August 14 is National Financial Awareness Day!
A famous framework in the study of psychology is Maslow’s Hierarchy of Needs. It is a construct for explaining human behavior and motivations, which describes stages of needs to be fulfilled. We believe there is a hierarchy of needs in finance too. Like Maslow, we start our financial planning with the basic requirement of self-preservation, and then we move up the pyramid to reach other goals.
To contemplate your personal financial hierarchy, you start by assessing what you’re working with. Taking the time to gather information may seem like a daunting undertaking. My colleague, Nathan Goodwin, referenced some tools to track financial accounts in the July 8th Financial Faves.
There are fixed and variable expenses in your household or business. Once you know where the money is going, you have the opportunity to find savings. Some seemingly fixed costs might be instant areas of potential savings. For example, I recently discovered my home Internet provider has a cell phone product. It was a simple conversion, and I saved 25% on my monthly bill.
The next stage of financial betterment is where it feels even more exciting. You can create a savings snowball effect!
Let’s see how this works if you saved $200 somewhere in your budget and re-allocated it to other finances. Here are two examples. The first illustrates paying off a loan early.
Or assume that you use the $200 savings to add to your workplace retirement plan. Furthermore, let’s say your employer has a 50% match that you are not fully utilizing. There are many variables in this type of scenario, so we will simplify. However, the outcome is powerful.
You may not find – or feel the impact of – savings right away. But if managed prudently, it will compound over time!
Be cognizant of your finances, and opportunities will present themselves. Our team is here to help you reach your goals. Don’t hesitate to contact us.