Budgeting: Defining Needs & Wants
Sometimes it is hard to distinguish the difference between a want and a need. But understanding this distinction will help you clearly see what expenses are necessary and what expenses are not. This information is critical in making and maintaining a responsible budgetary plan.
In our consumer driven society, it is easy to get confused. Here are a few examples to help you distinguish the difference.
Need : a place to live Want: a mansion
Need: a car Want: a luxury sports car
Need: clothing Want: top designer apparel
Need: food Want: take-out meals
As you can see, these “wants” can easily be mistaken for “needs”. But they clearly are just big expenses.
Try to eliminate the desire for these wants if you truly cannot afford them.
Remember our rule: NEVER INCUR DEBT FOR AN EXPENSE. (Debt should be used for an asset – something that will increase in value (appreciate) over the course of ownership.)
Retirement Savings: A Want or A Need?
In very rare cases, the opposite can happen.
For example, one big NEED that is often confused as a WANT is investing for retirement.
According to Money magazine, about one third of Americans report that they have NO retirement savings. Although they will be eligible to receive Social Security benefits in their late 60’s, these benefits are not enough to live on. These people will mostly likely fall into the statistic of workers who will NEVER RETIRE, they will have to have a paycheck until they die.
A retirement savings account is a NEED. Make sure to always budget this NEED before you spend money on any WANT. According to Fidelity Investments, a good benchmark for a retirement “nest egg” is 10 times your salary saved by the time you are 67 years old. That may seem unattainable. But, if you begin saving for retirement early in your career, taking advantage of your company’s 401K plan or sound investments, your money can grow over all of those years. If you put it off by thinking that you have a lot of time, you will lose the benefits of that growth and of possible 401K company-matching programs.
Is it exciting now to save for retirement? Not really.
Will it be exciting to stop working and have the type of retirement you want? Absolutely!!