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What are needs?
Although the distinction between needs and wants seems trivial, observations and conversations with my blog readers paint a slightly different picture. Why is it so difficult to tell these two categories of spending apart?
Looking at Maslow's hierarchy, there are the following groups of needs:
- physiological needs;
- safety needs;
- belongingness needs;
- esteem needs;
- self-actualization needs.
Each of these areas of our lives is essential for functioning properly and with a reasonable level of satisfaction. Each subsequent level works best when the previous one has also been met.
Sticking to this classification, every expense can be assigned to one of these groups of needs. We often shift the boundaries and bend the circumstances just to justify our purchases. As a result, practically any expense can be rationalized as a need. I will explain why this happens in a moment. For now, let's set aside the classification above and look at down-to-earth examples rooted in your financial reality.
Need = I need
Example: You are a photographer. You do almost all of your work using one camera body and a few lenses that fit into a single bag. Let's skip the photo editing aspect. By accident, while changing a lens, you drop your camera, and it cannot be repaired. To continue doing your job and, consequently, earning a living, you are forced to buy a new body.
What are wants?
A want is something you don't necessarily need, but clearly desire. It might even be completely unnecessary. In everyday life, you can get by without fulfilling your wants. They do not affect the fulfillment of basic daily needs, but rather those higher up in Maslow's hierarchy. Not fulfilling your wants lowers your quality of life, though much less than you might think.
Do you have a set of fancy plates at home that you only take out for guests? Or maybe a cool gadget you used a few times that’s been gathering dust on a shelf ever since? In reality, we use very little, and most of the things we have, we simply "own."
Whim = Want
Example: You are a photographer. You do all your work using a camera body and a few lenses. Your gear isn't the newest, but it’s perfectly adequate for your work. You are growing, but you aren't a top-tier professional, and you aren't squeezing the absolute maximum out of your equipment. On set, you use a colleague's new purchase and notice it has better autofocus, shoots 8K instead of 4K at 60 frames per second, and has a few other features you use only occasionally and that your clients don't care about. You want to replace your camera with a new one just to get a breath of fresh air.
When does a need turn into a whim?
Of course, you could point out that a better camera means faster work, and therefore potentially higher earnings. Possibly. However, if you think that way, you will turn every whim into a need.
In the hands of a true professional, even a cheap, used, rather old camera will take a great photo. They would probably take a better shot with a phone than I would with half a million dollars' worth of gear. There is no significant justification here for buying a more expensive model. Both work similarly, and how much you get out of them depends more on your skills than the size of your wallet.
Does a brand-new, shiny 500-horsepower SUV get you through the city faster than a compact car running on LPG? If you follow traffic laws, 99% of the time, your trip will take exactly the same amount of time.
Needs and whims vs. lifestyle inflation
The main reason for lifestyle inflation, which I covered in a separate piece in the home budget series, is the failure to distinguish between needs and whims. The higher your earnings, the higher your expenses.
As we raise our standard of living, an increasingly higher level becomes the absolute minimum below which we feel we cannot go. Or at least, that’s how we imagine it.
Subsequent expenses are not dictated by real needs, but by the "needs" artificially created by marketers. Do you think you decide for yourself how you spend your money? Large companies don't just have teams, but entire departments of people responsible solely for optimizing sales.
Your brain, which approaches purchases logically, regularly loses to your emotional side. Every day, research is conducted on how to make advertising slogans resonate better with target audiences. How packaging colors affect sales conversions. How to optimally design shopping paths. Where, when, and from which angle to suggest another product to go with the one you chose yourself.
These will never be 100% your own decisions.
Go back to your list of debts. Look at your expenses. Why did you take on those obligations? That information no longer matters for the repayment itself. However, consider how many of those things you actually needed, and how many were a whim of the moment that will weigh on you for months to come.
When will you be able to afford more?
I don't want to discourage you from treating yourself. Not only do you have the right to do so, but I also believe it's your duty. I always say that if you earned your money, only you have the right to decide how to spend it. No one else. Not your parents, friends, or some guy on the internet. I just want you to be aware of the potential consequences and to look after your own security. Whether you do that is entirely your decision.
