Is Separating Wants from Needs a Key to Financial Freedom?

[Retired To Win]

When I started planning in 2009 for a financially independent retirement, I was very clear about one thing. For me, this was all about time. About shortening as much as possible the time I would have to spend in a daily commute-and-work grind. About freeing as much of the time I had left on this Earth -- which is limited for all of us -- to do what I wanted to do and not what somebody else assigned me to do.

It was my focus on the overriding priority and importance of time over other considerations that got me free. I reasoned that if this was about time then it was not about accumulating (or holding onto) unnecessary things... or about keeping up with the neighbors... or about indulging in lots of optional cost-ridden activities.

And what I did to stay focused was to specifically and clearly separate and keep track of my basic living costs and the costs of my wants -- in writing and frequently. By doing this, I was able to so lower my financial freedom budget -- AND accelerate the growth of my stash -- that 4 years later I had reached my goal.

When I started this journey in 2009, I had "perceived" personal annual expenses of $33,280. By 2013, I was FREE... free with yearly personal basic living expenses of $15,000 net of income taxes.

My time is now mine (and I actually have ended up with plenty of "extra" income to fund lots and lots of "wants").

What about you?  Do you separate your wants from your needs mentally?  In your budget?  If so, is that helping you reach your financial goals sooner?

[Asgard01]

Congratulations first in achieving FI. I think changing how you relate to things and stuff in general helps a great deal for sure. I have cut many things about which has then allowed me to focus on those things that I truly value, my wants have definitly lowered and I do feel better for that for sure.

[Spartana]

For me the key to FIRE at a fairly young age (42) wasn't about separating wants and needs - it was learning to love "wants" that are free or low cost things so that I can still enjoy all the things I love without affecting my FI.

[milesdividendmd]

I try to think of each purchase as a question:  "Will this purchase give me more or less happiness than the equivalent amount of freedom that the required money could buy?"

If the answer is yes, I buy it, whether it is a want or a need or a complete triviality.

Happiness is the name of the game for me, not frugality.

 

[DoubleDown]

Yes, absolutely. Everything in our budget is divided between two broad categories: mandatory and discretionary spending.

That doesn't mean we don't indulge in plenty of discretionary spending, but I think it's very useful to understand the difference. It really gives you perspective on just how little you actually need in life. Plus, you can decide if you want to annuitize a portion of your investments to cover those basic needs. In truth, our mandatory budget has lots of leeway, it is not really mandatory or bare-bones. For example, we live in a high cost of living area with reasonably fancy housing, so it could be cut big-time if we decided to do so.

[EricL]

It is "A" key.  I think one thing that should be acknowledged is the essential want or the needful want.  This is a luxury you're genuinely interested in on its own merits.  You don't sacrifice a lot of your needs to it but you do sacrifice most or all of your wants.  For example, I once met an Air Force officer who loved to shoot, hunt, fish, off road on motorcycles and big trucks.  But most of all he loved to fly.  He figured out his ideal retirement was disposing of all his toys, his house, and his truck to purchase a plane and rent or purchase a hanger.  He'd happily sleep in the hanger or plane and live a life of near constant flight.  (Of course he still had to negotiate this with the wife).  I know a woman who has a similar interest in travel.  She knows she's burnt a lot of dough in her life traveling and has the sense to know how wrong that is.  Fortunately she's very well to do but even if she wasn't she'd trade a considerable amount to keep it up as long as it doesn't drive her into debt.

[franklin w. dixon]

It's a stupid question because like most paeans to our own folksy wisdom it leaves the terms undefined and is designed to leave everyone sagely stroking their chins and thinking how clever they are. What is a need? For every living thing on earth up to humans "needs" constitute primarily maintaining homeostasis, which here in the first world we are blessed to be able to do entirely for free by rustling through a garbage can or committing a murder. That's not what anyone means when they say to separate wants and needs, but it illustrates what they really DO mean: everyone should think the same things are important as what I, myself, think. Then they smug chauvinistically into the stratosphere, disdaining the choices of the fools below.

[Retired To Win]

For me the key to FIRE at a fairly young age (42) wasn't about separating wants and needs - it was learning to love "wants" that are free or low cost things so that I can still enjoy all the things I love without affecting my FI.

The real key, though, is a mental one. I had to learn to tell the difference between needs and wants, which is not necessarily that obvious in our consuming-driven society. It was and is vital that I not mix and mingle — that I not confuse — my basic costs of living with the price tags for my discretionary toys and playtimes. Recognizing and acting on the difference cut years and years off my working life, and made attaining financial freedom much much more doable.

A vehicle or a status symbol? I need a reliable pick-up truck for a vehicle, and I have one in a paid-for 1996 Dodge Dakota that I’ve kept in great shape. Recognizing that I do not need to trade it in for a newer $30,000 truck (even if I wanted one) has kept my basic living expenses from increasing by at least $3000 a year — and saved me from having had to work an extra two years to accumulate the capital required to fund that $3000-a-year expense.

A newer truck or two more years of my remaining life lived in financial freedom? For me, it’s a no-brainer. How about for you?

A house to live in or to show off? I need a modest-sized house (1500 square feet for 2) with a garage and a workshop on a couple of acres or so (because I learned the hard way I need to not have in-your-lap next door neighbors). But in 2009 my wife and I owned a much larger house in a suburban community plus a 100-acre vacation property. At best, we used (needed) half the space in the house; the other half we just wanted for show. The vacation property we obviously did not need at all, and ended up wanting to visit it less than 12 days a year. An unexamined financial picture had kept us tied to both those places.

