The following is an excerpt from my book Margin Matters: How to Live on a Simple Budget & Crush Debt Forever.
The concept of determining needs versus wants is something we all struggle with. This may be hard to believe, but there once was a time when people only bought what they could afford. The younger generation reading this might have difficulty grasping the concept of layaway. This is what most Americans used when they couldn’t afford the full price of an item. They would make payments on the item, and THEN take it home AFTER it was paid for in full. Now, with a simple swipe of a piece of plastic, the item is instantly yours. And by the time it’s paid for, not only will you have shelled out more for it thanks to interest, you probably won’t even still have or use the item anymore.
Recognizing Discontentment
What gets you in the most trouble when it comes to spending? The challenge of determining a need versus a want. We can always justify the spending in our minds when it comes to making a foolish purchase. This is where behavior modification comes into play. Don’t be driven to make bad financial decisions based on stuff you don’t have. Most of us have more stuff than we’ve ever had before. Discontentment is dissatisfaction with what you have, and awareness is what fuels discontentment. You are happy with your current possessions until you become aware of other items. You have become aware of a product or service you didn’t have and now you want it. Advertisers are shrewd at magnifying this awareness in an effort of letting us know about things that we “must have.”
The Car Struggle
In 2008, my wife bought a new Toyota Corolla and has had it ever since. It’s now an 13-year-old car with 187,000 miles on it. There is nothing wrong with the vehicle and it gets great gas mileage. Yet, we constantly struggle with, “Should we buy a new car? The new Honda Pilot looks nice.” The Corolla is old and a base model. It doesn’t have power windows or locks. Although it’s a four-door car, it’s not very roomy. A list of all the features we don’t like about the car is easy to create. However, when we compare that to the prospect of having a $500 monthly car payment, reality sets in. Nothing drives better than a paid off car!
Awareness leads to unhappiness
Awareness drives your spending. If all you’re aware of is what you don’t have, it’s going to fuel your discontentment and your debt. What fuels your discontent? What corrections can you make in your spending? The next time you’re about to make a nonessential purchase, envision someone offering you the product in one hand and its cash equivalent in the other hand. If you’d rather take the cash, you don’t really need the item you were about to buy. Take it a step further and transfer that money into your savings. For example, let’s say you want to buy the latest video game system. The PS5 is a hot item and it retails for $499. But you already have an Xbox Series X, so you don’t really need a PS5. Now envision that you’re in line with that coveted PS5 in your hands and I cut in front of you and offer you five, 100-dollar bills. Think about how much groceries you could buy with the $500, or the debt you could pay off, or the money you could add to your savings.
My Dad Says…
I recently asked my dad about the struggle we all have with differentiating needs from wants. Here’s what he said:
It’s tough. For big expenses, you need to think, “Is this something I really need?” You do buy wants that you don’t necessarily need. There are nice things you get just so you can have them. People really struggle with the question, “Do I really need it?” Really needing it is food on the table, a house over your head, clothes on your back, a job, and a way to get to and from your job. Those are the basic needs. Wants are everything beyond that. The wants are the fun part. Everybody wants to do the wants. My parents didn’t have a lot of wants. Their wants were probably all focused on fishing tackle and boats—they really enjoyed fishing. They were interesting to watch. They lived a fairly simple life.
A Different Perspective
Known as “The Millennial Millionaire” and the founder of MillennialMoney.com, Grant Sabatier is also the author of Financial Freedom: A Proven Path to All the Money You Will Ever Need. In the book he shares the aggressive steps he took to save $1.25 million in order to retire at age 30. During his journey, when his income began increasing, he discovered a new mindset had developed about the way he felt about money:
The more money I made, the less money I spent, and the less money I felt like I needed to do what I love. It’s a feeling I never expected, but once I realized I had enough money to buy pretty much anything I wanted, then I no longer wanted to buy it. Just having the ability to buy something was enough.
When you see the true value of money, you naturally spend less. Many of the richest and most successful people I know are the most frugal. But this doesn’t mean they’re cheap. Frugality is not about not spending, it’s about not wasting—your money, your time, and your resources. It’s about buying and using only what you need.
Grant’s newfound mindset is counterintuitive to what society and culture will have you believe. In fact, it seems to mimic the laws of human nature which tell us that we always want what we can’t have. Now that Grant can have basically anything he wants, he doesn’t want it anymore. Imagine that!
The paradox of possessions is that we assume the happiness we get from making a purchase will last as long as the item itself. It seems intuitive that investing in a good or service we can see, hear, and touch on a permanent basis delivers the best value. But it’s flawed logic. Think back on some of the purchases you’ve made. Perhaps it was a new car or smartphone. If you were like me, you thought, “This is the last car/house/phone/pair of shoes I’ll need for a long time.” Now think about how much (or little) time passed until you were ready to replace or upgrade the item in question. Was it a lot shorter than you had originally planned upon purchasing the item?
Final Thoughts
It can be difficult determining needs from wants because your brain will play tricks on you. A good exercise would be to write down everything you’ve bought in the past week and put them into two columns—Needs/Wants. For example, if you have a fully functioning iPhone 11 and you buy an iPhone 12, that is a want, not a need.
I hope by reading this blog you have come to the realization that you can accomplish the same goals by spending much less. In taking the time to research options and determine what you truly value, you will become a savvier spender. Don’t succumb to the myth that paying more for something makes it more valuable. There are always ways to save money—especially if you can avoid the impulse buys. Remember, the easiest way to make money is not to spend it.