Do you know about Maslow’s pyramid of needs?
Maslow was a psychologist and student of human motivation. He asked: why people do what they do?
His answer was the pyramid of needs where the most urgent fundamental needs are at the bottom and higher aspirations at the top.
The base of the pyramid contains what Maslow called “deficiency needs”: esteem, friendship and love, security, and physical needs. Maslow proposed that these basic needs must be met before we focus on higher needs.
This makes sense. When our car has broken down in the snow and we’re cold and hungry, we focus on shelter and warmth – not so much on writing novels or volunteering to help other people.
On this site we are trying to haul our butts off the bottom level and head up to the top of the pyramid. I hear that the view is better from up there.
If you have a mortgage, you may have noticed the words “Your home may be at risk if you do not keep up the payments” on the
shit paperwork they send you. This is why it felt so important to me to clear my mortgage. Whilst you have a mortgage, your basic need for shelter is potentially threatened, implying you can’t move up the pyramid and focus on higher goals.
By the way, if you are comfortably meeting mortgage interest payments when UK base rates are 0.5%, imagine what that is going to look like, budget wise, if interest rates were to normalise at 5%. UK base rates were 17% in 1981. Just saying.
The flipside of this is that once you have met your reasonable financial needs, you owe it to yourself and to others to raise your sights and stop just focussing on money. In my time in the City, I used to meet plenty of people that had enough to quit, were good at their jobs but would have been happier being a writer, tree surgeon or a teacher. Why behave as if this one life we get is just a dress rehearsal?
This is more frequent than you might think. The most common motivation for this behaviour is fear – fear of change, (irrational) fear of poverty, fear of loss of status, fear of their spouse’s reaction etc etc. Its not enough just to make a life-changing amount of money, you still have to change your life. Don’t just load the gun, pull the trigger.
We owe it to ourselves and our families and friends to start by getting our own shit together. Think about the airline safety briefing : always apply your own oxygen mask before helping others.
This initially sounds a bit counter-intuitive and even selfish to some people. But you are no use to your children and fellow passengers if you are choking on the thin air clutching your throat, limbs flailing.
In financial terms this means that you are more likely to be a better friend / parent / partner / spouse / neighbour etc. if you are not stressed about money.
Real life is not like the Catholic Church: there are no sainthoods handed out for martyrdom. I know this because when I was in The Prison Camp, I started to get Martyr Syndrome. Here are some clues when you are starting to suffer from Martyr Syndrome:
- My boss / team / wife / children / cats / goldfish don’t understand how hard I work for them
- If it wasn’t for me, this entire department / school / house / capitalist system would fall apart
- I must provide private education / piano lessons / an ipad for my kids at any cost or else they will end up selling crystal meth or turning tricks
- I work so hard that I just don’t have enough time for exercise / 8hrs sleep / myself
People who martyr themselves tend to let their own health and well-being suffer and this does not work for anyone. James Altucher reminds us of the importance of following what he calls the Daily Practice every day. This includes getting exercise, eating well, feeling gratitude, maximum honesty, being surrounded by good people (and cutting out the bad) and coming up with new ideas.
When we look after ourselves, we can then help others. I’ve tried to be a better father, son, friend and husband since I quit full time work. Let’s be honest, it wasn’t hard to improve on my previous standard when I was in The Prison Camp. You can have all the good intentions in the world but if you are focussed on your work as, say, an investment banker or litigation lawyer, you won’t have time to help others – that type of job tends to consume your soul and crap it out the other end.
I figured out how to get to financial independence by 43 but could have done it quicker if I knew then what I know now. So I now I now help others with this stuff. If I were analysing myself, my work helping others is probably some attempt to fix the trauma / confusion / uncertainty / isolation that I sometimes felt myself when I was on The Path and things felt tough.
You will find various Warren Buffett quotes sprinkled approvingly around this website and many other personal finance websites. The man is a genius: he mastered his emotional self as well as the ultra-rational game of investing and capital allocation. I greatly admire him pledging his fortune to the Gates Foundation. However, you could also argue its a bit sad that someone of his wealth and talent has spent his entire life focussed on accumulating money.
In my investing, I want to be like Warren Buffett when I grow up. But here is where I differ. I do not want to be like Warren Buffett in some other ways. I don’t want to drink Cherry Coke and eat junk food. I don’t want to avoid exercise and end up overweight.
I don’t want to focus my entire life on pointless accumulation of money. I am with John Maynard Keynes (who himself was no slouch as an investor) who believed that investing was a fascinating activity (and made a fortune in the process) but not enough. He emphasised higher goals: love, relationships, art and beauty.
Now, The Escape Artist is no academic pyschologist. I don’t have a PhD, academic citations nor any brown checked jackets with elbow patches.
But, as they used to say on Top Gear, how hard can it be? I therefore present The Escape Artist’s pyramid of financial independence, starting from the bottom and working up:
Level 5 : Plain broke
Here people lurch from one personal financial crisis to the next, tided over by borrowing. Think Wonga customers. These people typically spend over 100% of their income, being helpfully accomodated by finance companies who are always very friendly….until they’re not. They are either actually bankrupt or always teetering on the edge.
Level 4: Consumer sucker
This is where most of the population are. Someone in this category might be watching QVC, see a fantastic designer toilet seat and get straight on their smartphone app and buy it using a credit card. They only stop spending when they go overdrawn at the end of each month. Typical savings rate: 0 – 5%. Net worth is very low: usually just some cash in a jar and a sliver of home equity.
Level 3: Sensible saver
At this level, people are following basic financial advice. They are still wasting much of their money on consumer shit but at least they are using comparison websites to get a discount on the shit. They’re saving 5 – 25% of post-tax income into a cash ISA or maybe even some popular (aka high cost) equity income funds. They may even use a budget.
Level 2: Financial Independence
People at this level are either on the path to financial independence or have achieved it. Savings rates vary from 25% -75% for those building to FI. These people understand the power of money and have mastered some of their emotional weaknesses re money. Paradoxically, they are seeking to get to a point (see level 1 below) where they think much less about money.
Level 1 : Zen warrior
The top of the pyramid. These people never worry about money because they know it can’t buy happiness and they are smart, resourceful and productive. Their spending needs are tiny; they don’t need money other than to buy some rice and beans. Examples in this category would include : Obi-Wan Kenobi, Bear Grylls, Gandhi, Martin Luther-King, Nelson Mandela, the Dalai Lama, the old bloke out of Kung Fu who trained grasshopper and the androgynous bald kid from Monkey (see clip below).
These people spend most of their life trying to help others. In doing so, they find happiness and meaning for themselves.