Setting-up you financial goals is a very important step in financial management.  However, you will find out soon enough that you will have more goals than resources.  You will be lucky if your current resources will allow you to save for three goals at the same time.  If this is the case, it is very important to prioritize your goals so that you can start saving for them systematically until each goal is realized.

One approach that you can take is to use the concept of Maslow’s Hierarchy of Needs.  Abraham Maslow has set up a hierarchy of five levels of basic needs (Physiological, Safety, Social, Esteem, Self Actualization). Beyond these needs, higher levels of needs exist. These include needs for understanding, esthetic appreciation and purely spiritual needs. In the levels of the five basic needs, the person does not feel the second need until the demands of the first have been satisfied, nor the third until the second has been satisfied, and so on.

Using the same concept, and translating the levels of basic needs into financial terms, we can come up with the Hierarchy of Financial Needs (Survival Money, Safety Money, Freedom Money, Gift Money, Dream Money) that can be a basis for prioritizing which of your many goals you should work on first.

                        Maslow’s Hierarchy of Needs                                                      Hierarchy of Financial Needs

A.  Survival Money: 

These are funds that you need to make ends meet.  The most basic type of survival money is the amount that your household needs for food, clothing and shelter.  Typically these funds should be in very liquid instruments for easy access.  Therefore savings or checking accounts are the best vehicles for this purpose.  A household that may have extra funds can go to short-term deposit placements in order to generate some return from these funds.

Another type of survival money is one you need for emergency situations.  A leaky pipe, the car engine unexpectedly conks out, or some minor home repair that needs to be undertaken immediately are examples of minor emergencies that you need to prepare for.  A good size emergency fund is around six to nine months worth of expenses.  Typically these funds will be in short-term instruments like, savings, checking, treasury bills, or money market mutual funds.  A stand-by loan facility from a bank might be used as part of your emergency funds.  Accident, health, and auto insurances can greatly reduce the need for liquid emergency funds.