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.
I think I’m going to have to bookmark this page and share it with the hubby later on. We’ve been working on getting a better fix on needs vs. wants. Thanks! 🙂
Thanks so much for reading and commenting, Kay! And I’m glad it’s useful for you — needs vs. wants are something I still struggle with so I’m always looking for new ways to put things into perspective!
I’m a big fan of Maslows hierarchy of needs. What many people don’t realize is that no where in the pyramid are there luxury cars, name-brand clothing and mansions. Those things really aren’t necessary to attain happiness
You could argue that they garner respect/self-esteem, but I’m with you on this one. I believe those things are more easily and deeply attained by who you are on the inside than what “wealth” you project to the world.
Thanks for commenting, Andrew — and you make a great point! I’m definitely right there with you and Femme. Happily for both myself and my credit score, I’ve always subscribed more to Femme’s emphasis on inner happiness over conspicuous consumption.
Good stuff. I like the idea of organizing your expenses into different categories based on the needs in the hierarchy.
Me, too! It can take some of the emotion out of it if that’s what’s holding you back!
Thanks SavvyJames! Glad it seems useful! And that’s a great point Femme — I think that’s why money matters are so tough to negotiate sometimes; it’s difficult to separate the rational from the emotional.
Great job Kate. I’m running this accountability group experiment and spending when you want to save is a constant topic of conversation. We are really trying to explore why we do what we know we shouldn’t even when we say we want to do the opposite. Changing bad habits is challenging!
Thanks, Toni! I’d love to hear more about your group experiment, that sounds really fascinating. I find I sometimes have problems with tangibility in that respect — spending on something now is much more conceptually tangible than saving for something in the future, so it seems even more difficult to stifle the urge to spend!
I LOVE this. I’m aware of my spending/saving and am familiar with Maslow’s Hierarchy of Needs, but the thought never occurred to me to compare them side by side. Now that you did it, I can’t believe I haven’t thought of that before! It’s so simple and I feel like your first point is the perfect way to explain budgeting and spending to someone who is struggling or feeling overwhelmed. Definitely saving this post!
Thanks so much, Brittany! I’m so glad you think it’s useful! Because Maslow’s hierarchy is so basic and fundamental, I feel like it really helps to clarify issues that sometimes get clouded by emotions — like saving and spending! I know thinking through this has helped me a lot when trying to do my own budgeting.
Interesting take on spending and saving. I think there are a lot of things that can go in the top 3 and especially the top that don’t require any money at all and yet still satisfy those needs.
Thanks for reading and commenting! You make a really great point, there are so many other ways to fulfill your needs — especially at the upper levels — which is why it’s a great idea to really sit down and think about what you’re spending on and why you’re spending.
LOL, this is probably the geekiest assessment of how to differentiate needs from wants that I’ve ever seen. Love it!
I think another take of saving is that is actually applies to all areas of Maslow’s Hierarchy of Needs. Having it allows you to be sure that you can cover the first two as necessary and provides a sense of pride that I would think would apply to the higher three steps too.
Haha thank you, Mel! I’m all about nerding out on seemingly inappropriate subjects, in seemingly inappropriate venues.
That’s a great point that I hadn’t really thought of! I definitely do have a boosted self-esteem when I’m able to meet all of my basic needs AND squirrel away some savings. Thanks for sharing!
Needs vs wants — critical! Nice post. Statistics like your less than one month of savings worry me… I keep hoping they’ll get better. (sigh)
Thanks, Jean, I’m glad you liked it! You’re right, it is a shame about the widespread lack of savings. I know I came from a big family that always seemed to have just enough money — but never enough to actually save — so the idea that people just saved piles of money always seemed to absurd to me. Happily I’ve since learned the fine art of saving, and boy is it a relief to have an emergency fund to fall back on!
This is a great structure for helping people use their money according to their values. Thanks for the perspective!
Thanks so much, Rebecca! I’m glad you think it’s useful! That’s another great way to look at it — I think it’s tough sometimes to really prioritize you values, but visualization is always a great tool.
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