058 | Knowing the Difference Between Your Needs and Wants

Many lawyers conflate their needs and wants. Many also spend on things they neither need nor want. Both lead to overspending and other undesired results with our money.

In this episode, we’re talking about what needs and wants are, why it’s important to distinguish between them, and some tips for identifying what you actually need and want and cutting what you don’t.

Lightly edited transcript appears after the show notes.

Topics Discussed

• what needs and wants are
• the importance of distinguishing between needs and wants
• how to identify what you actually need and want and cut what you don’t

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Resources mentioned

Lifestyle Freedom Starter Guide

Episode 31: Is Lifestyle Inflation Stealing Your Freedom?

Income, Needs, and Savings Chart

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Email: hello@rhothomas.com

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Lightly Edited Transcript

Hey friend. How are you, hope you’re doing well and having an amazing day. So, today I want to talk about once in needs. Many lawyers don’t know the difference between wants and needs, or I should say don’t differentiate between wants and needs, very well, because we know the difference, we just tend to conflate them, but this has a big impact on our money. And it’s not just lawyers like this happens with other professionals too especially as we make more money but of course, I am talking to my lawyer friends, so here we are. As we make more money, often more and more things become quote needs that were at one point considered luxuries. And so I want to first talk about what wants and needs are your basic needs are the things necessary to your survival so that’s food water shelter, utilities, clothing, you might also argue that other things that are necessary to function in our society also qualify as needs so that might include things like a phone or internet transportation needs will vary from person to person, but this is just kind of a general idea like something might be a need for one person because of where that person lives or the job that that person has, or whatever. And maybe that’s not a need for another person once though are pretty much everything beyond that so beyond the things you need. It’s the lifestyle things. Some of them might just be, you know, convenient, they make our lives more convenient, some might be frivolous, some might just be things you like, but overall, these are things that you could live without. And there’s definitely some gray area or overlap in the needs and wants categories, because maybe you need a phone, what do you need an iPhone, you need transportation but do you need a car. Do you need the kind of car you have. Do you need more than one car for your household. You need clothes, but do you need designer clothes. You need food, but do you need, you know, organic everything from Whole Foods or Uber Eats or DoorDash or you know whatever takeout you like or fancy dinners, you need shelter but do you need the particular house or condo or apartment that you have, probably not right. And if you’ve ever said you need a bigger house, like do you really know, to give some perspective here. I read that the average home size 50 years ago was about 1200, square feet. Now it’s double that, even though the average family size is smaller. You want those things right you want to a smartphone or an organic food or a nice car or a bigger house. And to be clear, there’s nothing inherently wrong with wanting things or buying things that you want, like, I want a bigger house to sometimes like if I could just add a basement or you know some extra space for the kids to play in a bigger yard like that would be great. The point though is to be honest with yourself that that’s what’s happening. Because what we like to do instead is tell ourselves we need a bunch of stuff that we don’t actually need that we may not even actually want thinking those things will make us happy. And then we end up buying the stuff, and ultimately feel the same. You may feel like you know a slight increase in your happiness right after you buy the thing, but then you settle back into your life, and that just becomes a part of your normal life. Why is any of this important. I’ve told you before that 25% of households making $150,000 or more live paycheck to paycheck, and this percentage. Undoubtedly includes lawyer households, the median annual household income in the US is anywhere between $40,000 and $80,000 per year. So these are households that are making two to four times, the median household income who are living paycheck to paycheck. I don’t have any, you know, specific stats on this but I’d be willing to bet that part of that paycheck to paycheck life comes from conflating wants and needs. As income increases for many people, the things they quote need also increase so then they don’t have much to show for the increased income, so you get a raise, and decide to buy a bigger house or a nicer car, or some other thing that you’ve been thinking about buying this this call lifestyle inflation, and we talked about it back in episode 31. I also did a presentation on personal finance for beginning lawyers for my firm’s summer program, and I shared this great picture with them that illustrates this. It’s basically a line graph that shows your income, your needs and I’m doing the air quotes your quote needs and savings. So the graph shows the income increasing over time, and the needs increasing at the same pace as the income, but the savings only moderately increasing, and I think I’ve shared it here before like mentioned it on a previous episode, probably the lifestyle inflation one actually, but in any event, I’ll put it in the show notes so you can see what I’m talking about. If you haven’t seen it before. And as always you can go to rhothomas.com slash the episode number to find the show notes for any particular episode. So the show notes for this episode are at rhothomas.com/58. But anyway, knowing the difference between your wants and needs, is one key in getting your finances together and making sure you’re managing your money intentionally, which as we’ve discussed, allows for more flexibility and options in your life. So now let’s talk about some tips for distinguishing between your wants and needs and budgeting for them. First, write out the things you pay for that are key to your survival or to functioning in society. As in you could not live or function without these things, these are your needs, you want to give them priority in your budget. Next, think about what’s important to you, write out a list of what you value in life, which can include material things you value as well as intangibles, but make a list of the things that you pay for that really bring you value. Also think about things that you pay for just because you like them or that they make your life more convenient. These are wants. Now, look at where you’re spending money beyond these things that you wrote down. So beyond the things that you actually need, and beyond the things that are important to you and that you actually want. Do you like this spending. Are you spending more on these areas than other areas that are more important to you. A lot of people spend a lot of money on things they don’t care about, and then end up not being able to use their money for things they actually do care about. So notice, if this is what you’re doing. And then from here you can tweak your budget to make sure you’re prioritizing your needs and the things you actually want. And when you cut out the things you don’t want or care about you free up more money for things you do want, including making progress on your financial goals, and building wealth. And if you don’t have a budget, you can download the template for the budget, I use at rho Thomas comm slash budget. But ultimately, knowing what you actually need and want, will allow you to make more intentional decisions with your money, which will allow you to make more intentional decisions with your life. And if you’d like guidance on applying this work to your own finances, head to rho Thomas comm slash coaching and let’s schedule a call to chat about your situation. Alright so that’s it for this week. If you haven’t already please subscribe to the show on whatever platform you’re listening on leave a review. both of those things are super helpful. Please also take a second to share the episode with a friend who you think may enjoy it, I would appreciate it. Also connect with me on social media you can find me on Instagram and my handle there is at I am rho Thomas. You can also find me on LinkedIn, and I’m rho Thomas over there. Okay, friend, as we close out, I pray that you will take some time to get clear on what you need, and what you want. If you’ve been telling yourself you need things that are really just wants. I pray that you’ll get clarity around why you’re doing that, and get to the root cause. And as always, I pray that you continue to take steps to regain control of your time, build wealth and live the life of freedom and choice, you deserve. Talk to you later.