One of the keys to financial success is learning how to separate wants from needs. It sounds easy. A refrigerator is a need. A car (in most cases) is a need. Housing is a need. Utility usage is a need. This is all true, to a point. However, these things can easily bleed into the wants category if you’re not careful. Making the distinction between a product that satisfies your needs and one that satisfies your wants is tricky business and requires that you be honest with yourself and willing to sometimes “settle” for less than your dream product. Here are some examples of needs bleeding over into the wants category:
You Need A New Refrigerator
Even though your refrigerator has died and you know that you need a new one, the one you fall in love with at the store has a built in TV, a special finish, twice as much space as you need, and an ice maker that could make enough ice to build an igloo. It also costs $4,000. The model that’s “good enough” is $1,500. To stand in the store and claim that you “need” all the bells and whistles isn’t true. You may want them, but you don’t need them
You Need The Perfect Temperature
What you don’t need is to keep the thermostat set at a comfy seventy degrees day in and day out in the middle of July. Sure, you may be comfortable, but unless you have a medical reason for keeping it that low, there’s no need for it. You can survive at a much higher temperature.
You Need A House
Yes, you need a roof over your head. But do you need 6,000 square feet, granite counters, tile floors, a movie room, and a maid? Probably not. You might want those things, but they aren’t needs.
Now, this doesn’t mean that you always have to buy the product that’s lowest on the feature scale (although there’s something to be said for minimalism, at times. If you can afford the extra features and options and you really, really, want them, then have at it.
Where it becomes a problem, though, is when you start justifying your wants by claiming they’re real needs. You need a car to get to work. Fine. But, saying that you need a car with all the options, heated seats, a GPS, and a ski rack to get to work is using your need for a car to justify your desire to have all the options. Similarly, claiming that you need new shoes and then using that need to buy the priciest pair of Jimmy Choo’s you can find is a justification for buying the shoes you want. Less expensive shoes would satisfy your need just as well. Using your needs to justify your wants is a slippery slope that often ends in debt.
You have to be honest enough with yourself to say, “Hey, I don’t need these things I’m craving. They’re really wants and I can be fine without them. I’ll buy the cheaper model.” If you lie to yourself and claim that your wants are really needs, you’ll make the salesman very happy but you’ll make yourself poorer. It’s not an easy skill to learn and even harder to master when you’re surrounded by swanky goods in the store, but it’s necessary if you want to thrive.
If you are careful about sticking to products that satisfy your needs, you’ll have more money later on to save or spend on your true wants. If you blow $4,000 on that fridge you “needed,” you won’t have that money to go on the cruise you “wanted.” However, if you were vigilant about separating needs from wants and bought a fridge that satisfied only your true needs for $1,500, you’d have $2,500 to put toward that cruise. Don’t let your “needs” put you in a position where you can’t have any of your wants. Worse, your (imagined) needs can keep you from satisfying your other real needs, such as happens when you buy the expensive fridge and then don’t have money left over to buy a new stove when it gives out next week. Keeping needs and wants separate isn’t easy, but it is a valuable skill to master.
(Photo courtesy of daubiwan)