Taking a deeper look at wants vs. needs
Posted
Jul 11 2008, 09:49 AM
by
Karen Datko
Rating:
This post comes from Trent Hamm at partner blog The Simple Dollar.
Let's start off with an interesting statement.
I believe that many of the personal-finance problems people face are due to confusion between wants and needs.
Not long ago, I used to think there was a blurry area between wants and needs. I'd use that blurry area to justify some of my purchases -- cell phone usage, expensive pens and so on. Those things were "needed" in some way, so I would define them as needs and not think about them critically.
But what happens when I step back for a moment and think about those things with a critical eye? What do I actually need in life?
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I need a roof over my head. Does that mean I need a house as nice as the one we live in? Not really. We could make do with something smaller and older. Thus, quite honestly, probably half of our mortgage payment is a need and half of it is a want. The same goes for homeowners insurance.
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I need food and water. A majority of my food bill is a need. Most of my purchases are staples and basic food for my family. I'll also identify my water bill as a need.
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I need clothing. What I buy is used to replace something that's falling apart, and as we've established, I wear clothes until they're in very bad shape. Even then, when I do buy clothes, I'll still spend a little above the need.
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I need a means to earn a living to pay for the needs. That means at least part of our electric bill is a need, as is our Internet bill, as both are required for me to write and earn income.
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My wife needs a means to earn a living. Thus, our fuel expenses are largely a need, as is car insurance.
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I need basic hygiene and health, as does my family. Those areas of spending are largely need-based.
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I need to protect my family against my demise. Thus, life insurance and disability insurance are needs.
Everything else is a want.
Part of my mortgage is a want because I want a big house. Some of my food bill is a want because I like delicious food. Cable? Want. Telephone? Want. Cell phone? Want. Wii? Definitely a want. Other entertainment expenses? Want. A higher-end computer? Want.
When you start looking at the small number of things in your life that are actually needs, you really begin to see how many things you buy simply because you want them, and then you start to realize just how much fat you can really cut.
For example, do I really need both a home telephone and a cell phone, especially if I'm already paying for high-speed Internet and my computer has a microphone and speakers? Of course not. I could set up Skype and eliminate the land line, then get a prepaid cell phone and take care of the mobile bill, too. (My wife and I are actually migrating to this. We're trying Skype on a trial basis as our primary telephone right now).
But what fun is life without wants?
The point isn't to abandon all of the stuff you want, but to realize how much of your monthly spending is tied to wants. It's fine and healthy to want things, but when you're sinking financially just to maintain things that you want, there's a real problem.
Try this experiment. Divide all of your spending into needs and wants. Before tallying things up, make a deal with yourself. For every dollar you spend on a want, put a dollar into savings for the future. Then tally things up.
When I did this, I realized that the majority of our spending was for things that I merely wanted. Looking at those wants with a more critical eye -- eliminating some and putting a bit more focus on the things most important to me -- led me to make some cuts in my spending. It's made a big change in my spending choices -- and has put some cash right back in my pocket.
Other articles of interest at The Simple Dollar:
Paying cash vs. going into debt: Looking at the numbers
Spenders Anonymous: 12 steps to beating the addiction to spending
The true monthly cost of an appliance
