For many people, money is the biggest source of stress in their lives, even more than personal relationships or work. The good news is that achieving better financial health literacy can lead to a less stressful, happier and more confident life. Understanding your financial needs vs. financial wants will help lay a foundation for a financially secure life for you and your family.
In its simplest terms, we exchange money for goods or services we can’t (or choose not to) produce or provide ourselves. Supply and demand determines their cost, and since money is a limited resource, we all have to decide which goods and services to spend our money on. The traditional approach to handling these financial decisions is to create a budget.
Budgets organize finances into two categories: 1) where we need to spend money, and 2) where we want to spend money. The goal of a budget is to recognize the difference between financial wants and financial needs and plan our spending accordingly. This is no easy task, as there’s often an emotional connection with what we spend money on that may include feelings of happiness, stress or emotions in between.
Needs are those items required for basic survival, such as food, clothing and shelter. However, even among these needs, there are often opportunities to distinguish between needs and wants. Purchasing store brand grocery products vs. name brand grocery products is one example. Checking product labels often reveals the same ingredients are in both products; the extra cost is often to pay for expenses such as advertising and packaging.
When making a budget, other examples of needs are payments for prior obligations, such as credit card bills and other loan payments. There’s usually no way to change the financial repayment terms of credit card bills or many other bills until the amount is paid in full or the contract has expired.
Wants are things not required for basic survival, such as concert tickets, vacations and golf clubs. As previously mentioned, it can sometimes be difficult to distinguish between needs and wants. We all know we need food to survive; we only want that food to be a $50 ribeye steak. Keep in mind that your needs and wants may be different from someone else’s. Unless you work in an industry where business deals are negotiated on the golf course, it’s pretty clear that shiny new clubs fall into the “want” category. However, as a construction laborer, you need quality, sturdy boots to protect your feet and make a living.
Decision Making in Practice
Determining a financial need vs. a financial want isn’t always easy, especially when you and a spouse or other financial partner have different views. The first step is creating a budget and knowing how much money you have available to spend after all fixed expenses and a portion of your earnings are saved for the future. After that, when there’s a decision to be made, a helpful exercise may be to ask the following questions: Do I need this now? And do I want it at this price?
If the answer to both questions is yes, you may want to consider buying the product or service. If the answer to both questions is no, it may be better not to buy the product or service. The decision gets complicated when the answers to both are not the same.
Budgeting and financial health literacy can be of particular help when an unexpected need arises and you’re not happy with the price, such as a car repair. The same practice can help you decide whether or not to purchase an item you want because you like the current price, such as an impulse buy that’s on sale.
Striking a balance between being able to financially cover your needs and purchasing the products and services you want will lead you to a less stressful and more financially secure life.
A single article can only begin to scratch the surface of the complex topic of financial health literacy. The LHSFNA’s Health Promotion Division is in the process of creating guidance on financial health literacy that will be distributed to LIUNA District Councils, Local Unions, health and welfare fund trustees and staff, signatory contractors and other LIUNA affiliates. For further information, contact the Health Promotion Division at 202-628-5465.
[Matthew Brown is the Fund’s Health & Welfare Specialist]