Hard times are bound to hit at one point in your life or another, and when they do, it is imperative that you have a three-to-six month emergency fund on hand to tide you over until you get back on your feet. Why is this so important? Because, as with any area of life, your finances must be properly prioritized, or else you will experience serious and sometimes devastating consequences!
An excellent illustration of this point is Maslow’s Hierarchy of Needs. Abraham Maslow, a 1940’s psychologist, constructed what he called a “Hierarchy of Needs” to clarify the proper order of human ambition. Maslow’s diagram places physical needs at the base: the foundation from which all else stems. Next comes the need for security, followed by the need for satisfying social standing. Fourth on the chart are needs related to our egos (self-esteem, recognition, prestige, etc.), and lastly comes the need for Self-Actualization (the ability to express and act on individual creativity).
What does all this have to do with savings? Maslow’s Hierarchy demonstrates that we cannot skip steps when it comes to creating a stable foundation for our lives; we cannot take out loans to pursue the huge house, impressive car, and dream vacation spot, when we aren’t even making enough to pay the basic power and food bills. Make sure you take care of level 2 (Security) before jumping to level 4 (Ego). Establish your emergency savings fund before reaching for luxury items to impress people…and even before investing.
Imagine what happens when an emergency hits, and you have nothing to fall back on. Your long-term investments may be thriving and your brand-new car may look stunning in the driveway, but you have nothing for the here and now. You have been displaced from level 4 (Recognition) all the way back to level 1 (the need for basic food and shelter), and it could take you a decade or more to recover. Instead of allowing ambition to rule your life and potentially cost you everything, allow sound financial commitments to rule and sustain you on the path to success.
Let us know your thoughts in the comment section below. And then, go grab some free resources and stay in touch with us by joining our newsletter at www.pigfreegift.com!