Needs and Wants

Need is in the Eye of the Beholder Let me tell you a brief story that illustrates the foggy nature between a need and a want: There’s a classic episode of children’s television show Sesame Street in which Elmo, the red muppet, learns how to save money.

Ron Lieber, a money writer for the New York Times, once interviewed Sesame Street character Elmo about the difference between needs and wants.

Lieber asked: “If Cookie Monster is really hungry for a cookie, does that mean he needs it or he wants it?" Elmo didn’t miss a beat. "He wants it," Elmo replied, "but if you ask Cookie Monster, he (thinks he) needs it."

That says it all. Sometimes, our wants are so powerful that we can’t imagine living without that item. We’d feel like Cookie Monster without a cookie. But – sorry to break the news, Cookie Monster – a cookie is a want, not a need, no matter how much you love it.

NEEDS

What is truly a Need? For almost all of us it can be very tricky trying to determine

what exactly is a need vs what is a want. We might claim that we need our cellphone, but really unless your cellphone is required for work purposes (i.e. speaking with clients/customers) it is a want. Other cases could include buying organic vs regular produce, getting the brand name toilet paper vs generic stuff. You see the lines can blur quite quickly. So what are some possible "Needs" that a person might have living in Canada

  Shelter - Realistically you need a warm place to live or else you will die during our cold winters. This doesn't mean that you need something luxurious, but safe, warm and bug/pest free are requirements.
  Food and Clean Water - You won't last long without these.
  Clothing You need appropriate clothing for our climate. This does not mean that spending $50 on a T-shirt is a need, you can easily meet these needs shopping at second hand or discount stores. Wearing brand name labels is a want.
  Transportation If you live in a large Canadian city and don't need a car for work, you can live without a car and depend on public transportation, if not a running dependable car is a need. Driving a brand new car is a want.
  Medication Many people require different types of medication for the personal health.

  Almost Needs Unless required for your job or school, these aren't true needs, but today's society almost takes them for granted. - Phone/Cellphone - High Speed Internet - Cable - Furniture for your house/apartment

  WANTS

So what is a want? Essentially anything that you don't truly NEED is a want. This includes holidays, name brand goods, eating out, driving a new/expensive car.



Why does this all matter anyways?

Understanding when something is a "Need" vs a "Want" is one of the key steps to winning with money.  If you truly believe that spending $500 on a handbag or $40,000 on a new car is a need, you will have a very hard time succeeding with money.  Instead if you can prioritize your spending, making sure to focus on your needs before your wants, and then only spending extra money that you have on your wants, you are on your way to winning with money.

First Rule of Your Finances

Before you we can tackle all of the topics within personal finance everyone needs to understand the #1 cardinal rule.

So what happens if you somehow spend and save more than you make? You take on something called debt. This happens when the right side of the equation, that is the expenses or savings become too large and exceed the income side of the equation. If you remember nothing else from this course, remember don't ever spend and save more than you make. When you borrow money (take on debt) in order to spend more today (splurging now) then you are sacrificing the amount of money that you will have available in YOUR FUTURE.