The Financial Independence Hierarchy of Needs

As a marketer, I often think about the classic pyramid of needs, Maslow’s Hierarchy of needs.

This pyramid explains in simple terms what people really need – from food, shelter and safety to psychological needs and self-fulfilment:

Source: SimplyPsychology

Once you understand these needs, you understand better human beings and, as a marketer, how to communicate with your target audience.

And as a Financial Independence blogger, I have been thinking a lot about the needs of FIRE seekers and FIREd people.

The Financial Independence Hierarchy of Needs

What happens when we transpose this scheme to Financial Independence?

You get this pyramid:

Some of these levels are interchangeable, but as as a general rule all of these steps apply to everyone in this order. For example you may chose to clear (some of) your debt before building up your F* You Money emergency fund. Or you may start developing a side hustle before investing your money.

This FIRE pyramid is a guide – make it your own!

F* You  Money

When I talk to people who have never heard of the FIRE (Financial Independence Retire Early) movement I normally start by explaining what F* You Money is all about. It’s very simple:

If you hate your job and you hate your boss, you can quit and tell them to F* off – and you still have money to pay your bills and can take the time to find a better job.

When calculating how much F* You Money you need, aim for 3-6 months of your living expenses, the more the better especially if you have strict financial obligations (mortgage, dependants, etc.).

Control Your Debt – Don’t Waste Your Money

You have worked hard for your money. It’s yours. Don’t waste it.

Always pay off your credit card every month. Via direct debit.

If you have any doubt about this, go check the interest rate they charge – it’s exorbitant!

I am still puzzled why people are willing to buy things at such a high markup via credit card debt. It’s plain stupid. JL Collins agrees.

Of course not all debt can be avoided – mortgages and student loans are a prime example. Pay your mortgage last, it normally has a lower interest rate than student loans, and certainly lower than credit cards.

However if you truly understand the effect of compound interest on your debt, you will do all you can to repay your loans early.

Start Investing – Watch Your Money Grow Overnight

I am a late comer to the FIRE community. I grew up in a middle class sheltered household, the second of two daughters who were encouraged to be well educated, find a suitable husband and start a family at some point. Classic.

I knew early on that I wanted more, so I moved to London and started exploring all my possibilities through the lens of a new culture. It took me years – but now I keep my money where I can watch it grow.

A couple of clicks and I can see every day how much my money is making me.

For many years I had my savings parked in savings accounts that paid peanuts. I had no real incentive in saving and investing more, and so I ended up wasting a number of years worth of compound interest.

Once you have your FU money, choose the best investment tool(s) for your:

• Index funds
• Tax-advantaged savings accounts
• Your pension
• Property (high starting capital required)

Explore your opportunities.

It is powerful to watch your investment grow in value every single day, even when you are on holiday.

Build your Passive Income – Let Your Money Do the Hard Work for You

Once you start watching your investments grow with no additional work, you will start thinking of new ways to earn passive income.

Now, the term passive income is somewhat misleading – there is no income that is completely passive. You always have to invest either your time or money, or both, to some degree. But you get to choose how much you want to dedicate yourself to it.

Here are some classic examples of passive income:

• Index funds, stock, shares, etc. – low initial cash investment
• Rental properties – high initial cash investment, you need to have an understanding of what you are doing
• Side hustles – you decide what, how and how much time and cash to invest. Interested? Have a listen to The Side Hustle Show podcast
• Your pension – it’s locked away for years, but a small amount every month can amount to a lot over time. Every country has their own tips and tricks to optimise this option. In the UK you can pay in money before tax, then withdraw up to 25% of your pension pot at age 55 or later – tax free. You Save tax on both ends.

Financial Independence – Your Ultimate Goal

Just think:

• No more alarm clock every day
• No more delayed trains or traffic jams on your commute
• No more meaningless meetings and useless office politics
• Random cycling or walks in the park mid-morning

Once you have FU Money and are Financial Independent (or even just on the way to FI), you have options. You can chose.

You don’t need to put up with stuff at work you hate. You can take charge of your life and do what really matters to you.

Enjoy the journey!