Learning how to distinguish between needs and wants is incredibly powerful financial tool. It can mean the difference between a financially comfortable future and one that never gets off the debt treadmill.
What are needs and wants?
The difference between needs and wants is basic economics.
A “need” is something you really can’t live without. That’s basic food, clothing and accommodation.
A “want” is everything else. It’s things you’d like to have. An example of that might be an iPhone 6, when you already have an iPhone 4 or 5. Or it may be a second car when the family could find ways to juggle with one.
How we fool ourselves
Whilst a good healthy breakfast is a need, a macaron with your morning coffee is a want. You don’t need to eat that macaron to survive. Another example is whilst you need somewhere to live, that doesn’t mean a 280 square metre house when 180 square metres would suffice. The difference between the two is a want.
The trouble is that many of us say to ourselves “I need” whatever it is we want to buy. We don’t even question whether we really need it. We just tell ourselves we do and find all sorts of subliminal ways to reassign wants as needs.
Look around you. Are all of your possessions you see really needs?
Who are you harming?
Sometimes it’s fine to spend money on wants such as nice clothes. However wants should come under a different category of your budget and only be bought when money has been put aside for them.
And your attitudes risk flowing through to the next generation; some of the most effective lessons that children learn are from their parents.
We’re not perfect, but we can improve
Even those of us who work in the financial services industry aren’t perfect. The antidote is to stop in your tracks, think, and be honest with yourself when you tell yourself you need something.
Next time you think you need that new kitchen/car/trainers/mascara/book/iPhone/TV/and so on, ask yourself: “Is this really a need?”
Another strategy that works for some people is to keep a running total each month of how much you’ve spent on wants and how much on needs. Your total could be very enlightening.
Remember the only victim of the crime of fooling yourself that a want is a need is you (and your family if you’re financially connected).