The main difference between needs and wants is that needs are boring and wants are fun, right? Wrong. But good guess. Financial experts say the best way to get in control of your money is to separate needs from wants. But what really qualifies as a need and what qualifies as a want?
Have you ever really paused to think about it? Understanding the real differences between needs and wants will open your eyes and help you see why certain purchases are not beneficial to your financial health or your budget. This concept of needs and wants may seem cut and dry, but it isn’t. When you break down the true meaning of needs and wants, each time you make a purchase you’ll consider how that purchase impacts your financial future. This simple, yet overlooked concept will change the way you approach money forever.
Attaining financial freedom will require you to make small, yet significant decisions with your money each day. If you feel you’ve lost your way, making one mindless spending choice after another, it’s time to pause and go back to the basics. Take a moment to understand the real difference between needs and wants.
Let’s start by taking a closer look at the definitions and then the big emotional trap you should avoid.
Understanding needs and wants
When deciding whether something is a need or a want, start with the basic definitions outlined in economics. A need is something necessary to survive. Without meeting a need, you would be in grave danger or even die. Your safety and health depend on it. If you can survive without something, then it’s not a need. On the other hand, a want is simply something you desire but can live without.
The key thing to remember in making a wise money choice is not only about your comfort in the here and now, but also about your future survival and quality of life. A series of thoughtless money moves will slowly but surely deliver you to the doorstep of financial lack — or even financial ruin. Think of this example. A leaky pipe might only be a minor annoyance for now (maybe some noisy dripping here and there), but if you don’t take care of it, one day it will burst and cause a flood that could ruin your home. Your financial life works the same way. A thoughtless purchase or a declined credit card here and there might not phase you now, but years later you’ll be struggling to pay off high-interest debt when you could be enjoying a comfortable retirement or using that money to buy a home.
Next: Your own actions will determine your financial health.
How you meet a need can determine financial health or harm
Few people will argue that using financial resources to meet a need is a wise way to spend your money. However, being reckless in the way you meet that need is unwise. Remember that the way you meet a need can derail your financial progress. For example, we all need to eat. However, we don’t all need to eat a fancy steak with wine at an expensive restaurant each night. It’s not enough to ask yourself if you need to make a purchase before you buy something. It’s also necessary to go one step further and make sure you’re being responsible with how you’re using your money to meet that need.
Next: Your emotions are getting you into trouble.
The emotions trap
Even though you know you should focus more on needs as opposed to wants when you’re trying to stay within your budget, you likely struggle with this from time to time. You have important financial obligations such as a mortgage payment, school tuition, or a credit card bill, but you may wrestle with the desire to give in to your wants. This happens for most of us because many of our decisions tend to be made based on emotion. Your natural inclination is to focus on how a purchase or experience makes you feel.
In a post for Psychology Today, Psychologist Peter Noel Murray says this is why consumers tend to choose a name-brand item over an identical generic brand.
Emotions are the primary reason why consumers prefer brand name products. After all, many of the products we buy are available as generic and store brands with the same ingredients and at cheaper prices … A nationally advertised brand has power in the marketplace because it creates an emotional connection to the consumer. A brand is nothing more than a mental representation of a product in the consumer’s mind. If the representation consists only of the product’s attributes, features, and other information, there are no emotional links to influence consumer preference and action. The richer the emotional content of a brand’s mental representation, the more likely the consumer will be a loyal user.
Emotions are powerful. They tend to take over and seduce you into confusing needs and wants. You start to reason you need that new outfit more than you need to transfer an extra payment toward paying down your credit card balance. You have an office event or a party to attend and you want to dress to impress. Before you know it, you’ve fallen into a clandestine relationship with the mall. You may even secretly stow away purchases in the back of your closet so your loved one won’t discover your dirty little secret.
Your need could be someone else’s want
Also understand that what might be a need to one person could be a want to someone else. For example, you might need a new car so you can get to work and make money. You need that money to feed yourself and your family and afford a place to live. Someone else might want a new car so he can show off to their friends and impress the ladies. Impressing people isn’t going to affect whether that person survives. He might not get the girl or keep friends if he’s driving a beat-up van, but he’ll live to see another day.
As you can see, the discussion of needs versus wants can be complex. The important thing to remember when faced with a tough financial decision is to address your needs first, but then make sure you aren’t reckless with your means of meeting that need. At the end of the day, you’ll have future you to answer to. Choose wisely.