When Needs Are Actually Wants
One of the first steps to creating a financial plan is to work out a budget or cash flow projection to see where your money is spent. Then you slash all unnecessary spending out of the budget and move on to expenses that are deemed necessities. When determining your needs or wants it is important to keep things in perspective.
The difficulty lies in trying to convince an individual that what seems like a necessity can actually be reduced or eliminated because many people overbuy on real needs.
Needs or Wants?
You need somewhere to live, preferably in some comfort. You don’t need a huge apartment or house (McMansion) with rooms you seldom use. Many people are “house poor” with huge mortgages that take a considerable bite out of the budget. Can you consider downsizing your home?
You need (probably) a vehicle to get to work and do your errands, especially if you live in the suburbs. You don’t need a huge truck or SUV that can take you on a wilderness trek if all you do is drive to the grocery store. Nor do you need a new lease on a luxury car every three years.
You need clothes, but not an entire new wardrobe every season.
You need major appliances – stove, fridge, dishwasher (maybe) and washer and dryer – for convenience. You don’t need the top of the line product with all the bells and whistles. Most large appliances will last twenty years or more with good care, so you don’t need to upgrade every few years.
Speaking of upgrades, you don’t need the latest version of the iPhone or Blackberry, iPad, tablet, X-box, Playstation, etc. and all the latest gadgets and accessories that go with them. Let’s face it, whatever you buy, a new and improved version is on its way to the stores.
You don’t need a 60-inch TV. If you’re not willing to cut out TV entirely (and most of us don’t want to) consider cutting extra services or beefed up channel selections. You and I both know that even with 500 channels there still isn’t anything worthwhile to watch and life can be immensely enriched by listening to music, reading and socializing instead of sitting in front of the tube.
Once you’re used to a level of spending and owning it’s hard to downsize but when you overindulge on features it becomes a luxury, not a need anymore. There’s also self-created needs because you bought something that requires additional or ongoing purchases.
Do you find that you have upgraded your wants into needs?
It can be hard getting your head around what are real needs and what are really just wants. The two biggest things that have helped me is not watching tv and a challenge I set myself to sell 1000 things. Since selling off my stuff I really have no desire to buy more.
@kylie ofiu:
Wow! 1000 things! Good luck. I know that once you get rid of things you no longer use you are more selective about what you buy in the future.
How did your sell 1000 things go?
I had a similar thought as my family and I were packing up to leave for a few days over the 4th of July weekend. I looked at all the stuff I was neatly packing into the back of our van and really took a hard look at how much of the stuff we really honestly needed to take with us. Over half of the stuff wasn’t really necessary – but we had the room, so why not?
It was more work to pack it up, more work to unpack it when we got to our destination, etc, etc.
So why again were we taking all this stuff with us?
The same is true in life sometimes, I think. We talk ourselves into thinking a want is a need, and in the end it really just gives makes life more complicated.
@Travis
I like the advice of asking yourself if you would PAY to have your items moved for you. If it’s not worth the cost, it’s not really worth keeping.
Great post.
Everyone does some level of rationalization for their purchases — even arguments as weak as “sometimes I feel bad and buying new stuff makes me feel better.” Rationalization is what got me into financial trouble, and it’s really tough to change that behaviour, since we’re such creatures of habit.
One eye-opener for me was spending a cold March night sleeping on the street to help raise money for a local homeless shelter. I spent a lot of time talking to people who really had nothing — and it definitely made me reconsider my spending habits, because it completely shifts your perspective on what really is absolutely necessary, and what’s a luxury.
@Angelo
Interacting with the homeless would be a real eye opener for sure. Not many of us could carry all our belongings around with us.
Great post! My girlfriend and I use the 50-30-20 rule (50% of post tax income on needs, 30% on wants and 20% on savings). How we tend to classify needs is by asking the question: If we delayed this expense until our next pay period, are there serious repercussions? If the answer is yes, the item is a need, and if the answer is no, the item is a want.
Using this rule, items like rent and other bills, groceries, hygenic products, etc. are needs while items like electronics, books, fitness items and even clothing are classified as wants. This has been working out quite well since we started budgeting over a year ago.
@Mike
It sounds like you have a good handle on your cah flow. You also need to budget some wants even if you have to delay the purchase. I probably would reverse your wants and savings percentages though, but that’s just me 🙂
We live rather simply and set our priorities on retirement savings. We find we do not need very much to keep us happy. We have no debt except for a small mortgage. We travel modestly without sacrificing our savings.
@Krantcents:
We also find that we don’t need a lot of “stuff” around. Our needs AND wants are pretty simple and while I like to buy good quality I don’t need a lot of extra features that I don’t need even if they do seem awesome.
