Do you remember having conversations in childhood or adolescence with your parents or another guardian when it came to expectations around money?
Many power struggles have occurred between children who do not understand the true difference between needs, wants, and wishes and the adults who have learned along the way.
Whether it was the trendy outfit with an exorbitant price tag, the gadget everyone else in school had, or an activity you may have wanted to be involved in – you likely received the “is it necessary?” speech a few times.
While it may not be the fun approach, the truth is, financial freedom is greatly impacted by a keen understanding of the differences between needs, wants, and wishes. Consider the following definitions and whether they align with your understanding of these three different things.
- Needs are the most basic of the three. If you think in terms of the services that FEMA provides for people during an emergency, these are the basic needs. People need water, shelter, food, and healthcare.
- Wants are about how you prefer to live. Money, vacations, cars, and a house in a good neighborhood are all wants. Some people love to debate the difference between needs and wants, most often using the “it depends” argument. Most likely, the wants are how you are living right now. This is how you want to live without getting caught up in the financial aspects of life. You’re spending without really much regard. Maybe you’re carrying balances on credit cards. You have some debt, but you still go to the movies all the time. You travel and go on vacations. You want to do these things, but you don’t need to. In other words, if you lost your job, you could cut most of these out if you had to. You have to be able to calculate these, and I’ll show you how to do it.
- Wishes are the ways you think about your life if everything were perfect. What would you like to be able to do? Maybe you wish you could own a second house in another part of the country. Do you wish to travel more or acquire certain assets that aren’t categorized as needs? Whatever your wishes are, you need to be honest with yourself and take the time to specifically identify and write them down.
Why does understanding these for yourself matter? You need to know exactly what your own needs, wants, and wishes are so you can calculate them. What money do you need to have coming in to offset what it’s going to cost?
If your need is to not be homeless, then you need a roof over your head. You need basic transportation so you can take the kids to school and get yourself to your job. What are your basic needs? You need food on the table, but you want to go to the movies. You don’t need to go to the movies, but to do both you need to know the numbers.
I’m here to tell you that you can accomplish all three. What it requires is understanding four simple, but critical financial categories as it relates to your financial health: income, expenses, assets, and liabilities. Your ability to understand and strategically navigate these four areas will allow you to not only meet your needs, but meet them in the way you want, while achieving those things you wish for.