Sally wants Mark to work more so she can quit her job to be a stay-at-home mom for their two young children. Mark wants Sally to continue working so they can pay down debt and build some savings. Despite earning a higher than average combined annual income, they often argue about money. Worse, they feel stuck, unable to do anything about their current financial situation.
This typical family lives in a four bedroom suburban home. Kids’ toys multiply like horny rabbits, spilling into the gigantic playroom. Two newer cars and a pickup truck occupy the three-car garage. The RV attempts camouflage behind a tall privacy fence that surrounds the expansive green lawn.
The children’s toys gather dust all week long because the kids are away at daycare, 50 hours a week, while Sally and Mark work. The big toys gather dust, too — the RV rarely leaves the yard because once the weekend arrives, the family feels too wiped out to go anywhere. At least the big screen HDTV LCD surround sound system sees some love while everyone veges out…
Mom and Dad tell me their number one priority is spending quality time with their two young children. But the children spend the majority of their awake hours with daycare providers because Mom and Dad have to work overtime to pay for and maintain their grand accumulation of Stuff.
Clearly Sally and Mark’s financial obligations are out of whack with their personal priorities.
The truth is they haven’t discovered the difference between their needs and wants. Once they do, they will find it IS possible to enjoy the life they want to live, together, with their children.
How to find the difference between needs and wants:
1. Imagine that you and your family are currently camped out in a homeless shelter, eating at the soup kitchen and receiving government assistance. Now imagine that you landed a job that earns just enough money to pay rent on a small apartment and to buy your own food. Add bus fare for your work commute. Write down your bare bones monthly costs. Here’s an example based on data collected for an average family in the lowest income bracket:
Food = $254
Shelter = $627
Clothing = $71
Transportation (public) = $12
Total Bare Bones BASIC NEEDS = $964 a month
2. Write down your actual expenses. Place these numbers next to the column you created in step number one above. Here’s an example using Sally and Mark’s actual expenses:
Food = $1,027 actual
Shelter = $2,400 actual
Clothing = $457 actual
Transportation (public) = $1,613 actual
Total ACTUAL EXPENSES = $5,497 a month
3. Subtract your bare bones needs from your actual expenses. The results are your basic wants.
Food = 1,027 – 254 need = $773 want
Shelter = 2,400 – 627 = $1,773 want
Clothing = 457 – 71 = $386 want
Transportation (public) = 1,613 – 12 = $1,601 want
Total BASIC WANTS = $4,533 a month
4. Similarly, separate the rest of your expenditures into needs and wants. Be brutally honest with yourself. Sally and Mark’s looks like this:
Kids Toys = $200 actual minus $15 need = $185 want
Gym Membership = $125 actual minus $0 need = $125 want
Tobacco/Alcohol = $123 actual minus $0 need = $123 want
RV = $250 actual minus $0 need = $250 want
Cable TV = $70 actual minus $0 need = $70 want
Day Care = $1,400 actual minus $0 need = $1,400 want
Total EXTRA WANTS = $2,153 a month
Results: If Sally and Mark reduce their material wants, they could save up to $6,686 a month — $80,232 annually — easily enough to afford one parent the option to quit their job, pull the kids out of daycare and raise them themselves. If their top priority is to spend more time with their children, clearly they can afford to do so.
I’m not advocating that you should get rid of all your wants, nor am I saying that every parent should quit their job to raise their children. That’s not what this post is about. I simply find it important to uncover the role needs and wants play in our financial life. My intention is that you realize your life is full of choices. Once you decide what is truly important to you and make a conscious choice, reaching your goal is simply a matter of putting your money where your mouth is.
BONUS! I’ve created a very unique tool that calculates the difference between your needs and wants. It also uses dollars, the value of your time, AND your personal values and priorities as currency! This is the spreadsheet I use to create my own spending plan (aka budget). You can use this spreadsheet online at Zoho (where it can act wonky at times!) or better yet, click here to download the Excel (.xls) file directly to your computer for immediate use. This spreadsheet works on my Mac in Numbers, too. You are welcome to share this spending plan tool with your friends or post it to your own blog.
I have a favor to ask: This post and the spreadsheet I designed took me considerable time to put together. If you like them, please share this post and/or spreadsheet with your friends, Digg, Twitter, Stumble Upon, Facebook, and other social media applications. Thanks!
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photo credit: by Robert S. Donovan