The Circle of Life: Deciphering Between Needs vs. Wants

If you want to save money, an easy way to do it is to not spend money.  The richest man in the world, Warren Buffet, has practiced this principle his whole life.  He has saved 50% of everything he earned since he started throwing newspapers as a young boy.  (Now a lot of intelligence and some luck also played a vital role, but the basis is You Can’t Spend More Than You Have!  (Web Note: For a detailed history of Buffet’s life, go to http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrentimeln.htm)

But wait…how exactly does one define a want versus need? Sure, we all need food, shelter, clothing – but what about a cell phone? A car? A good argument can be made that needs vary depending on a person’s lifestyle choices. 

For example, I live in Washington DC – land of one-way highway exits and road signs labeled by city, rather than direction. I spent a lot of time stuck on one-way roads, digging through an atlas while getting honked at and trying not to sob. Right around Christmas, I conveniently mentioned to my parents that GPS is a need, not a want, in D.C. If you know me and my inability to navigate, you would agree. I don’t exactly think that even my rationale of “wants vs. needs” were spot on in this case, but I know everyone sees some wants as a “need”!

It’s amazing how not only do needs and wants vary by person, but there are also strong cultural influences on our perceptions of need. I recently taught a financial counseling class at a university. I had all the students read the book, “Your Money or Your Life”, by Vicki Robin and Joe Dominguez. The book talks about how to get out of debt, develop savings, and live well for less. The class was discussing the book, but I noticed the nine foreign exchange students from Spain were silent. Towards the end of the discussion, I asked them what they thought. One courageous girl in the back raised her hand.

"Miss Bell, we do not understand your American way of spending,” she said. “We save for everything or we do without.  We have one car for our entire family. We save for vacations, gifts, and any other unneeded or unnecessary expenses.  In fact, usually the only debt someone will go into is for a house.” 

Wow. What a different philosophy!

Needs versus wants is all a matter of perspective. Stephen Covey states that we all view the world through our own “spectacles”, in his book, “The 7 Habits of Highly Effective People”. This means that what we as Americans may view as a basic need, the rest of the world may not see it in the same light. I remember a student in another one of my classes who was amazed to discover not everyone had a TV in their bedroom. He was even more shocked to later find out some people have never even seen a TV – talk about a candidate for study abroad! The point is, go back and reevaluate your needs versus wants.

Here are some quick tips, which may start to put things in perspective:

• If you find something you want to buy and can’t live without, walk away from the purchase. If you still desperately want it 24 hours, and have thought through if you can afford it, if it’s for a good price, etc – then go back and purchase it. But if you’ve already forgotten about it, then you have your answer. This goes for a $2 checkout register purchase, and a $300 clothing purchase.
• Freeze your credit card in a bucket of water. If by the time the credit card is completely and naturally thawed out (no cheating here), then you can get it. This is your “cool-down” period.
• Bring a fiscally conservative family member to help shop. They can tell you the honest truth if that outfit really looks good on you – or if it’s a waste of money.
• Stick to a shopping list, and don’t waste time browsing! And, as my boss currently reminded me, use coupons!
• Limit your exposure to advertising. Scientific studies have shown that the more we’re exposed to advertising – whether it be TV, magazines, etc – the more likely we are to buy.
• Start an internet wish list by saving the URLs of the items that you would love to buy.    If you use the book-marked pages, then you won’t forget the items you desperately want even if it takes you two or four weeks to save up the money for the purchase.  (And quite honestly, if you do forget about the purchase, then I think you’ve already answered your own question on whether you really wanted it…) 
• Collect your spare change or start an electronic savings account that pulls a small amount from your checking every week. Use that money as a “fun” account.  Anything goes, but once the money is gone, you have to start saving again to make that next purchase

With all of this in mind, you can stick to your spending plan. I used to tell me college students, “If you can learn to manage a $500, you can manage $5 million”.   It worked for Warren Buffet and the principle is still true.  Learn to manage what you have now and as more is given to you, you will be have the knowledge and responsibility to manage the larger income. 

(Book Recommendation: Read the Richest Man in Babylon by George S. Clayson) 

The habits you create now, whether you are a struggling college student or a newly minted graduate, will be the habits that remain with you throughout your life    As one of my favorite mentors says, “ “It’s not how much money you make, it’s much money you keep.”