by Kate Wilson
It’s time to cut back and save some money, but how do you go about deciding what you can and can’t afford?
One helpful way to form a budget is to look at Abraham Maslow’s hierarchy of needs. This is a psychological theory that describes human desires in pyramid form. The most basic needs are on the bottom while the less crucial needs are on top.
While initially a theory for understanding human behavior, this approach also makes an effective budgeting strategy because it clarifies the things you really need. Below are five strategies formed from Maslow’s hierarchy of needs that will help you differentiate your needs from wants and work towards a better budget:
1. Organize Your Expenses Into Categories
Think about all the things you spend money on: food, gas, Netflix, Starbucks, etc. To understand which expenses are more important, organize the main ones into categories based on the hierarchy of needs.
• Physiological: Mortgage or rent, groceries, practical, non-luxury clothing
• Safety: Health and home insurance, electricity and water, house maintenance
• Love/Belonging: Charity, time with friends and family, gifts for others
• Esteem: Fitness classes or gym membership, nice clothing, nonessential home furnishings
• Self-actualization: Internet or television, personal vacations, hobbies or interests
The more organized you are, the easier it is to ask yourself, “Do I really need this?” and prevent yourself from spending money on less important things.
2. Focus More on What You Need
Always start with the physiological. As human beings, we need food, water and shelter to survive. These things demand our immediate attention and should be our first priorities above anything else, even transportation.
While many of us depend on our cars – on average spending over 600 hours in our cars each year – cars are actually a luxury. We don’t need them to survive like we need food and a roof over our heads, so take care of mortgage or rent and groceries before anything else.
3. Secure Yourself in One Tier Before Spending on Another
Budgeting with the hierarchy does not allow you to pick and choose from each level at random. Even if you fulfill your physiological and safety needs, you can’t jump to self-actualization. Items in that category are often more expensive and less necessary in everyday life.
Slowly work your way up as you save money or progress in your career. After you’ve covered expenses on a lower tier for a long period of time, then you can factor luxury items into your budget like dinners out or fancier clothes.
4. Bend the Rules Only if a Purchase Applies to Your Basic Needs
We’re often tempted to spend outside our budget and give into impulse purchases, but before you spend money on another pumpkin spice latte, ask yourself, “Does this expense apply to my basic needs?” You could probably start your day with a home-brewed cup of store-brand coffee instead.
Exceptions to this rule often include using the Internet to generate income or repaying debts. Such items contribute to lower tiers like safety and physiological needs, so it’s OK to skip some levels in these cases.
5. Save Rather Than Spend
Maybe one day you’ll reach a place where all your needs are covered, and you have the option to spend extra money on a want. But instead of buying that flat-screen television you’ve had your eye on for the last few months, consider putting that money in the bank.
No one ever said saving was easy – 50% of Americans have less than one month of savings in their emergency fund. To prevent yourself from touching those savings, think of how you felt during that time you were just starting out, lost a job or had to pay a large, necessary expense. Savings will cushion the blow if something like that ever happens again.
As always, budgeting and saving is highly personal and only you can decide what is most essential to your life. Maslow’s hierarchy can be a great tool for making you think deep when it comes to what you need versus what you want.
Today’s post is from a fellow-Pittsburgh freelance writer: Kate Wilson.