Your Short-Term Happiness is Robbing You of Long-Term Joy
Financial Planning Standards Board. If you are an Indian resident looking for a financial plan prepared according to your needs & goals, write to her at shruti(AT)richesawait.com
You should be able to categorize your needs and wants clearly in order to use your money wisely.
Needs are non-negotiable absolute requirements of your life.
Wants are not necessary but can make you happy. In other words, desire or luxuries.
But it is not always easy to differentiate one from another. This is because there is no universal bifurcation between a need and want. It is always a personal decision & depends on an individual’s financial and lifestyle situation. What is want for one can be a need for someone else.
Buying the latest gaming console to enjoy playing video games is a want for person A. But the same can be a need for person B if he’s a game developer and needs to test his products on the latest technology.
Being a personal decision, the differences between wants and needs blur even further due to the following reasons:
- Delusion
People try to justify their luxury purchases. They rationalize it by saying “I need” this instead of saying “I want” this.
For example, say you have a perfectly functional smartphone. Now a newer model comes along and you WANT it. You will justify its purchase by thinking that the newer model has so many new features that it will make life easier. - Peer Pressure
More often than not people define their needs not only on what they would like to have but also on what others have. Your surroundings play a big role in deciding your needs and wants.
For example, having a small car can easily fulfil your need. But if a lot of your friends have bigger cars, you will see it as kind of a norm and will end up buying a bigger car (want) instead of a small car (need). If people around you have more than one car, you will convince yourself that you NEED a second car to maintain your social status, when clearly that second car is nothing but a WANT.
It is important to remember that by fooling yourself in believing that a want is a need you are harming no one but yourself. This confusion of wants vs. needs will have a huge impact on your future financial situation.
Being guided by all the latest “must-haves” you will end up spending your hard-earned money on unnecessary things which will lead to debt and stress. Once you become a slave of your wants you will never be satisfied and will always want more.
It is always better to spend money on something that will keep you and your family rich in future, instead of spending it on things that will make you look rich today.
Wants are desires and luxuries which should be treated as such. When you know you are spending on luxury, you can enjoy the same when you can afford it as a reward for your hard work and be happy about it.
Every time you are about to make an expensive purchase ask yourself if it is a need or a want. Let’s say you are single and are about to buy a car. You don’t need a big family sedan, a smaller hatchback will work just fine for you. The hatch is for ₹5 lakhs. The sedan is for ₹9 lakhs. The hatch you can afford from your savings. For the sedan, you’ll have to take a loan and pay interest every month with the instalments.
Let’s say you take a 3-year loan @ 9% for ₹4 lakhs to fulfil your want and buy the sedan. You’ll be paying ₹12,720 every month for 3 years to pay off the principal + interest of ₹4.57 lakhs. At the end of 3 years, you would’ve paid off the loan but the car’s value depreciated so if you were to buy a new car you’ll be back to square one.
Let’s see what would have happened if you had set a financial goal for buying a luxury car & chosen a SIP for that at ₹12,720 per month for 3 years. You would have bought the hatch at ₹5 lakhs & at the end of 3 years, your hatch could be worth ₹2 lakhs – ₹2.5 lakhs. If your mutual fund scheme grew at 15% – 17% p.a. you would have been left with ₹5.8 lakhs – ₹6 lakhs. You are in a much better position. You could buy a new, bigger car from selling the hatch and the money accumulated from your investment. But, let’s say you continue the trend and keep investing ₹12,720 for three more years. Because of the power of compounding you would have around ₹15 lakhs – ₹16 lakhs by investing around ₹9 lakhs – the same price you were willing to pay six years earlier for a C-segment sedan. At the end of six years, you would be in a position to skip a segment altogether & buy a premium D-segment sedan outright from your mutual fund investment!
If you are aware of your wants and need you can achieve financial independence easily. If not, you will be caught in a vicious circle of it.
Amazing! From r/india.
Keep writing.
Very nicely explained! You’ve inspired me to monitor my expenses. Subscribed & followed. 🙂
Good read!
Distinguere i bisogni dai desideri è un caposaldo delle teorie ispirate alla redistribuzione della ricchezza nel nostro pianeta(vedi la teoria di Marx sul conflitto tra capitale e lavoro e la conseguente politica sui salari).
Purtroppo la nostra società si basa su valori ed obiettivi creati dalla cultura dominante dal dopoguerra ad oggi l’american dream che si legge tra le righe dell’articolo inviato.ciascuno desidera lo status symbol ostentato dagli altri.
So we can’t monitor our expenses!It’s very difficult!
Translated via Google Translate:Distinguishing needs from desires is a testament to theories inspired by the redistribution of wealth on our planet (see Marx's theory of capital and labor conflict and the resulting wage policy). Unfortunately, our society is based on values and goals created by the dominant culture from the postwar period to today the american dream that is read between the lines of the article sent. Each one wants the status symbol ostentatious by others. So we can not monitor our expenses! It's very difficult!
I disagree 100%. Financial planning has got nothing to do with Marxism. Let’s say I give you & your friend $100 each and you spend it immediately on some food, wine & gadgets while your friend invests it carefully and manages to grow it to $300 in some time and then spends it. Would you blame Marx or the “American Dream” for the $200 difference?
The point of financial planning, expense management, budgeting etc. is to look beyond instant gratification and create wealth for your future self.
Financial planning è l insieme delle scelte di investimento finanziario che riflettono gli obiettivi di vita dell’investitore.
Questi ultimi non potranno mai essere svincolati dai pagadigmi culturali, e da influenze sociali.
La società del benessere ha confuso i bisogni con i desideri finendo per veicolare stereotipi di ricchezza che difficilmente consentono di mettere da parte l immediata gratificazione in vista di una serenità economica futura conseguita attraverso un attento monitoraggio delle spese e la pianificazione finanziaria.
Translated via Google Translate:Financial planning is the set of financial investment choices that reflect the investor's life goals.
The latter can never be freed from cultural paganism and social influences.
The well-being company has confused the needs with the wishes ending up to convey wealth stereotypes that hardly allow to set aside immediate gratification in view of future economic serenity through careful spending tracking and financial planning.
Very well broken down! It all comes back to the practice and discipline of self-control, something difficult to do, but very rewarding
Nice post thanks for sharing