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Setting 2010 Financial Priorities – Hierarchy of Needs (and Spending)

I wrote yesterday about setting a financial priority for yourself for 2010, and how your spending during the coming year should be focused on how you can meet that financial requirement in 12 months time. I’m going to expand on my thinking on that topic in this post.

Hierarchy of Needs

Before I go on, please remember though, that this purely relates to how you’re spending (or not spending) your money – your other personal aims and ambitions, wants and desires, are not within my considerations here.

However, we could get some inspiration in how to manage our 2010 spending from the psychology of Abraham Maslows Hierarchy of Needs.

You can read more about the Hierarchy of Needs here, but for my purposes here’s a brief explanation:

Maslow’s hierarchy of needs is most often displayed as a pyramid. The lowest levels of the pyramid are made up of the most basic needs, while the more complex needs are located at the top of the pyramid. Needs at the bottom of the pyramid are basic physical requirements including the need for food, water, sleep and warmth. Once these lower-level needs have been met, people can move on to the next level of needs, which are for safety and security.

ValueIrelands Hierarchy of Spending

Extrapolating from Maslows Hierarchy when it comes to our financial outgoings and priorities, we could see our hierarchy of spending as follows:

Here, once we have spent a proportion of our earnings on meeting our physiological and safety needs (food, accommodation, health and education), we are left with a balance of money that can be spent on discretionary items – that is, we have a choice on where to spend that money.

I appreciate that for many people, the proportions of money spent on physiological and safety expenses versus that available for discretionary spending may differ from the diagram above, but I hope you understand the principle.

Discretionary Spend

And for 2010 then, if you’ve decided upon a Financial Target for the year, how will you manage your discretionary spend to help meet that target?

If you decide that you need €10,000 to pay for a childs day care or education in 2011, will spending €1,000 on a new TV in the January sales help you towards that target, or would that €1,000 in the bank bring you 10% closer in one fell swoop?

Would €45 per month on Sky Sports help, or would that money being paid into a regular savers account help get you 5.5% closer to your target by the years end? Every little helps remember.

Keeping Track

Project managers will always tell you that targets and objectives must always be SMART – specific, measurable, achievable, realistic and timely.

Deciding on a financial target for yourself for 2010 is a very SMART, and smart, objective.

  • Specific – save money during the year to pay for (your chosen) objective
  • Measurable – I need (your monetary amount) of money to do this
  • Achievable / Realistic – whatever your target is for the year must be something that you can actually do – no point planning on buying a house in the south of France if you’re just about covering your regular mortgage payments at the moment
  • Timely – you have a year, all 365 days and 12 or 24 or 52 pay checks of 2010, to do this

If you’re saving money to meet your target for 2010, it would be a good idea to set yourself up some sort of savings account specifically for this purpose.

This account should be where you send all your saved money for the year, and ideally it should be quite difficult to make withdrawals – reduces the temptation to dip into any pot of money you may gather during the year.

Inspiration will everywhere at the moment

From this point on, you can take inspiration from all the tips, techniques and suggestions that we’ll see published in the coming days and weeks across many media formats.

All of those articles will give you inspiration for the many different small things (reduce mobile phone bill, save money by switching electricity providers, save money by bringing sandwiches to work, and so on and on) that you can do to help you go about meeting your ultimate target for the year 2010.

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