I will start off this article with an Economic Definition: Needs and wants are the unfulfilled desires that motivate human behaviour and that when satisfied improve human well-being. They include both physiological or biological requirements for maintaining life (needs) and the psychological desires which make life more enjoyable (wants).
Simply put, a ‘Need’ is something you ought to have for survival whereas a ‘Want’ is something that you desire to improve on your self-actualization. In our modern society, people in developed countries have gotten to the stage whereby basic ‘needs’ are no longer a concern and most people are constantly chasing after more and more ‘wants’.
Take a general example – a bag. As you walk down the streets, you see people carrying branded bags for prestige and glamour (Want) when a normal good quality bag (Need) would suffice. This is a good example of how people have lost their sense of touch in differentiating between ‘needs’ and ‘wants’. They are being influenced by the media and seek to improve their self-esteem.
Don’t get me wrong; what fun is life without some ‘wants’? Good buffets whereby I eat a lot more than what I actually ‘need’ are extremely enjoyable affairs. So is purchasing a branded watch just to tell the time when a simple cheap one would suffice. The point isn’t to forgo all of the stuff that we crave, but to realize just how much of our spendings are tied to ‘wants’. It’s perfectly normal and in line with human nature to ‘want’ things, but when you’re trapped in a “rat race” just to maintain things that you ‘want’, there’s a real problem.
If you are one of those with this “real problem”, here are 2 simple ways to solve it.
Method 1: Divide all your spending into ‘needs’ and ‘wants’.
Check first on the items which could be replaced by something cheaper and still be as durable or is able to produce the same effect. Do so.
Next, eliminate some of the ‘wants’ and focus on things more important to you. You will find that the majority of expenditure always comes from ‘wants’. Eliminate some of these ‘wants’ and you will find yourself with strangely a lot more savings each month.
Method 2: Pay yourself first.
Determine a percentage of your income that you would like to save up when your monthly pay check arrives. Set it aside. In this way, you CANNOT be tempted to exceed your expenses budget and will literally force yourself to rein in some of your spending. By doing so, you will automatically be forced to spend less on your ‘wants’ while continuing to meet your ‘needs’.
Both these approaches are effective in their own ways. The 1st method is a bottoms up approach that focuses first on differentiating between ‘needs’ and ‘wants’ as part of the budget process. The 2nd method is a top down approach that simply forces you to rein in your spending by setting aside first a pre-set spending limit.
I hope you find the advice useful and as always, the DollarsAndSense.sg team would love to hear on any comments that readers may have.
Royalty-free photo from Getty Images. Used with appreciation.
DollarsAndSense.sg aims to provide interesting, bite-sized and relevant financial articles.
Learn together with like-minded Singaporeans at the Personal Finance Discussion SG Facebook Group by discussing a range of personal finance topics.
If you have not done so, subscribe to our free e-newsletter to receive exclusive content not available anywhere else.