What You Need to Know About Needs vs. Wants

APRIL 13, 2016
H. William Wolfson, DC, MS, MPASSM, CFP
Needs vs. WantsMost of us go to a store to make a purchase because of a perceived need only to make a different or additional purchase. Instead of spending a pre-determined amount, the final cost exceeds the original intent. Why? The differences between needs and wants may be easy to explain or delineate in one’s mind, but they are generally harder to distinguish out in the real world. We all need food, water, and shelter, but we want it on china, in a crystal glass, and at the home of our dreams.
                         
Consumers as Doctors
 
Consumers are bombarded daily with ads relating to the newest and best products available. Ask your doctor about the new Drug X if you suffer from condition Y. Martha Rosenberg quipped, “As soon as people began viewing ‘ask your doctor’ ads, they realized they weren’t as healthy as they thought. Suddenly, they suffered from seasonal allergies, social anxiety, high cholesterol, depression, bipolar disorder, gastroesophageal reflux disease (GERD), irritable bowel syndrome, dry eye, restless legs syndrome, and worse.”
 
Patients are now visiting their doctor and demanding these products, without understanding their true usefulness, safety, or expense. According to Elisabeth Rosenthal, “Advertisements tend to drive patients to the latest expensive treatments and patented drugs ... While some of the new drugs may offer benefits over their less-expensive predecessors, many do not ... As a result, doctors say patients often wind up asking for medicines and treatments that they don’t need or that are far more expensive than alternatives.” The challenge remains for the physician to be the doctor and determine the patient’s needs. A patient’s wants vs actual needs may hurt them or worse! The patient has to understand as a consumer they are asking a professional for their expertise.
 
Economic and Financial Costs
 
Dr. Douglas Hawks stated, “This [need] includes things like food, water, and shelter. A want, in economics, is one step up in the order from needs and is simply something that people desire to have, that they may, or may not, be able to obtain.” The financial pundits and so-called experts often recommend purchasing a certain financial product one day, but soon after advise dumping it because something else just became available and seems to be the next best investment. By the way, if it is that good why are they sharing the news with you? Ponder this dilemma the next time you decide to invest in something or make a large purchase. What is your purpose and reasoning before you act on your decision? Have you adequately vetted all your available options? Second guessing should not be the result of your action. Instead being objective and pragmatic will help solidify the reasons as to your need vs want.
 
It is Up to You
 
Any investment decision should be about you and your perceived needs. Considerations should include: realistic risk tolerance vs anticipated returns; time frame of short-, mid-, and long-range goals; asset product selection; choice of financial and accounting professionals; etc. According to the Social Security Administration, “If you have average earnings, your Social Security retirement benefits will replace only about 40%. The percentage is lower for people in the upper income brackets and higher for people with low incomes.” There will be those who will meet all their financial needs and will be able to fulfill any want. However, for many, the goal of achieving the required financial savings to assure retirement needs are met requires an ongoing progression of saving and debt reduction.
 
Financial planning should be kept as simple as possible. Case in point, PBS did an online financial presentation geared for children. Part of the presentation explained, “Saving means setting aside a certain amount of money each time you get paid … Sometimes there's no getting around it – you have to spend money on things that you need right away … Other times you might spend money on something you really want. In order to know when to spend and when to save, it helps to know the difference between needs and wants.” Perhaps a bit naïve, but if children can grasp this concept at an early age, think of their financial possibilities. What is your excuse?
 
No Goals + No Budget = No Chance
 
According to Michael Kitces, “In most ways, the separation of essential versus discretionary retirement spending is not unlike the separation of wants versus needs for any individual’s general levels of spending.” But how do you get to discretionary spending? There are loans for mortgages and cars, school tuition and related expenses, etc., but not retirement! A major goal should be to have all debt paid off before retirement is even begun. Time can be your friend or nemesis; it depends on when you start your journey. Consistent and purposeful saving can be the difference between success and failure. Most if not all of us want to have a successful outcome and the wherewithal to enjoy our chosen goals, but we need to implement a successful plan to get there. Deacon Hayes outlines “seven ways to find more money to put toward your retirement” and it is worth reviewing. The voyage needs to begin somewhere; that coffee without all the added accoutrements is looking better already!

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