Click on the link below if you’d rather listen
No one knows what day of the week it is. Having holidays land on two consecutive Wednesdays and then stretching “days off” to one weekend or another (or both) has managed to muddle weekends and weekdays.
But we do know it’s after the first of the year, because:
- Some have made resolutions that they’ll try to keep longer than two or three weeks.
- Others are dreading the arrival of their credit card statements … to the point that they even refuse to go online to see what the year-end damage was.
- Even others are grateful they made it through last year, but are not looking forward to the gymnastics they’ll still need to close out each month.
Despite public bursts enthusiasm, many are at least in a fog, if not in a funk.
No matter what our financial situation, one thing is for sure: it wouldn’t hurt to have a little better control over our money, especially our expenditures.
On the surface that seems pretty simple. We earn money. If we budget, we then spend money on the things we need and there should be enough to cover them. (Maybe even something left over.) Yet somehow, often there is not.
Here’s the rub: except for those on a painfully tight budget, most of us no longer know the difference between a “need” and a “want.”
The History of Needs and Wants
When did we lose track of the difference between needs and wants?
A chart found on the internet (but which I couldn’t verify) says that:
“At the beginning of this century [the 1900s], the average American had 72 wants and considered 18 of them important. By the end of the century, the average American had 496 wants and considered 96 of them as genuine necessities for happiness.” (Miller)
If that’s true, no wonder we’re overwhelmed by our wants!
How We Define Needs and Wants
As a review, needs are the essentials, the basics of life you require for survival: a roof over your head, food, water and clothing. Needs also include any formal financial obligations, that is, things you “need” to pay because of contracts (mortgage or rent, insurances, credit card minimums, car payments, etc., although with time some of these could be reduced). Last are other necessities like gas, medical costs and any expenses that allow you to earn your income.
Virtually everything else we spend our money on is a want. These are all the things we’d like to have, but could live without.
No one is saying that you should deny yourself everything that isn’t a need. The purpose of this exercise is simply to point out that everything else you pay for is discretionary. As a result, you have far more power and control over your money than you think.
Let’s make this more obvious.
Print it out. If you don’t want to do the exercise meticulously, at least sit for a few minutes and list all the things you think of as “needs” and then those you’d qualify as “wants.”
Why Acknowledging Needs and Wants is Important
If you’re doing well and have few financial constraints, it probably doesn’t matter what you put in what column. And if you’re on a very tight budget, you’re probably very aware of what is what, having very little money available for many wants at all.
But if you’re somewhere in between, and concerned about how you’re going to save enough for you kids’ schooling or your own retirement, you might want to take a closer look at your priorities.
Spending on wants opens the spigot and becomes the greatest source of “leakers” in our budgets.
The nice people at NEFE offer another helpful form, called Plug Spending Leaks Worksheet. Their suggestions are just a beginning; you can undoubtedly think of many more. (Remember, by the year 2000, the average American already had 496 wants …)
What you do with this new-found information (and power) is up to you. But you might want to do something real self-serving like deciding that for every two dollars you spend on wants, you’ll spend one dollar on drawing down non-mortgage debt or adding to savings.
The only winner in this case … would be you.
Let us know in the Comments section below if you realized how much of what you spend is actually up to you.
Bio: Sharon O’Day fixes financial lives. She is a tell-it-like-it-is money expert with a successful career in global finance, plus an MBA from the Wharton School. Today she specializes in getting entrepreneurial women over 50 back on their game so they can have more money, less stress and more joy. With her “Over Fifty and Financially Free” strategies, they take actions that lead to their ultimate goal: financial peace of mind.