In the famous Stanford marshmallow experiment, a child was offered a choice between one cookie provided immediately and two cookies if they waited for a short period. In follow-up studies, the researchers found that children who were able to wait longer for better rewards tended to have better life outcomes as adults. In some sense the Needs versus Wants conflict is in a way a delayed gratification, especially when we face a financial difficulty.
What are they exactly?
A need is something you have to have, something you can’t do without. A good example is food and water. If you don’t eat or hydrate, you won’t survive for long. A want is something you would like to have. It is not absolutely necessary, but it would be a good thing to have. A good example is music. Some people find it difficult without music. But you don’t need music to survive. But you do need to eat. The above example also shows the very thin line between a need and a want and hence this is not an easy decision to make. Most importantly the needs and wants of each of us would be unique to our circumstances.
Let’s think like those children who came back to the room and picked up two cookies. If we are in a chronic debt situation, delaying our ‘wants’ till we can afford them would get us a bigger reward like two cookies. Once we get out of our debt, we will have more money to purchase all our wants. If we can master this self-discipline of delaying the immediate satisfaction of buying our wants to accomplish our other financial goals, we’ll end up with financial vytality in our latter years.
As a first step, let us list the things we truly need and analyse that. Now, what if one of the items in that list is unavailable? What would happen then? For each of us that list is going to be different. For you, it could be a bike or a car. For me it could be a smart phone or a computer. For others, it could be healthcare, education or internet. Now let’s figure out what we want the most. Based on that priority, and of course after paying for our needs, we can spend our additional funds on things we want…
Once you’ve listed your needs, it’s time to figure out what you want most. So you can spend your discretionary funds wisely, of course after you’ve paid for what you need. We will be surprised that we will discard a lot of wants once we realise that they are not adding to our life and would end up in the attic or an auction site.
One final technique to really know whether or not you really want something is to delay the spending. Next time you’re online or in a mall and see something you want, tell yourself that you’ll go back and buy it in a week. If you still really want it in a week, go for it. Most things you want, though, will fall out of mind within a few days, and you won’t end up spending money on them!
Let’s get two cookies instead of one.
Learning the difference between needs and wants is a mark of maturity, but sadly most of us are yet to understand this lesson. This is evidenced by the fact that so many of us are living well beyond our means, racking up credit card debt to unbelievable levels in order to meet short term desires. Let us start working on this immediately. Let’s be that child with two cookies, instead of one.