One of the first steps to creating a financial plan is to work out a budget or cash flow projection to see where your money is spent. Then you slash all unnecessary spending out of the budget and move on to expenses that are deemed necessities. When determining your needs or wants it is important to keep things in perspective.
The difficulty lies in trying to convince an individual that what seems like a necessity can actually be reduced or eliminated because many people overbuy on real needs.
Needs or Wants?
You need somewhere to live, preferably in some comfort. You don’t need a huge apartment or house (McMansion) with rooms you seldom use. Many people are “house poor” with huge mortgages that take a considerable bite out of the budget. Can you consider downsizing your home?
You need (probably) a vehicle to get to work and do your errands, especially if you live in the suburbs. You don’t need a huge truck or SUV that can take you on a wilderness trek if all you do is drive to the grocery store. Nor do you need a new lease on a luxury car every three years.
You need clothes, but not an entire new wardrobe every season.
You need major appliances – stove, fridge, dishwasher (maybe) and washer and dryer – for convenience. You don’t need the top of the line product with all the bells and whistles. Most large appliances will last twenty years or more with good care, so you don’t need to upgrade every few years.
Speaking of upgrades, you don’t need the latest version of the iPhone or Blackberry, iPad, tablet, X-box, Playstation, etc. and all the latest gadgets and accessories that go with them. Let’s face it, whatever you buy, a new and improved version is on its way to the stores.
You don’t need a 60-inch TV. If you’re not willing to cut out TV entirely (and most of us don’t want to) consider cutting extra services or beefed up channel selections. You and I both know that even with 500 channels there still isn’t anything worthwhile to watch and life can be immensely enriched by listening to music, reading and socializing instead of sitting in front of the tube.
Once you’re used to a level of spending and owning it’s hard to downsize but when you overindulge on features it becomes a luxury, not a need anymore. There’s also self-created needs because you bought something that requires additional or ongoing purchases.
Do you find that you have upgraded your wants into needs?