The theory behind Maslow’s hierarchy of needs is that you start on the bottom level and can’t move upwards until the needs on the current level have been met.
For example, if you are starving you will do whatever it takes to get food, even if it means risking your safety. Once you have food, you will again focus on safety and then on up the pyramid. It is used by managers to help motivate their employees. If you had an employee who was having trouble affording food, then a free lunch would be a greater motivator than an award.
This concept also applies well to different levels of wealth.
At the bottom you have your physiological needs. This is when you are living paycheck to paycheck with nothing in savings. Your debt payments are suffocating. You are either under-earning, over-spending, or both. All of your focus is on surviving to the next paycheck.
The next level is safety and security. This is when you are living on a budget that works for you and saving up an emergency fund. You no longer worry every day about making it to payday, but there is little to no extra money. The bills are paid, emergencies are covered, the debt is coming down, but you aren’t enjoying your money, yet.
Up another level and we have “love and belonging”. Your emergency fund is fully funded and your level of debt feels more manageable. Now you can begin to enjoy your money a little bit. You can buy gifts for your friends on occasion. You can afford to go out when you feel like it. You can chip in for group gifts at work. You basically just have a little “play money” and you know it fits your budget.
Next comes self-esteem. Now you are really starting to build wealth. Your debt is paid off and you feel in control of your money. You are paying cash for large purchases and investing aggressively. You can also give generously when you choose. You have really come into your own financially and might even have others asking you for advice.
Lastly, you become self-actualized. This is when you have built your wealth. You are living the life you have been dreaming of. You can really help the causes that are close to your heart and may even set up a charity or fund of your own. Acquiring wealth is no longer a driving force, you can now spend all your time doing what you feel is most important.
Where are you on the pyramid and what you are doing to move to the next level?