The Basic Rule of Personal Finance: Needs vs. Wants

“You Can’t Always Get What You Want” is a famous song by the Rolling Stones. This song speaks to the difference between desire and need. Sometimes, when you’re chasing something you think you need, life can be tough. But in the end, you often find you get what you actually need. This idea is central to understanding personal finance. If you stop chasing the things you think you must have, you’ll avoid disappointment and, importantly, avoid debt.

Understanding Needs and Wants

What Are Needs?

Needs are essential for survival and basic well-being. These include:

• Food: Nutritious meals that keep you healthy.
• Shelter: A safe place to live.
• Clothing: Appropriate clothes for different weather conditions.
• Healthcare: Access to medical services when needed.
• Transportation: Reliable means to get to work, school, or essential activities.

What Are Wants?

Wants are things that make life more enjoyable but are not essential.

Examples include:

• Luxury Items: Designer clothes, expensive cars or trucks, or high-end electronics.
• Entertainment: Concert tickets, fancy dinners, or vacations.
• Conveniences: Latest gadgets, premium streaming services, or high-end appliances.

David has a great article – “How to Save More and Spend Less: Needs vs. Wants Explained”.

Sarah’s Spending Spree

Sarah, a 35-year-old marketing executive, enjoyed a comfortable life. She had a good job, a nice apartment, and loved shopping. Every weekend, Sarah would buy new clothes, gadgets, and dine at expensive restaurants. Her credit card bills piled up, but she justified her spending by calling them “treats” she deserved.

Sarah’s Journey

• Initial Happiness: Sarah felt happy and fulfilled with her purchases.



• Debt Accumulation: Over time, her credit card debt grew.
• Financial Stress: The mounting debt began to cause her stress.



• Realization: Sarah finally realized that her wants were leading her into financial trouble.

Sarah’s story highlights the importance of distinguishing between needs and wants. Her constant pursuit of wants led to debt and stress.

The Trap of Consumerism

Our society is driven by consumerism. Businesses constantly bombard us with advertisements, making it hard to resist buying the latest products. This easy access to credit and the pressure to keep up with trends can lead to financial problems.

The Influence of Advertising

• Temptation: Ads create a desire for things we don’t really need.
• Easy Credit: Credit cards and loans make it easy to buy now and pay later.
• Lack of Discipline: Without self-control, wants can easily be mistaken for needs.

Here’s an article on the influence of advertising – “How advertising can change people’s behavior?”.

Mark’s Turnaround

Mark, a 40-year-old teacher, loved the latest tech gadgets. He frequently upgraded his phone, laptop, and home entertainment system. Each purchase was justified as a “need” for his job or personal enjoyment. However, Mark soon found himself in debt and struggling to make ends meet.

Mark’s Journey

1. Initial Justifications: Mark believed each purchase was necessary.
2. Debt Realization: His debt started affecting his ability to pay bills.
3. Seeking Help: Mark sought advice from a financial advisor.
4. Making Changes: He learned to prioritize needs over wants and started paying off his debt.

Mark’s story shows that even when you think you’re buying necessities, it’s important to reassess and ensure you’re not justifying wants as needs.

The Importance of Living Sensibly

Living sensibly means finding a balance between enjoying life and preparing for the future. It’s about setting reasonable limits on the pursuit of wants and focusing on what truly matters. (You’ll notice we didn’t say “frugally”, as that is a whole different concept.)

Steps to Live Sensibly

1. Identify Needs vs. Wants: Make a list of what you need and what you want.
2. Set a Budget: Create a budget that prioritizes needs and allocates a portion for wants.
3. Practice Discipline: Stick to your budget and resist impulse purchases.
4. Plan for the Future: Save for emergencies, retirement, and other long-term goals.

See our post on Sensible Living – “Navigating Peer Pressure: Practical Tips for Sensible Living”.

Emily’s Sensible Living

Emily, a 55-year-old nurse, was known for her practical approach to life. She always made sure her needs were met before indulging in wants. Emily saved diligently for her retirement and only treated herself occasionally.

Emily’s Journey

1. Budgeting: Emily created a budget that focused on her needs.
2. Saving: She saved a portion of her income for emergencies and retirement.
3. Enjoying Life: Emily allowed herself small treats but never went overboard.
4. Financial Security: She felt secure and stress-free about her finances.

Emily’s story illustrates the benefits of living sensibly. By prioritizing needs and being disciplined, she achieved financial stability and peace of mind.

Tips for Managing Personal Finances

1. Create a Budget

A budget helps you track your income and expenses. It ensures you cover your needs and allows for controlled spending on wants.

2. Track Your Spending

Keep a record of everything you spend. This helps identify areas where you can cut back and save more.

3. Save Regularly

Make saving a habit. Set aside a portion of your income each month for savings and investments.

4. Avoid Impulse Purchases

Before buying something, ask yourself if it’s a need or a want. Take time to think before making a purchase.

5. Seek Financial Advice

Consult a financial advisor to help you create a plan that aligns with your goals and needs.

Tom and Susan’s Financial Plan

Tom and Susan, both in their early 60s, wanted to ensure a comfortable retirement. They sought advice from a financial planner who helped them create a budget, set savings goals, and make smart investment choices.

Tom and Susan’s Journey

1. Consultation: They met with a financial planner.
2. Budget Creation: Together, they created a budget that focused on their needs and long-term goals.
3. Regular Saving: They set up automatic transfers to their savings and investment accounts.
4. Peace of Mind: With a solid plan in place, Tom and Susan felt confident about their financial future.

Tom and Susan’s story shows the importance of professional advice and planning for financial security.

Finding Balance

Understanding the basic rule of personal finance—distinguishing needs from wants—is crucial for financial well-being. By living sensibly, setting a budget, and prioritizing your needs, you can enjoy life without falling into debt. Remember, small changes and careful planning can have a big impact on your financial future.

Key Takeaways

1. Identify Needs vs. Wants: Recognize what is essential and what is a luxury.
2. Create a Budget: Plan your spending to cover needs and allow for controlled wants.
3. Practice Discipline: Stick to your budget and avoid impulse purchases.
4. Seek Advice: Consult financial professionals to help you make informed decisions.
5. Plan for the Future: Save and invest to ensure long-term financial security.

By understanding and applying these principles, you can achieve financial stability and peace of mind. Remember the words of the Rolling Stones: “You can’t always get what you want, but if you try sometimes, you just might find, you get what you need.” Live sensibly, and you will find that your needs are met, and your financial future is secure.

In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.

Disclaimer for ManageYourMoney.ca

The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.

As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.

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