When you’re clear and focused on your goals, it’s easier to keep your priorities in mind. But along the path to any goal, there are plenty of distractions. It takes discipline to be able to sort out what’s important to focus on, and to make the choices that will get you where you want to go.
While working toward a financial goal — or simply trying to live in a financially responsible manner — you’ll have to make choices about how you will spend your money. One key to making these choices align with your intentions is understanding the difference between your needs and wants and being honest with yourself about them. If you can differentiate between your needs and wants, you can make better spending choices.
“Discipline is the bridge between goals and accomplishments.” — Jim Rohn
Needs are the things you literally cannot live without: food, shelter, clothing, and medical care. These are things that you will have to spend money on. But even within these necessities, you will face choices, and the decisions you make will affect your progress toward your goal.
While food is a need, fancy meals are a want. While clothes are a need, expensive trendy items or 10 pairs of sneakers are a want.
What about a phone, or a car? While neither may be technically necessary for survival, they may be necessary for a job or other responsibilities. But again, there’s a wide range of ways to meet those needs, and you’ll need to be mindful of how the “want” creeps in.
“Wants” aren’t necessary for living, but we see them as improving our quality of life. They’re the things that we often tie our sense of identity and happiness to. Gamers want the best new gaming equipment. Athletes want the gear that brings them excitement as they practice their sport.
It’s okay to want nice things or things that make you happy. You should have the things you want. It’s just important to keep those “wants” in perspective so that they don’t have a negative effect on your needs.
Responsible spending means figuring out how to take your finite resources and deploy those resources according to your needs and goals.
Oh No, FOMO! (Don’t Let It Trip You Up)
A common challenge in determining your wants and needs is financial peer pressure. It can be hard when friends have the latest phone, or when they go out to eat or to the movies frequently, and you don’t.
“Comparison is the thief of joy.” — Theodore Roosevelt
In addition to the influence of peers, there’s social pressure. Ads and celebrities tell us that our status is tied to the things that we own, and it’s natural to want to feel that social approval. FOMO (Fear of Missing Out) can drive people to make financial decisions that don’t align with their longer-term goals.
You will be more successful in combating financial peer pressure when you set spending and savings goals, and when you surround yourself with friends that have similar goals and values.
Follow the Formula: The 50-30-20 Rule
So how do you prioritize your needs and goals while not denying yourself everything you want? I find the following formula helps keep it all in balance.
Budget 50% of your income on needs: housing, utilities, gas, groceries, etc. Budget 30% for wants: cable, shopping, travel, hobbies, dining out. This leaves you 20% for savings/investments and an emergency fund.
Because after all, healthy habits are all about balance!
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