I struggle every day with separating my wants and my needs. What keeps me in focus is that for every toy or gadget I pass up, the path to financial independence becomes that much clearer. But first, how does one separate between what is a want and a need? It might not be that simple. For example, is a mobile phone a want or a need? I would argue that 10 years ago, it was a want. But in today’s digital age, I cannot help but classify a cell phone as a need.
Wants are perfectly fine if you can afford them. If you cannot, then they must be removed from the equation. Doing so requires discipline and the willingness to put needs first ahead of wants. True needs include shelter, water/food, clothing. Outside of these items, everything else are almost all wants.
One of the things I like to do is look back at my past month’s expenses and create separate categories for my spending and splitting them into wants and needs. Then I take a highly objective look at my “needs” and scrutinise them as much as possible. After doing this exercise through several iterations, it becomes very clear what my needs are.
From a savings rate perspective, I am currently spending 44% on needs, 5% on wants, and saving the remaining 51% on an annual basis. A few months from now, I have a goal of reducing my needs percentage to 29%, and increasing my savings rate to 66%. To do this would mean significantly reducing what I had previously classified as a need and removing that from my spending.
If one could accurately distinguish between wants and needs, it would be a critical step in creating a proper budget. And as we all know, budgeting and saving is our anchor towards financial independence.
As usual, if you have any questions, Ask the Fellow!