Anyone with a passing interest in psychology will have probably heard of Maslow’s Hierarchy of Needs (HoN). Here is a visual representation of the Hierarchy of Needs.
By FireflySixtySeven - Own work using Inkscape, based on Maslow's paper, A Theory of Human Motivation., CC BY-SA 4.0, Link
The HoN is supposed to demonstrate the personal development of people as they move from the lower base of the pyramid to the upper levels. The idea is that you can’t sufficiently achieve the higher levels without building on the foundation of the levels below. I’m not going to focus too much on the different levels in Maslow’s theory as that is not the focus of this blog, but rather I wanted you to have an idea of the structure of the pyramid as I discuss my ideas around the Hierarchy of Financial Needs. If you want to read more about Maslow’s HoN there is a link to the Wikipedia entry at the bottom of this blog.
This is my proposed Hierarchy of Financial Needs (HoFN).
The base of the pyramid is Shelter, Warmth and Food (and water). These are the basic physiological necessities of survival. We need to be protected from the elements. We need our bodies to remain at a comfortable temperature and we need food and water to sustain us. These are the absolute fundamental parts of human survival and it makes sense that most people pay their mortgage/rent first and food shopping is a priority for spending.
The second level up refers to things that are not essential but are almost essential. Things that we generally need but if it came to a choice between spending your last tenner on food shopping or a haircut, most people would choose food.
The third level up is, in my experience, where people generally fall down. It comes down to how you prioritise your spending. There was once a time, not that long ago, when the internet was a luxury. I would now argue that it is a basic utility like electricity or water. However, there are huge differences in how you can purchase internet access. It is possible to buy mobile home broadband via a dongle or pay-as-you-go router for as little as a tenner a month. This will let people complete everyday stuff online but will probably struggle with streaming video or gaming. A quick bit of google-fu shows that you can get superfast fibre broadband with BT for anything up to and possibly over £55 per month. I’m not even sure if this includes line rental or not. But that is an eye-watering figure for internet access in my opinion. I have fibre broadband with unlimited data for £22 per month with no line rental.
I used to sell phone lines and broadband for one of the major providers. The number of people that had no clue what they were paying for was staggering. There were people who wanted to pay top dollar for superfast broadband and when I asked them what they used the internet for, it was things like general browsing and the occasional email. That person does not need 20mb speed. They could probably get by on a quarter of that with no real issue. However, they did not bother to spend a bit of time researching what they needed and it could end up costing them three or four times as much for internet access.
There is a similar issue with TV packages. I pay for my TV licence (£12 per month) and I also have Netflix (£8 per month) and Amazon Instant Video (roughly £80 per year for Prime membership which also provides cloud storage, free delivery and other benefits). I occasionally pay for the WWE Network (£10 per month). All in, we’re talking £37 per month with some of that figure paying for other Amazon Prime benefits. A little more google-fu shows that if you pay for Sky TV with all the bells and whistles you could easily pay over £70 per month. How many of these “bells and whistles” are needed? Some of them include HD channels, the ability to record multiple shows, TV show boxsets on demand and so on. If you can afford it and you think you are getting value for money, then great. However, take a moment to think about how many channels you actually watch. Do you have all these “bells and whistles” and if so, do you use them?
My opinion is that in our society, basic TV is pretty much a utility but all the other add-ons are luxuries. The problem is that many people view the top packages as necessities and I’m betting that many of those people paying for it will either hardly use any of the facilities they are paying for or use them as background noise whilst scanning Facebook on their mobile.
I have the fourth level called Entertainment. I’m referring to things like cinema, theatre, socialising and so on. These are things that can be good for the mood but are not essential to basic survival. The fifth level is all about luxuries in life; holidays, fine dining and so on.
In an ideal world, people would budget from the bottom up spending money on the basics of survival with surplus money moving up the pyramid. In my experience many people just throw their money at all levels without thought. Then, they run out of money before the next payday. As such, the basics of survival are paid for on credit. This debt is not paid off which then adds another layer to the pyramid as the person needs to pay that debt back somehow. However, the person already has more money going out than coming in so this debt will never really get paid. Instead, the person simply runs out of money earlier in their pay cycle and resorts to credit a day or two earlier. Over the course of weeks and months this debt spirals out of control.
Effective money management is a skill that can be learned. It just takes practice. The first step is to get an accurate idea of what you are spending. This is easier if you pay for most things on card. Just go through your statements and your list of direct debits. Use the HoFN and see where the different proportions of your money are going.
In this blog I compared the cost of two things; internet and TV and just between those two things a saving of £80 per month can be made with some thought and research. How much money could you save on your phone bill, food shopping, insurance and other bills?
As I’ve mentioned in previous blogs, I am not a financial advisor. I’m just someone who thinks a lot about money and hate to see people struggle financially when they could be doing so much better. Money management is an essential life skill. It’s at the very core of your life from the day you start taking control of your own finances. There are people who are in severe financial hardship. This blog is probably not going to help them very much. There is only so much you can do to tweak your finances and if you still have too much month left at the end of your money, then I can’t change that. There are more qualified people than me out there that can help. Please see links below for Stepchange, a government backed debt advice charity.
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