015: Finances: Needs Vs Wants
In this episode we experiment a bit with the format of the show and instead of giving you the outline at the beginning, we start with a quote that illustrates the essence of needs vs wants and then jump right into the topic. We doubt this will stick as a format, but we just wanted to mix it up a bit and see if it works. Or maybe a combination of the two. Let us know what you think.
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After the quote we get into a discussion of wants versus needs and how we have trained ourselves and the children to perceive the difference between the two and how that perspective has helped us be better organized and manage our finances better when it comes to having to make a decision in the moment.
Topics
- Defining needs and wants
- Changing spending habits and selecting priorities
- Teaching children the difference between needs and wants
Spending, not earning, is the key to financial security.
Some people earn a lot of money and have no financial security, and some people earn less and are financially secure, and the difference is how they spend their money. The key isn’t how much you bring in but how much goes out. If the two are out of balance, like spending more than you earn, it’s harder to achieve financial security.
Defining Needs and Wants
Needs: food and water, shelter, transportation, clothes
Wants: would be nice to have but can survive without it
Need a shelter, but don’t need a 50,000 square foot home. Need clothes, but not necessarily name brand clothes. Need transportation, but not a sports car. Find balance between need and more than you need to survive.
Be practical. A beater car can get you to work, but is it reliable? How much money are you putting into it for repairs. A high-end vehicle was expensive to repair with many issues. No need for that other than a status vehicle. Money drain. Get a basic, reliable car.
A coworker was talking about upgrading his house. Although he was struggling to make their current mortgage, they were still looking to buy a bigger house. Many get caught up in appearances and buy stuff they can’t afford, but it looks like they can.
This applies to electronic gadgets as well. One lady bought a new iPad for her 5 year old daughter so she wouldn’t be the only one at school without one. She bought herself a new iPhone so she wouldn’t be the only one at work without one. She bought items she couldn’t afford because she was caught up on appearances. She didn’t have right priorities and didn’t know the difference between needs and wants.
Changing spending habits and prioritize
- Ask yourself, do I need it or do I want it?
- Avoid impulse buying. Give yourself two weeks after seeing something for the first time and see if you really needed it. Did you survive without it? Or have you kept thinking about it and also saved up the money for it, then it’s okay to go back and purchase it.
- Prioritize. It’s okay to have a few wants as long as you’ve set that in your budget.
Amy got a phone call from a salesman who wanted to sell her something right then on the phone. She agreed with him that the purchase made sense, but didn’t want to jump on the deal. He asked why. She said one reason was that she wanted to talk it over with her husband, and the other reason was that she needed to see if it fit into her budget. He told her about the payment plan, but when she did the quick math, the price no longer made sense. He told Amy she was looking at it too short term, and that it really was a great investment in the long run.
“What you want and what you need aren’t always the same. Be willing to delay short term gratification for long term greatness.”
Several years ago, Dave and Amy took a Dave Ramsey financial class and one of the assignments was to set your budget exact. They sent their kids to stay with the cousins for the weekend, and then spent a big chunk of uninterrupted time to fine tune their budget. For each budget item, they asked if they needed it or wanted it. They allowed for a few wants in the budget. It can be very discouraging if you work hard, budget it all to cover the needs and leave nothing to enjoy. It’s not a bad idea to have some play money, as long as you don’t go into debt for that enjoyment. Eating out and entertainment are part of the budget. It isn’t big but those categories are not needs, just wants to enjoy life a little. Plan accordingly for those realistic parts of life.
Wants come in varying options. A family tradition is to have pizza every Friday night. One option is to order out every week. Another option is to have frozen pizza or homemade pizzas which is the same idea, just a little more frugal. Amy likes quality clothes but hates paying full price, so she often shops at second hand stores, and loves paying $4 for a Columbia jacket or REI pants. Great deals can be found in classified ads, Craigslist, thrift stores, and yard sales. It is possible to be frugal and yet get those things you want.
Teaching kids the difference between needs and wants
Mitchells provide the needs for their kids, but their kids pay for what they want. They’ll even split the price on some things. If the kid wants a name brand item and they need it, the parents will pay the going price for the basic item, and the kid pays the difference if it’s a more expensive name brand item. That helps kids recognize when they have just crossed from the need into the want category.
Parents model for the kids by the phrases they use. Don’t say “we can’t afford that”. Rather say “that’s not where I want to put my money right now.” It’s not a matter of how much money but how you want to spend that money.
Purple child saw a beautiful dress at the store she really wanted. Amy pointed out that she had several already at home, so the dress was categorized as a want instead of a need. Purple child started saving up her money and went back a few weeks later and bought it with her own money.
Another thing Mitchells do in helping kids learn the difference between needs and wants is have their children buy the presents for their friends when invited to birthday parties. The parents don’t buy the birthday presents. Green child was invited to four birthday parties in one week. He was pretty excited, but when he realized he had to buy all the presents he started looking at it from a different perspective. He realized one of the birthdays was for a kid he wasn’t really friends with, so he didn’t go to that party. The other three parties were for all good friends, so he needed to start working up for money to buy those presents. He started vaccuming out the car and sweeping the garage to earn some extra cash. It’s okay to have some things you want and to work a little harder to achieve those.
The sooner kids learn the difference between needs and wants, the better prepared they will be for real life budgets.
You have succeeded in life when all you really want is only what you really need.
[^1] “2015 Mazda 6 Touring 2.5L V’s 1990 Mazda 929 V6i” by James. https://www.flickr.com/photos/30474136@N07/16651312078
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