Whenever I’m helping clients get clear about their spending we start by breaking their expenses down into two core categories: needs and wants. It seems pretty simple. Needs are things we must have to survive, such as food, water, shelter. Wants are things that we would like to have, but could live without.
In theory, it’s an easy concept to understand. But in practice, it’s not so straightforward because people categorize spending based on their personal perspective.
The Gray Areas
Separating wants from needs is complicated by the fact that some of the things we want are quite similar to the things we need. Consider food for a moment. We need it to sustain ourselves. We need nutrients, vitamins and minerals to support our body’s functions and stay healthy. But do we need to dine out 3 times a week? Do we need dinners at a fancy restaurant or expensive gourmet ice cream to survive?
Transportation is another area where wants and needs may be blurred. If we live within walking distance of our jobs and stores where we can buy necessities, no transportation except our two feet is necessary. If not, public transportation might be what we need to get us where we need to go. For those who live in rural areas or work many miles from home, however, a car might be a need. But while a $60,000 sports car would meet our transportation needs, a less expensive model would meet them just as well.
Today’s society has placed a great deal of importance on having the latest and greatest in everything. In reality, though, we don’t need as many things as we are told we should have. So let’s put that notion aside for now.
Let me be clear, there’s no harm in buying things we want if our needs are taken care of. I am not hyper focused on frugality since I believe long term financial success is more easily achieved when we have a balanced approach between earning and spending. When the focus is limited to restricting expenses and extreme budgets, I have seen too many people give up — similar to being on an unrealistic diet.
Telling the Difference
So let me ask. Has there ever been a time when you saw something you really wanted and you rationalized getting it by calling it a need? As I said before, it’s okay to spend on wants if your needs are covered, but it’s this type of thinking that is often a slippery slope and can get people in trouble over time.
For many of us, an ongoing conscious effort is required to stay clear on the differences between our wants and needs. This is especially true if you’ve gotten into a habit of buying impulsively without giving much thought to whether or not you need something. But if you make it a point to analyze each purchase, it can become second nature.
When you are about to spend, just stop and think about it for a moment. If you consider the item a need, what aspect of your “survival” do you need it for? Is there something else that would suit that purpose just as well or better? If so, why do you need the item you chose? Are you justifying the need for make the purchase? In many cases, you’ll find that you really didn’t need it at all.
Developing a new perspective on the difference between wants and needs is essential to gaining control of our finances. By putting true needs first, we can reduce spending and have more money to put towards the big priorities in our life. We don’t have to completely give up our wants, either. As long as you’re spending with awareness and responsibility, taking care of your wants is perfectly fine.