What does Financial Well-Being mean?

According to the Consumer Financial Protection Bureau, Financial Well-Being is “a state of being” in which a person:

• can fully meet their current and ongoing financial obligations;
• can feel secure about their financial future;
• and is able to make choices that allow them to enjoy life.

It can also be referred to as financial wellness and is the ultimate goal of financial education.

I define financial wellness more as a “real state”, not as a feeling in itself… it is a path to reach this “state”. As with financial health, you have access to financial products and solutions, you can defend your rights, you have a stable income, you are building and growing your wealth or are well on the way to doing so, and I could go on for a while.

Financial health refers to things like budgeting and saving options, net worth, savings balances and when you can retire. It therefore has everything to do with your financial situation and is thus different from financial wellness, because it does not include the emotional well-being or feelings aspect that well-being does. So we strive for financial well-being and financial wellness, overall financial health and total well-being for everyone. Financial stability is essential in every economic climate, and especially in these uncertain times. You cannot build a robust house on sand; a solid foundation, a stable base, is needed. In my book “The road to financial wellness”, I talk about Maslow and his relationship to the “Pyramid of financial needs”.

Maslow’s hierarchy of needs

Let us first take a look at the work of Abraham Maslow, the famous American psychologist who developed the “Hierarchy of Needs”. In his groundbreaking work, Maslow divided human needs into five levels, ordered from the most fundamental need (health and well-being) to the most complex need (self-actualisation), where the lower need must always be met in order to realise the higher one. It is a model that outlines the physical, social and psychological needs that must be met to ensure that an individual can develop their true potential.

The pyramid of financial needs

Your basic needs must first be met before you can move on to the next level. You can also apply this method to the healthy building of your wealth. It is structured according to the same principle. We start at the bottom of the pyramid and work our way towards the top of our financial needs:

• Primary needs (income): Most people provide for their primary needs through the income they earn from their job. You need an income to cover your living costs.
• Safety and security of existence (insurance): The next step is to insure yourself against unforeseen setbacks. With insurance you can cover certain risks to protect your earnings and, where relevant, the wealth you have built up.
• Need for social contact (financing): To acquire assets you often need financing. You can even use financial leverage to grow your wealth.
• Recognition and esteem (saving): To reach your (financial) goals, it is a good idea to start saving in good time. Savings buffers lead to financial peace of mind and also to financial confidence.
• Self-development (investing): You reach the top of the pyramid when you succeed in fulfilling your full economic potential. This is the stage at which people can invest to generate future (extra) income.

The “Pyramid of financial needs” is a revolutionary yet simple model that makes clear what you need to reach your true economic potential. Although every person faces different circumstances and challenges in meeting those needs, the model can be applied to all income and demographic groups. Just as “Maslow’s Hierarchy of Needs” applies to all people, we believe the “Pyramid of financial needs” applies to everyone too. A clear 360-degree perspective on people’s financial lives that helps you build your wealth step by step.

Would you like to know more about the pyramid of financial needs? Then follow our programme: “The road to financial well-being”. Click on this link and find the information you are looking for at our Financial Well-Being Academy. The goal of financial education is financial well-being. Build your wealth and your financial confidence together with us.

We look at your financial well-being from an overall perspective. Interested in our approach? Then get in touch with Het Financieel Huis via this contact form or by email: info@financialwellbeingacademy.com.