Needs vs Wants

With a handle on your paycheck and earnings, it’s a good time to take a look at your spending. What do you spend, what do you spend it on – and why? What are you doing right? What can you stand to improve? Do you need to make some changes?

Examining your spending habits may seem a little unpleasant at first, but take a look at it this way: If you glanced in the mirror and found some of your hair astray, you would do something to fix it. The same applies to your financial profile — only your finances are far more important. In this lesson, you will learn to distinguish between your financial needs and wants, track your spending, live within your means, and map out a spending plan. You’ll also start to recognize the impact your financial decisions have on others around you.

Hierarchy of Needs

In 1943, psychologist Abraham Maslow came up with his theory of the “hierarchy of needs.” These are five levels of basic needs we all must have to survive and thrive. They are physiological needs (food, shelter, water); safety (employment, health); a sense of love and belonging (friends and family); esteem (confidence, achievement) and actualization (creativity, problem solving). He believed that once a person achieved one level, he or she could move on to the next. 

Maslow was talking about the necessities in life. People also have “wants,” the desire for the extras: an iPod, a fancy new car, a pair of gold earrings, a birthday bash.

To understand your spending, you need to distinguish between your own needs and wants. Figure out which of your expenses are absolute necessities and which ones could fall by the wayside. What’s the best way to do this? Start by making a list of all the items you truly need in life (food, shelter, transportation) and the things you merely want (dinners out, a new sweater). It’s critical to be honest with yourself as you’re putting this together.

At this CashCourse financial budgeting Web site, you can download a worksheet that guides you as you categorize your needs and wants and how much you spend on each. The worksheet also gives you space to identify “alternatives” to your wants that may be equally satisfying and less costly.

The idea is to understand how you spend your money. This is not to say you shouldn’t reward yourself on occasion. Instead, it’s to make sure that you have enough money on hand for the things you need and that you can then treat yourself in ways you can afford. For instance, you should wait until your finances allow it before you upgrade your basic phone to the latest Apple iPhone or spend extra money for that upgrade to business class when you fly.