3651: [Part 1] Hierarchy of Financial Needs (and the Meaning of Life) by The Mad Fientist on Financial Independence

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[00:01:00] This is Optimal Finance Daily, Hierarchy of Financial Needs and the Meaning of Life, Part 1 by TheMadFiantist of MadFiantist.com and I'm Justin Malek. Today, I have a bit of a longer post. I'll read the first half today and then finish the rest for you tomorrow. So with that, let's get right to part one and start optimizing your life.

[00:01:26] Hierarchy of Financial Needs and the Meaning of Life, Part 1 by TheMadFiantist of MadFiantist.com When I was in Ecuador last year, Mr. Money Mustache came up to me and said he was pissed off. Someone had been asking him questions about financial independence, but when the discussion started getting into the numbers, the person said that they'd just saved those questions for me.

[00:01:52] MMM jokingly asked me if that means he's lost his edge. Has writing about happiness and more philosophical topics resulted in him not being viewed as a financial mastermind anymore? Obviously, he was just messing around and wasn't really angry or concerned, but this topic actually came back up a few days later. After I finished my presentation to the group, Mr. Money Mustache raised his hand and said,

[00:02:17] Fiantist, it seems you too are turning soft in your old age. Do you not care about money or numbers much these days either? Turns out, my presentation had nothing to do with numbers. No graphs, no math, nothing even close. I laughed and said, Yes, it's weird, but I don't think about numbers much at all now, and I'm starting to realize that money is the least interesting and least important aspect of this whole journey.

[00:02:47] I've built my whole blogging career on numbers, so it's been an unexpected turn of events, to say the least. After the presentation, I was chatting with some of the other attendees and was saying how I wondered why I stopped focusing on money as much. Thankfully, one of the attendees offered a perfect explanation for it. Maslow's hierarchy.

[00:03:09] Maslow's hierarchy of needs shows what motivates humans, the relative importance of each need, and the order in which the needs are generally fulfilled. At the bottom of the pyramid, the first human needs that have to be met are those necessary for human survival, like water, food, and so on. Once a person's physiological needs are met, focus then turns to safety.

[00:03:36] It's obvious safety is less important if you don't have fresh water to drink, so you need to focus first on finding water before getting somewhere safe from predators. That doesn't mean you're not on the lookout for hiding places or shelter when you're searching for water. It just means water is your first priority, and the other things are less important. So that's a really brief summary of how Maslow's hierarchy works. I'd say a similar hierarchy exists for financial needs as well.

[00:04:05] Here's what I came up with. The mad scientist's hierarchy of financial needs. At first, you need to pay for all the things that you need to survive. If you have to use debt to do that, it doesn't matter because you need to buy food to stay alive, so that's what you do. That is not sustainable, though, so eventually, you'll need to make enough money to pay all your expenses.

[00:04:29] You could live quite happily at the sustainability level for a while, but you're not necessarily safe there. One small injury or unexpected expense could derail everything, so ideally, you'll soon reach the accumulation level. On this level, you make more than you spend, so you are able to save for future unplanned expenses. The next level is independence. Since it's unlikely you will be physically able to work your entire life,

[00:04:59] you eventually need to get to the point where you can pay all your expenses without working. Finally, you reach the utilization phase. This is when you know you'll never run out of money, so your sole financial focus is aligning your spending and giving to charities, heirs, and so on with your life's purpose. Usefulness of the pyramid.

[00:05:23] The hierarchy of financial needs is useful when talking about finances with other people because it allows you to be more understanding of different situations and more empathetic. For example, it's easy for someone on the accumulation level to say, payday loans are bad and you should never use them. But if you are at the survival level and have no other way to put food on the table for your kids, it may be something you are forced to consider.

[00:05:52] And although we'd all like to think that independence is what everyone should be focused on, someone who is at the sustainability level may be too stressed to even think about something like that because they're just one unexpected expense away from big problems. So they first need to focus on increasing their income and or lowering their expenses so they can reach the accumulation level. And then once they've built up a bit of a buffer or emergency fund,

[00:06:20] they can think more about investing and pursuing financial independence. My journey. When I started writing this blog, I was on the accumulation level. So my primary focus was getting to the independence level as quickly as possible. The problem was, I don't even think I realized there was a level above independence that I should have also been thinking about and planning for. In hindsight, this was a big mistake.

[00:06:49] Because the real goal isn't to have a lot of money. As the idea of FIRE, or Financial Independence Retire Early, becomes more popular, it seems people are becoming more obsessed with financial independence and all they want to do is talk about it, read about it, and hang out with others pursuing it. This is useful for improving your finances, but may cause you to miss the real point. Financial independence isn't life.

[00:07:18] It's just a tool you can use to help you live a life that's most meaningful to you. It's a means to an end, not the end itself. The more you think about the top level of the pyramid while you're on the journey to financial independence, the easier and more enjoyable that journey will be. After achieving financial independence and accumulating more money than I had planned, I can now see the utilization stage more clearly.

[00:07:46] Is it the top of the pyramid? I'm not sure, but it's the level I'm focused on now, and it's what Mr. Money Mustache has already been brilliantly writing about for years. What is the meaning of life? Before we can figure out how to best use our money for our life's purpose, we have to figure out what that is first. So what is the meaning of life?

[00:08:11] That's the big question, and I'm still not exactly sure, but I have a few theories. Hear those on tomorrow's episode. You just listened to part one of the post titled, Hierarchy of Financial Needs and the Meaning of Life, by the Madfiantist of madfiantist.com. And I'll be right back with my commentary. You know, before I found Warby Parker,

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[00:11:00] You start at survival, just covering the basics, even with debt if you have to. Then sustainability, where you cover your expenses. Then accumulation, where you're saving more than you spend. Then independence, where you don't have to work for money. And finally, utilization, where the focus shifts to what your money is actually for. And I think his big point is that financial independence isn't the goal, it's just a tool.

[00:11:29] That really connects to a book that shaped how I think about money, Your Money or Your Life, which reframes money as life energy. Basically, the hours of your life you trade for it. And once you see money in that way, the number stops being the point, and the question becomes, what the money is actually helping you do? But wherever you are on that pyramid, it's worth knowing which level you're on, and starting to think, even a little,

[00:11:59] about that top one. But we're just halfway through the post, we'll finish the rest tomorrow. So for now, thank you for being here and listening every day. And I'll see you tomorrow, where we'll finish up this post, and where your optimal life awaits. And I'll get back to you tomorrow, the rest of the week. I'll see you tomorrow. Bye. Thank you.