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Let Your Money Work For You

Let Your Money Work For You
All You Wanted to know about money

Thursday, May 17, 2012

On the ladder of Wealth

A completed need is no more a need.

And your Savings need does it behave like that?

May be there is a relationship between your level of standard of living and your heirarchy of savings Needs.

Abraham Maslow  classified  levels of needs that human beings have. Starting from the most basic level, these roughly correspond to Physiological needs, Safety, Social needs and, at the top of the hierarchy, what he called, Self-actualisation. And  needs at a higher level become important only when those at the lower level are met.


‘Hierarchy of Savings’ could be thought as:

Level 1: Basic contingency funds. This should be the money that you may need to handle a personal emergency. Should be available instantly, partly as physical cash and partly as funds that can be immediately withdrawn from a bank.

Level 2: Term Insurance. A realistic amount that should be calculated to allow your dependents to finance at least short- and medium-term life goals if you were to drop dead, be struck with a debilitating injury or disease.

Level 3: Savings for Foreseeable Short-Term Goals: Money that is needed for expenses that are planned to be made within the next two to three years. Almost all of this should be in minimal risk deposit-type savings avenues.

Level 4: Savings for long-term foreseeable goals. Same as level 3, except the planned expenses are more than three to five years away. This level should be invested in equity and equity-backed investments like equity mutual funds.

Level 5: Savings for Self Actualisation Planning to set up an enterprise social or commercial that will continue to do the activities even after you are not there physically.

Which level are you in?