Get Real About the Difference Between Needs and Wants: Enjoy the Life You Really Want to Live!

by Millionaire Mommy Next Door on August 30, 2009

in Calculators,How To Guide

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.

Too Many Toys

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!

Relevant Posts:

How To Revolutionize Your Spending Habits

How To Increase Your Financial Bliss

Follow me on Twitter (@MillionMommyND) where I share interesting articles, opinions, quotes, tips and other bite-sized tidbits relevant to success, happiness and financial freedom almost daily.

Sign up for free email or RSS notifications every time I publish something new. No spam (ever) and no risk (it’s easy to unsubscribe should you ever change your mind).

photo credit: by Robert S. Donovan

{ 22 comments… read them below or add one }

traineeinvestor August 30, 2009 at 10:49 pm

I think that if I spent all day at home with our children, alcohol would be classified as a “need” rather than a “want” :-)

On a slightly more serious note, some fo these items have a degree of subjectivity to them. Using food as an example, eating low cost foods by buying in bulk etc is one thing – but where do you draw the line between too cheap and unhealthy? The cheapest food items are not always that healthy.

Daycare is another matter – some daycare is (IMHO) actually a good thing for the kids and the parents – it’s still a want by any definition, but one that I would spend money on.

ps – great spreadsheet!

Reply

Millionaire Mommy Next Door August 30, 2009 at 11:00 pm

@traineeinvestor: Do you recognize that you are expressing YOUR personal values and priorities here? Which is great — you value good health and time away from your children, for example, and are willing to work for these things. Being aware and making conscious decisions is the key.

Reply

anon August 31, 2009 at 6:27 am

I used the spreadsheet and my total working hours needs vs wants came out as a dollar amount, not hours, with the question “do you want to work this many hours?” There were no hours. FYI.

@anon: Zoho appears to behave badly sometimes. I’ve added the Excel file for direct download.

Reply

kristi August 31, 2009 at 7:01 am

This was a great article. After having my son, I cut back to part-time work thinking I would continue with the same after my daughter was born. When she came along and my son was still under 3, I decided I wanted to be home with them. I have friends who still wanted to work, saying that full-time parenting was not for them, so everyone has to do what’s best for them but I wanted to be home. However, as my hubby and I had finished our Ph.D.’s, the student loan payments were bigger than our mortgage and I didn’t want to defer them even for a short time. So I put it out there to the universe that I wanted to be home and my husband surprised me the NEXT DAY that he had applied for a promotion several months earlier and just found out that he got it. With the extra money (and being diligent about needs vs. wants), we were able to cover student loan payments, mortgage, etc. with me being home. I’ve chosen to remain working about 3 hours per week to keep my private practice open, in the event I want to return when the kids are older. I’ve never been happier and feel incredibly lucky!

Reply

Ophelie August 31, 2009 at 8:27 am

Fantastic post. I’m a student, and often my budget is heavily leaning on the *needs* side. Looking at the list, though, I realized that for me, gym membership (or, in my case, yoga studio membership) falls in the needs, because I don’t know where my sanity would be otherwise. So I do have some “wants” being passed off as “needs”. I just need to acknowledge them as such.

Reply

Ophelie August 31, 2009 at 8:29 am

Just wanted to add — that spreadsheet is great. Thank you for it!

Reply

Beth L. Gainer August 31, 2009 at 9:31 am

Really great posting!! You are so right about how we as a society confuse needs and wants. We live in a gluttonous society where more is never enough.

I’m a single parent, so day care for me is a need, rather than a want. It’s expensive, but I am frugal in other areas of my life (rent part of a house for half the rent I was paying).

i’m going to check out your spreadsheet because I totally agree that quality time is also a need. Sometimes money spent on a babysitter so one can achieve R&R time is essential.

Thanks for an insightful posting.

Reply

Millionaire Mommy Next Door August 31, 2009 at 10:15 am

@anon: The numbers you see should be correct — just pretend the “$” sign isn’t in front of the number. I’ve repeatedly gone back to edit those cells, but Zoho Sheets appears to be wonky at the moment. I would suggest exporting the spreadsheet to your own application (Excel, Pages, whatever) and using it there. You should be able to easily remove the “$” from within your own app.

Alternatively, one could consider the hours required to work as currency, as I imply in my post…

Reply

Money Funk August 31, 2009 at 10:44 am

I love your post. Especially how you make things so simplistic to figure out. Like this wants vs. needs. Or just turning your car payment into a million dollars (+).

I can’t wait to see the results of this personal study. :)

Reply

Cathy August 31, 2009 at 10:45 am

Great post. I read recently if you took all the wealth in the world and divided equally among every family (not sure if it was family or person), the average wealth would be $9,000. Our sense of wealth, needs and wants is clearly distorted.

Reply

Kim August 31, 2009 at 11:12 am

Love the post! It is so true! We live in a materialistic society and it can be difficult being frugal. I stay at home and it can be tough, but if I were working I would be working to pay for daycare.

