From Survival Mode to Financial Independence: Where Do You Stand?

March 11, 2015

It has been twelve years since I took a psychology class as a high school senior, but I remember a few things from Mr. Erwin’s class.  First, Mr. Erwin rode his bike to school every single day.  Second, we watched the Shawshank Redemption in class, and it was awesome.  Third, Pavlov had a dog.  Lastly, was Maslow’s Hierarchy of Needs.

Maslow’s hierarchy was a theory that essentially said people have different levels of needs, and in order to achieve the higher levels, one must first achieve the lowest or most basic levels.  Can’t the same thing be said about personal finance?  It is hard to justify buying a Lamborghini if I haven’t been able to afford a trip to the grocery store.  In my Hierarchy of Personal Finance, there are five levels of achievement, and just like is Maslow’s hierarchy, one must obtain the basic levels first, before reaching the highest levels.  Here is my hierarchy from lowest to highest:


At the most basic level of personal finance, we are talking about just getting by.  One has reached the survival level once you are able to meet your basic needs of food, water, and shelter.  For many of us, this level conjures up images of our very first night in our own apartment.  We had somehow managed to save up enough money for the apartment deposit and our paycheck was enough for rent and food, but somehow forgot we might need to have seating for guests.

The Survival Level is reserved for items which cannot be eliminated from our budgets without some dire consequences.  Although many people turn towards eating out less when creating a budget, no one eliminates food altogether.  An often overlooked portion of the Survival Level is taxes.  If you are earning a paycheck, chances are you are paying taxes, and if you are buying something, chances are you are paying taxes on it.  Although you do not need to pay taxes to survive, avoiding them can certainly derail your ability to achieve any of the higher levels.


Level two is all about removing risk, minimizing fears, and establishing safety.  For most people, level one is fairly easy to obtain.  Level two is usually where problems start to arise since it is all about preparing for the unexpected.  For most of us that means obtaining insurance.  Insurance helps to minimize fears for people -- without health insurance, a person may fear getting sick; without auto insurance, a person may fear getting in an accident.  Sure people still fear those things, but with insurance the fear is less than that of an uninsured person.

It is at this level that people need to establish a safe environment as well, which may mean moving from the shelter established in level one.  If your food or shelter is compromised in some way and you are unable to establish safety, then it is hard to move to higher personal finance level such as savings.  One of the more difficult things to accomplish in this level is establishing an emergency fund.  If level one is consuming all your resources, when the inevitable emergency comes, you may find yourself resorting to taking on debt to establish safety and security.

Debt Reduction/Increase Income

Level three can be one of the most difficult stages in the Personal Finance Hierarchy.  This level is about reducing debt and increasing your means.  Many of us will take on debt in our lives, but the type of debt you take on may determine whether or not you move onto level four.

One example of “good debt” is debt that helps you achieve a level two, or debt that increases your human capital.  For me I took on debt for my house which helped me achieve shelter (level 1) and achieve a safe environment to minimize my fears of my family being harmed (level 2).  Other people take on student loan debt to help improve their marketability to increase their income.

“Bad debt” includes revolving debt like that found in credit cards.  In some cases credit cards could help you achieve levels 1 and 2, but often times credit cards debt reflects an imbalance between income and wants vs. needs.  This potential imbalance is an ongoing thing -- so a person could find themselves in a situation where they have moved on to level four by reducing debt and increasing income, but later find they over extended themselves and used too much “bad debt” on fulfilling wants rather than needs.  Others may find that they are never fully able to move passed level three.  Fulfillment of level three is usually a combination of decreasing debt and increasing human capital (increasing income).


Levels three and four are fluid in the sense that in many cases they are usually occurring at the same time.  We may be reducing our debt and increasing our income at the same time we are meeting savings goals and accumulating our wants.  Generally, the faster level three is obtained (reducing debt/increasing income), the faster savings and other goals can be met.

One of the more common excuses I hear from people as to why they don’t save for retirement is that they can’t afford too.  This is exactly what our hierarchy tells us.  If someone is overburdened by levels one through three, how can they save for the future?  Significant savings for retirement, vacations, and college can only be accomplished once fears of financial ruin can be squashed through attainment, or progress toward the first three levels.  The accumulation of wants in this level can also lead to someone falling back into a level three because they have taken on too much debt.  The wants you obtain should be limited by your debt and income.  It would be silly to buy a Lamborghini if the purchase price was seven times your annual salary.

Again the greater emphasis here is on balance among income, and wants vs. needs.  For me, I know I have been able to save for retirement throughout my working career, but I also significantly increased my savings as income rose and my debt decreased.

Financial Independence

The final level of Financial Independence may mean something different for each person, and much like some of the previous levels, there is some fluidity or blending of levels here. This level begs the question, how well are you able to sleep at night considering your money issues?  Another way to look at it is, are you able to accomplish your money goals?

For me, Financial Independence is retirement or, maybe more accurately, the ability to live from my own means without the influence of an outside source (needing to work for a living).  For other people this level may simply mean you are able to afford that vacation you have been saving for.  For others it may mean they can afford to weather an emergency (level 2).  The idea of financial independence is about removing the burden that money issues can sometimes place on our lives.

Where do you feel like you currently stand in this hierarchy? 

This post was written by Chris Kamp, a Field Education Representative from Colorado PERA. Would you like to write a guest post for The Dime? Email us at