Ian Bloom, CFP® covers the Aspirational tier of the Hierarchy of Cash Flow. Aspirational goals might be buying your dream home or taking that trip around the world. The important part is that if you’ve taken care of the previous three stages, achieving aspirational goals will be more freeing.
TRANSCRIPT:
What’s up internet? My name’s Ian bloom. Welcome to Nerd Finance. I’m your resident, financial life planner and huge nerd. In today’s episode, we are going to be talking about tier four of this graphic, the Hierarchy of Cash Flows. Tier four is aspiration. Aspirational expenses are some of the things that give our lives that extra little burst of meaning, so they are important, but it’s important to have the other three stages taken care of first.
Aspirational stuff is what you think about when you’re thinking about the moment in a game, where you have finally started to do the really cool stuff. Maybe you in Saints Row, and now you can leap tall buildings with a single bound. Or maybe you are in Skyrim, and now you have all three parts of Fus Ro and Dah, and you can throw enemies feet away from you whenever they are trying to attack you.
This is the really, really cool stuff that isn’t necessarily to beat the game or to play the game at all, but is some of the extra stuff that you might be aspiring to. In real world terms, this is the savings for those extra, but meaningful, things in life. So you might have to contribute to a brokerage account over and above your retirement savings in order to make sure you get some of these things like a travel budget, or buying that perfect house that you’ve always wanted, or making sure that you have the dream car that you’ve been wanting since you were a kid.
Those things don’t necessarily strike me as extras because they have significance to you. Traveling to a lot of people is what gives their life some amount of meaning. But making sure that they have all of the other foundational pieces in places, how they are comfortable with going on the trips, and not worried about how much money they spend while they’re on the trips. Trust me, traveling is a lot more fun when you don’t have to worry about the budget, which again is why all inclusive resorts have such a great business model, even though they make money hand over fist.
So all that being said, aspirational expenses come after you have already ensured your survival. You’ve built up an emergency fund via consistent savings. You’ve started contributing to your retirement and you have a little bit left over after that. This is a hard stage to reach because this means that your income is not just a little bit greater than your expenses, it’s probably significantly greater. And you’ve probably done a lot of hard work to make sure that you have the emergency fund and the retirement contributions going in the background before you start planning for the Porsche, or the new house, or that amazing trip to Europe that you’ve always wanted. Those sorts of things matter, but they have to come after the other stuff.
For instance, if you spend money on experiences before you start saving for your future, you may get to take a great trip, but you may come back to a bunch of bills and expenses that you weren’t planning on, like your car breaking down, or medical bills because of breaking your leg on the trip, or something like that. Those are not the things that we want to have happen in life. That causes extra stress, and cashflow is about getting a handle on the day to day of your finances, so that you don’t have to be stressed out about it.
I hope that this continued conversation around the hierarchy of cash flows is interesting to you. We’ve now moved through survival, which is keeping the roof over your head and the food on the table. We’ve talked about stability, which is making sure you can meet those short term emergencies. We’ve talked about future money, which is focusing on retirement or those other long term moments that you want to have occur. Then now we’ve moved on to aspirational stuff, where you are making the cool things in your life happen.The final thing we’ll talk about are extras, which are little fluff pieces in the day to day that you need to make sure to budget for. That is the fifth tier of the Hierarchy of Cash Flows. And maybe the self actualization moment, although you could argue that that comes in at the aspirational stage. Anyway, I hope this video has been helpful to you, and I hope you have a wonderful day. Thanks so much for watching.