Reply

Annie G August 31, 2009 at 2:10 pm

Good post. The spreadsheet is a great idea and a good way to visualize wants and needs.

I have a similar one I use, where I split all of our money/expenses into “obligations” (needs) “savings” and “wants”. The basic theory (although I forget the book this is from) is that obligations should be 50% or less of after-tax income, savings at least 20%, and wants no more than 30%.

One thing I love about this method is that it allows me to see the monthly cost of all my wants together and help determine if the value we get from them is worth the cost. For example in the plan for this year, several items worked out to around $200 per month: eating out, charity, gifts, vacation, electronics. We then thought about the comparative value of these items vs the cost. One response to this was that we decided to reduce our eating out and our actual spending this year has been about $150 per month.

Reply

Little House August 31, 2009 at 3:18 pm

Great post. Many people don’t realize that their is a huge difference between NEED and WANT ( my husband struggles with this one!). Question on the spreadsheet, do I use my monthly amount or annual amount for each item, or does it matter?

thanks-
Little House

Reply

StephanieGriffith August 31, 2009 at 6:21 pm

Great post! We’ve been living on very little most of our marriage, sometimes by choice, sometimes not so much (DH has been off work for a year) but our needs are met and we get to spend oodles of time as a family, so I feel pretty lucky. Even at our low income we are better off than so many in this world.

Reply

cog September 1, 2009 at 8:04 am

wow! this is amazing. never saw wants and needs this way.
i’m amazed by the simplicity of how you presented needs and wants in relation with money and how you live your life! one could see clearly the huge gulf between needs and wants, and the best part is you could see how much it is costing. this is very insightful.

Reply

Rita B September 1, 2009 at 6:43 pm

Great spreadsheet.

I have to add, when you are talking about the hypothetical family coming out of the shelter, you aren’t allowing them any money for electricity or fuel for heating their home. And what about water? I think those are necessities that should be included.

Reply

Rita B September 1, 2009 at 6:46 pm

Cathy, the cost of goods and services are different in different countries of the world. For example, 10k might go REALLY far in some countries but barely get you off the ground here in the US. It’s all relative.

Reply

Young Wife September 3, 2009 at 2:27 pm

Hello! Found your site on MSN Money. Great post. Most of us could take a look at our needs vs wants. Especially things like cable, toys, clothes and the kind of cars we drive.

Reply

Nick Pfennigwerth September 10, 2009 at 7:21 am

Hey!
Great website, this is my first post that I’ve read. I like the material so I’ll be a frequent visit.

This needs vs wants thing stirred up an experience of mine in business, so I’d like to comment…
If you’re in the service industry, which everyone is, then you should focus on marketing your products to show your customers what they want, but give them what they need.

Supposedly there is this economic depression, but people are forking over hundreds of dollars to see an NFL game. Why? Because most people value entertainment. So, from an entrepreneurial perspective, people always buy what they want, rather than what they need.

Show your customer what they want, present it to them as a “wants based” rather than need. Then, give them what they need along with the want.

For example, if you’re a public speaker in the personal growth industry, put on an entertaining show (what they want), but give them a powerful message that can change their mindset (what they need) and they’ll be your customer forever because you are fulfilling their wants and needs.

Thanks for the advice on this website! Especially how to find the difference between needs and wants–I appreciate it.

Nick

Reply

Aldred September 13, 2009 at 6:29 pm

Hey!
Great website, this is my first post that I've read. I like the material so I'll be a frequent visit.

This needs vs wants thing stirred up an experience of mine in business, so I'd like to comment…
If you're in the service industry, which everyone is, then you should focus on marketing your products to show your customers what they want, but give them what they need.

Supposedly there is this economic depression, but people are forking over hundreds of dollars to see an NFL game. Why? Because most people value entertainment. So, from an entrepreneurial perspective, people always buy what they want, rather than what they need.

Show your customer what they want, present it to them as a "wants based" rather than need. Then, give them what they need along with the want.

For example, if you're a public speaker in the personal growth industry, put on an entertaining show (what they want), but give them a powerful message that can change their mindset (what they need) and they'll be your customer forever because you are fulfilling their wants and needs.

Thanks for the advice on this website! Especially how to find the difference between needs and wants–I appreciate it.

Nick…

Reply

neverland~ September 16, 2009 at 9:43 pm

amaing article, i started recording my expenses every day, feeling good i become able to manage the costs, what we want is the aspiration to life, but to balance the wants and needs makes our lives easier and happier.

Reply

Bankruptcy Ben June 25, 2010 at 1:36 am

I’m having this discussion with my partner at the moment. We bought a fixer upper house but we now have a big mortgage. I don’t want to have kids unless I can see them and 1 of us doesn’t have to work. I want to sell and buy a smaller house (we’ll pobably make enough to have a very small mortgage that we could get rid of in 2 years but she likes the expensive house. I do to but I like her and I assume (wink) i’ll like the kids more.

Reply

Leave a Comment

{ 2 trackbacks }

Previous post:

Next post: