Updated: 20th October 2019
It may seem a general topic for the SideGains blog, but a clear understanding of the difference between needs and wants is absolutely vital for your financial health.
If you’ve visited SideGains before you’ll know that one of my aims is to help people find ways to earn money.
Primarily, I discuss this in the context of making money online, either through blogging and websites, or through side hustles. But it’s not my only aim.
My overarching intention is to document ways in which we can grow our wealth… and when I say we, I mean WE, since I am working on this just like you.
To me, growing wealth doesn’t just mean making more money. It means thinking of ways to minimize debt, making savings and putting money making ideas into practice. It also means defining short-term and long-term financial objectives.
But before any of this, we also need to reflect on certain subjects that are both common and specific to each of us. The difference between our needs and wants is one such subject.
Defining Our Needs and Wants
Let’s split up the terms “need” and “want” to define what each one means.
For the purposes of this post, the meaning of “need” pertains to:
Circumstances in which something is necessary; necessity.Lexico
Our needs are the things we require without which we can’t survive… no comforts or trinkets here, but just the basics of food, water, clothing and shelter.
In financial terms this equates to the basic cost to live.
So how do we define a “want”?:
A desire for something.Lexico
Wants are a desire to possess something.
Of course our needs are things we want, but in the context of separating the two ideas, our wants are the things that we don’t need to survive but what we’d like to have.
Why is it Important to Understand the Difference?
In terms of our personal finances, it’s super important for each of us to make a clear distinction between what we need and what we want. Without this appreciation we risk blurring the lines between the two.
We need to eat to survive, but do we need to eat at a restaurant? Additionally, we need shoes to protect our feet, but do we need Manolos? Finally, we need a safe place to live but do we need the latest TV to live there?
If you answered yes to all of these questions then the lines between need and want is definitely blurred for you.
Many of us are very fortunate to have enough money to fulfil our needs and satisfy our desires for our wants. However, the satisfaction of our desire for our wants often impacts our ability to grow our wealth.
Most of us live paycheck to paycheck. We have enough money to pay for our needs and we make our lives more comfortable by satisfying the wants within our means.
However, many of us live above our means by satisfying a desire to have what we can’t afford through acquiring debt. For example… you want a new dream car but don’t have the money to buy it outright, so you borrow and enter debt.
Debt is the opposite of what we should be striving for since it hinders our ability to work towards wealth.
We live in a world that bombards us with opportunities to consume more than we need. Honestly, it can be very confusing to separate the lines between what we need and what we want… and that places us at risk of going in to debt.
Don’t get me wrong, I am 100% NOT against enjoying luxury wants to make life more exciting, comfortable or enjoyable. Your wants can be used as rewards for achieving goals and as such are very powerful motivators.
But the truth is, if you are blurring the lines between what you need and what you want to the point that you are unable to save money, then you are running the risk of hitting financial problems, especially if you are incurring debts as a result.
Of course some debt is practically unavoidable. Most of us don’t have the funds available to buy a property with cash.
How do You Control the Want Impulse?
I won’t lie… it’s difficult.
We need food, water, clothing and a roof over our heads. Of course we also want to do things that fulfil us and acquire things that make us more comfortable.
But we have to establish a clear picture between what is and isn’t necessary.
Before you spend money on anything ask yourself:
- Can I live without this?
- Is this something I can afford?
- Will I be able to put some money into savings this month if I buy it?
Boring questions maybe, but if you don’t ask them you may not know the answer… and if you don’t know the answer that should be a warning sign.
Controlling Your Monthly Spend on Wants
Do you have a clear understanding if the things you regularly pay for are wants or needs?
Look at your monthly outgoings:
- Memberships: Gyms, social clubs, sports clubs, online groups.
- Cell phone.
- Cable subscriptions.
- Eating out.
For me a cell phone and an Internet connection are needs as I cannot work without them. Work is the means by which I satisfy my needs.
I have a pretty good handle on eating out, luxury items (such as fancy toiletries) and clothing.
However, I have a gym membership, from which I get enormous value since I attend 4-5 sessions per week. I don’t need my gym subscription but it is satisfies an important life objective for me, and because I use my gym so frequently I get the maximum value from it I can.
Do you have subscriptions that you don’t use or that you’re not getting value from? If you do, this should be a warning.
Before I enter into any subscription I always ask myself a question: how much does this cost me annually?
Many subscription services reduce the apparent cost by breaking it down to a daily or monthly cost. This can make it seem small enough that it’s not a problem.
By assessing how much a service costs over a year though, you’re better able to understand how this cuts into your annual income as a percentage, or how much more money you’d have to earn so your current lifestyle doesn’t change.
This question is often enough for me to determine whether it’s something I can live without.
However you feel about it, you have to acknowledge that wants and needs are very different beasts.
If you are beyond the life of wage slavery then this perhaps won’t be so important to you. However, most of us have to keep our wants in check if we our goal is moving away from debt towards financial freedom.
Thanks for reading.
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