Very going point. I think everyone has certain areas where wants creep into needs.
I can live without too much in the latest electronics. Sure, an I-phone or smartphone or I pad would be nice, but I don’t NEED it. Case in point: I am heading on a business trip soon, and I have a folder with hotel information printed, plus directions from the airport to the hotel via BART, etc. My coworker is going and is so impressed that I’m prepared! I said “well, I don’t have an Iphone that I can just go on and download the info!”
I’d be happy to have one if work paid for it and for the data plan.
My husband is a little more of an electronics guy. He just bought a gps unit “because it will help when I’m on business travel because I don’t have a smart phone”. (Which is true, but then work should buy it, don’t you think?) It was very useful on our summer driving trip. And he also got a kindle because it’s easier to read on planes.
I am a sucker for kitchen gadgets though.
@Marcia
My kids laugh at me because I’m so “un-techy”. Yes, they all look so cool, but for most of the stuff I just don’t see the point.
I, too, like kitchen gadgets and gadgets for my sewing hobbies.
I was forced to live with just the bare necessities of life. There has been no choice: A roof over my head, heat, electricity, food, few clothes and taking the bus versus paying for a car. When you get used to a certain lifestyle, it can be hard to break. However, if you can sit down and think about what you really need such as air to breathe and food to eat versus wants like video games or the coolest, latest iPhone or computer, a financial plan can be a lot more manageable. Actually writing a budget down on paper versus having one in your mind could bring some clarity to those ‘wants’ and actual ‘needs’ if you ask yourself the question, ‘Do I really want this or do I really need this?’
@Rachel
Being forced to pare down so much does make you think about what you can do without. It’s when you start having more money that you want to treat yourself to something extra, which is OK unless it gets out of hand.
A budget that’s on paper (or computer) is a lot more clear than trying to work things out in your head.
This is a great post! I often find myself muddying the waters of need vs want when it comes to electronics and communications gadgets. Like, I am a journalist so I need to be able to stay in touch, so I definitely *need* a cell phone. I could even make the argument that an iPhone with a data plan is a *need*, career-wise, because it allows me to stay current with the trends, be more accessible, etc.
But an iPad? Total want. Haha.
@Melissa
It’s easy to justify “needing” something that’s work related. It’s better if your employer would spring for it though.
I just had to remind Betsy of this about 10 minutes ago. She said she “needed” new shorts because she didn’t like the way hers fit after losing 10 pounds. I said, “So you need new shorts or you want new shorts?”
It got my point across…
@Matt
If Betsy lost 10lbs (good for her) she definitely needs new shorts 🙂
I have been thinking about this a lot lately. I need food but not all my food budget is needs. I could cut another $13 off my budget if I really need to, yet we have trouble keeping to the higher budget of $50/week because of all the wants we have. I keep thinking we are not inflating our lifestyle but the truth is, we are. I need to figure out if I am happy here or if I need to make some changes. Is $675 more important in my retirement account or in my food budget? Then I need to compromise with my DH. Thanks for kicking me in butt.
I do believe it is difficult to separate the Needs from the Wants. Even as a recent graduate with a Finance degree (Graduated in May this year), I still let my emotions get the best of me sometimes. Speaking of emotions that is what I feel is one of the biggest hurdles anyone has to overcome when it comes to the battle of needs vs wants and breaking down your spending habits.
One recent example that I have of letting my emotions get the best of me is when I was debating getting a newer computer. I wanted a better computer, so I went out and found the one I wanted, came out to about 1,200 dollars. The computer would be significantly faster than my current computer, which is about 5 years old in terms of the high end technology on it. And while it might not be the up to par in today’s standards of high end computers, it still gets the job done. I admit I did let my emotions get away from me on that one, and was ready to commit into spending money on a new computer when financially I was not ready. It definitely was a ‘want’, and not a need. So why was I so ready to commit on my ‘want’? Its simple… I let my emotions get the best of me.
Thankfully though my Dad of all people woke me up on that one. And, along with that, thats where my tip is going. Its a great idea to have someone on your decisions that can balance you out, sort of like a check and balance system. Overtime it will save you from you from making bad financial decisions. Its not perfect, but it does go along way!
I hope yall enjoyed my different perspective.
-Jean
I love this topic. I have been talking about this topic for a LONG time with friends and family. The strange part is they don’t get it. All i hear is people complaining about not having money, but they have cable TV (hulu is FREE!!!). They also have their internet package phone. If you are truly hurting for money. Put your phone on hold and get a land line phone. They are like 10 bucks for unlimited calling. Just a few needs that can be cut way down.