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You've probably heard of Maslow's hierarchy of needs.
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It's the ranking of primary human needs for psychological well-being as described by American psychologist Abraham Harold Maslow, and is usually illustrated not unlike the old-school food pyramid:
The financial blogger known only as Mister Squirrel (who has since closed his site)shared his own version of Maslow's hierarchy: the path to financial success.
Here's what it looks like:
Squirrel, who "dreams of a non-corporate life," calls his theory the Hierarchy of FIRE (Financially Independent and Retired Early). The idea is that once you're operating in the highest tier with your money, you're set up to be a financial success — and that applies whether or not you're aiming for early retirement.
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Here's how the tiers break down, from most essential to least:
1. Surviving. Before anything else, we have to get our minds right when it comes to money. As Squirrel puts it, "If you think that the government will look after you, money will take care of itself, or you’ll win the lottery, then you’re not thinking about money correctly." In this stage, you'll also start living below your means, and spending less than your monthly income.
2. De-debting. While everyone's debt situation is different, ridding yourself of "bad debt," (the kind that costs you money without giving you any clear value in return, like credit card debt) needs to be checked off your list before you can make real progress.
3. Learning. This is where you set aside an emergency fund to keep you in the green should something go wrong, and where you start learning about the possibilities for your money. Which accounts should you use? Should you invest, and how? If you have a question, now is the time to find an answer. Luckily, you have the entire internet at your fingertips.
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4. Investing. Time to make use of those answers. Squirrel points out that this stage doesn't have hard borders — it will continue on through the pyramid's last stages.
5. Optimizing. Now that you have your answers and have gotten your money in order, it's time to start tweaking your plan to perfection: Plan for taxes, get a will, create a system to check on your money.
6. Freeing. "When you get to this stage," Squirrel writes, "you should be 'there.'" Now that you're financially independent and perhaps have even retired early, you have predictable expenses easily covered by passive income streams.
The theory isn't perfect, and Squirrel is the first to say that you should do your research before making any financial decisions, but it is a helpful template for thinking about your path to financial success.
Executive Editor, Personal Finance Insider
Libby Kane, CFEI, is the Executive Editor for Personal Finance Insider, Business Insider's personal finance section that incorporates affiliate and commerce partnerships into the news, insights, and advice about money Insider readers already know and love. She holds the Certified Financial Education Instructor (CFEI) certification issued by the National Financial Educators Council. Previously at Business Insider, she oversaw teams including Strategy, Careers, and Executive Life.Her team at Insider has tackled projects including:• Women of Means, a series about women taking control of their finances• Inside the Racial Wealth Gap, an exploration of the causes, effects, and potential solutions of the racial wealth gap in the US (finalist, Drum Award, "Editorial Campaign of the Year," 2021)• Strings Attached, a series of essays from people who have left insulated communities and how that journey affected their relationship with money• Master Your Money, a year-long guide for millennials on how to take control of their finances (first runner up, Drum Award, "Best Use of Social Media," 2022)• The Road to Home, a comprehensive guide to buying your first house (silver award winner, National Association of Real Estate Editors, "Best Multi-Platform Package or Series – Real Estate," 2022)Personal Finance Insider also rates, explains, and recommends financial products and services.Outside of personal finance, she's written about everything from why Chinese children are so good at math to the business of dogs to hard truths about adulthood.In September 2016, she helped launch Business Insider Netherlands in Amsterdam.She also spent three years as a member of the Insider Committee, a cross-team focus group working on making Business Insider an even better place to work.She's always interested in research, charts, and people: new and interesting research, compelling charts and other visuals, and people who are willing to share the details of their impressive financial accomplishments and strategies.Before joining the company in March 2014, she was the associate editor at LearnVest, covering personal and behavioral finance.If you have something to share, please reach out to lkane@businessinsider.com.
