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The Pyramid of Financial Needs

The Pyramid of Financial Needs

| August 09, 2023

Financial Health

How is your financial stability?

There are four stages to achieve financial independence. 1) set goals and objectives 2) accumulation, or the gradual growth of your money 3) spending/investing, and 4) retirement/estate planning and distribution.

Saving money is also a crucial aspect in maintaining financial stability. It can help to visualize the steps to achieving financial freedom as a pyramid with each layer building on top of the others. If you skip the foundation of your financial pyramid, you can put your long-term goals at risk. And you can't reach the top of the pyramid without a strong foundation. Take a look at the pyramid of financial needs to gauge how your finances align with these suggestions.

Pyramid of Financial Needs

Generally, as you move up the pyramid, you have...

  • Increased Risk
  • Increased Return Potential
  • Decreased Liquidity
  • Increased Tax Savings
  • Longer Investment Time Horizon

Reviewing the Pyramid of Financial needs graphic may help you identify gaps that exist in your financial plan.

Working your way up the pyramid you start with...

Security & Confidence

- A strong foundation in savings is a healthy way to start a financial plan
- Includes checking accounts, savings accounts, money markets, CDs, insurance

  • Emergency Reserves = Save 3-6 months' worth of your expenses

  • Debt Management = Prioritize debt according to interest rates

  • Risk Management = Structure insurance plans to protect your most important assets - Income, Home, and Auto

Capital Accumulation

- Medium to long-term savings
- Typically a stream of investment contributions

- Includes non-qualified investments, bonds, stocks, mutual funds

Tax Advantaged Investments

- Long-term savings
- Retirement Plans
- Includes qualified investments, pensions, IRA, 401(k), 403(b), 457

Aggressive Growth

- These are speculative investments which are made up of money you can afford to lose
Higher potential to lose principal usually means a higher potential return
- Includes individual stocks, commodities, futures, options, real estate, gold, art

Wealth & Success

- Your ultimate goal
What is your idea of wealth and success?
- Are you on track to meet your goals?

Tax Types for Investments

Ordinary Income Tax
  • Earned Income (FICA, Federal, State)
  • Unearned Income (Interest, Dividends)
Capital Gains Tax
  • Stocks
  • Mutual Funds
  • Home
Tax-Deferred Investments
  • IRA, 403(b), 457 Annuities
  • Government Bonds
  • Life Insurance (Investment Grade)
Tax-Free Investments
  • Municipal Bonds*

*Exempt from federal taxes and from most state and local taxes if residing in state of issuance.

CONTACT US today to talk about how you can achieve these financial goals.