stuff, and your years of hard work start to pay off. You may be focusing now on stretch goals—higher income in retirement, an extra trip each year, a longer stay in Europe, or extra income to help your children or grandchildren. You may now begin to explore other investment opportunities, such as taxable investment accounts, real estate, or angel investing. If you’re a business owner, you may be looking to cash out. The emotion at this stage is relief; when you spend additional time building wealth, you do so on your own terms because you enjoy it and have the flexibility to do what you choose. You can stand proud for what you have accomplished.
Stage 4: Legacy
In this final stage, you have built your foundation, followed your plan, and reaped the rewards. What’s next? You can now focus on the financial needs of your children, your grandchildren, and the charities and passions that you care about most. You now think about how to pass your wealth along to others. We now turn our attention to tools such as estate plans and donor-advised funds. In some cases, there may be challenging family situations to address. As an example, let’s say you plan to distribute a larger portion of your estate to one child than another. It is better for you, as the benefactor, to have that challenging conversation, rather than leaving the siblings to hash it out on their own postmortem and risk fracturing the family. Throughout this stage, the desire for self-actualization is strongest, as you give deep thought to what you want to leave behind when you are no longer here.
No matter where you are on your journey, our team at Stewardship Wealth Advisors is here, committed to guiding you each step of the way. Please give us a call to discuss how we can work alongside you as you build your future. Reach out to us at 623.251.7282, or email us at john@swa.financial to schedule a free introductory meeting.
About Stewardship Wealth Advisors
Stewardship Wealth Advisors is an independent, fee-based comprehensive financial planning firm dedicated to empowering clients to steward their wealth well and maximize their hard work and dedication. With decades of experience, our team of advisors builds a foundational relationship to create a personalized financial plan to help their clients reach their goals and achieve financial independence. To learn more about what we do and how we can help you, connect with us online.
