I’m going to start off with an interesting statement.
Many of the personal finance problems people face today are due to confusion between things they want and things they actually need.
It’s true, distinguishing between a want and need can be very difficult, especially when we are being persuaded by outside influences, i.e. salespeople, friends, co-workers.
There have been times in my life where this particular subject was very, very blurry. Like the time I needed a $15k car but bought a $30k one instead or the 36” new TV that would have been just fine but the 60” one was more impressive. I’d use that “blurry area” to justify some of my purchases. These things were “needed” in some way, so I would just define them as needs and not think about them critically.
But what happens when I step back from that for a moment and think about these things with a seriously critical eye?
Life, things I actually need…
Roof over head. Does that mean I need a house as nice as the one we live in? Not really - we could make do with something much smaller and more affordable. Thus, quite honestly, probably half of our mortgage payment is a “need” and half of it is a “want.”
Food and water. The majority of my food bill is a “need” - most of my purchases are simply covering staples and buying the basics of food for my family.
Clothing. I’m extremely tight with my clothing. I often find myself shopping at discount stores to save a buck or two. Even then, when I do buy clothes, I’ll still spend a little above the need.
Money. Money is a necessary evil, without it we can’t sustain ourselves. The question with money is how much do we need? It’s fine to want more money but be careful not to put money ahead of things like family, friends, etc.
Protection against demise. For me life insurance and disability insurance are needs. Be sure to have enough coverage here to allow for your family to get back on track should something catastrophic occur.
WANTS, everything else…
Part of my mortgage is a “want” because I want a big house. Some of my food bill is a “want” because I like to eat out. Cable (all the extras)? Want. Nice car? Want. Fancy cell phone? Want. Wii, quads, boats (fun toys)? Definitely wants. Traveling? Want. Other entertainment expenses? 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.
What fun is life without wants? It’s not…
The point isn’t to abandon all of the stuff you want, but to realize just how much of your monthly spending is tied to wants. It’s fine and healthy to want things, but if you’re sinking financially trying to maintain all of the things that you want, then there’s a real problem.
Recommended experiment. Divide your spending into needs and wants. Now for the challenge; before adding things up, make a deal with yourself that for every dollar you spend on a want you will put a dollar into savings for the future. Then add away...
If you are like me you just realized that the majority of your spending is on things that should be considered “wants”. With the state of our economy I found myself needing to look at my wants with a more critical eye, eliminating some and putting others on hold for now. Doing this has made big changes in my spending patterns each month, and has put some cash right back in my own pocket.
I hope this information was interesting and sparked some curiosity. Having wants is a great thing and pushes us to reach further, work a little harder and simply dream but staying grounded also helps put everything into perspective…a need is a need and a want is just a want, nothing more!
If you have questions or would like additional information feel free to contact AmeriFree directly. Our experts are available M-F 8am to 5pm MST to answer any questions regarding debt, budgeting, finances.