Four years later, we’ve sold both properties and used the profits to acquire mortgage-free the right-sized house we really need in a more rural setting that’s also more pleasing to us. Recognizing that we did not need the bigger house or the occasionally used vacation property reduced my basic living expenses by $8500 a year — and saved me from having to work an extra five-and-a-half years to accumulate the capital required to fund that $8500-a-year expense.

A bigger house or five-and-a-half more years of my remaining life lived in financial freedom? To me that’s also a no-brainer. How about you?

[ender]

Yes, but it turns out the real key is separating what you think are needs from what actually are needs.

[Mrs. Frugalwoods]

Yes, but it turns out the real key is separating what you think are needs from what actually are needs.

+1. We've always been frugal, but it wasn't until this January that we clearly articulated our goal to accelerate towards FI. When DH and I made that decision, and identified our timeline as 3 years (to retire at ages 34 & 33), stuff got real.

Our already frugal (in our minds) living expenses plummeted and we're now at an 82% savings rate (don't think we can save more unless we stop eating or move out of our house into a studio apartment). This was possible because we changed our thinking on wants and needs--yeah we're thrifty deal-hunters, but it's this mental shift that makes it possible for us. When we truly went line by line through our monthly budget, and had an honest conversation about where we could cut, we realized that we had a bunch of "wants" masquerading as "needs." We are amazed and refreshed by how little we actually need to live on and be happy.

[Retired To Win]

Yes, but it turns out the real key is separating what you think are needs from what actually are needs.

Basic need or optional want?

I can now cover all my basic living expenses on $15,000 (net) a year and still have a jolly good time enjoying my freedom to hike, bike, canoe, read, blog, movie watch, video game, listen to classical music, and more.

If I want to have even more fun, I’ll spend more money — other money — on civil war tour trips, national park camping trips, eating at restaurants, snow birding in Florida for the winter, driving off into the country, tackling home or truck improvement projects, and whatever else may strike my fancy. But I am crystal clear that these are all wants. The money I spend on them is separate from what it costs me to meet my basic living expenses. I don’t need the wants. And I don’t let them morph into needs — or even quasi-needs — by letting them slip into my baseline living expense calculations or budget.

How do you keep your wants and needs financially separate?
__________________
 

[Kansas Beachbum]

Lot of great responses here, so I've got nothing really NEW to add.  It is a key, as someone else said, but maybe not the only key.  We do tell our kids periodically...is that a want, or a need?  We also have a detailed budget of all expenses, which does include plenty of discretionary items, but only after the mandatory (which includes long term savings) line items are met.  That said...we love to travel, and do so frequently.  Is this a Need?  Definititely not, a total Want.  But, we're buying experiences and memories...not a new car.  We've got hundreds (thousands?) of pictures on our computer, digital frames, that let us relive our experiences.  So much better a use of money than buying a $60K car or something. 

[Rural]

Our only real need is to pay property taxes; we have plenty of game, wild forage, and growing space here on the property, plus a spring. Our house heats and cools itself sufficiently for survival and even reasonable comfort. We have plenty of acreage to sustainabley fuel our woodstove for cooking and any supplemental heating we might need. We would eventually need to replace clothing, but realistically, that would be more than ten years out and could be done for under $100 for both of us at thrift stores and last another ten years.


Knowing all this is reassuring, but I'm not positive how useful it is in planning, actually. The level of true need is so different than what we actually plan to do that it isn't really relevant.

[Spartana]

Yes, but it turns out the real key is separating what you think are needs from what actually are needs.

Basic need or optional want?

I can now cover all my basic living expenses on $15,000 (net) a year and still have a jolly good time enjoying my freedom to hike, bike, canoe, read, blog, movie watch, video game, listen to classical music, and more.

If I want to have even more fun, I’ll spend more money — other money — on civil war tour trips, national park camping trips, eating at restaurants, snow birding in Florida for the winter, driving off into the country, tackling home or truck improvement projects, and whatever else may strike my fancy. But I am crystal clear that these are all wants. The money I spend on them is separate from what it costs me to meet my basic living expenses. I don’t need the wants. And I don’t let them morph into needs — or even quasi-needs — by letting them slip into my baseline living expense calculations or budget.

How do you keep your wants and needs financially separate?
__________________
 

^This. My "basic" expenses to exist in a fairly modest yet extremely enjoyable way (shelter, food, clothing, taxes, insurances, fuel, utilities, etc...) are low - maybe $700/month - and that is how much I expect to spend on my needs. Anything beyond that (except for emergency repairs or medical things) are wants. I physically separate my income each month (I'm already FIRE'd) and put $700 into my checking account to live on for that month and the rest goes into a liquid MM savings account that I can use for my wants (or emergency needs) if I choose. But since, like you, most of my wants are free or very low cost things (except budget travel) I rarely spend it. This same tactic got me to FIRE'd fairly young and will most likely keep me there..

[iris lily]

For me the key to FIRE at a fairly young age (42) wasn't about separating wants and needs - it was learning to love "wants" that are free or low cost things so that I can still enjoy all the things I love without affecting my FI.

I agree, I like the challenge of cultivating a life lived using the free things that the community and nature have to offer. The library, museums, just walking around the city here to look at architecture--it's all free. Well, I pay for some of it through taxes, but that's a sunk cost.

I still have "wants"  and some of them are very pricey, but rather then slap myself with "you don't need that!" I analyze how much trouble the thing will be once I get it to help kill the desire for the thing. How much life energy it will take away from me, to caretake it? To pay for it? Why can't I just love its beauty and go to visit it from time to time?

[Spartana]

For me the key to FIRE at a fairly young age (42) wasn't about separating wants and needs - it was learning to love "wants" that are free or low cost things so that I can still enjoy all the things I love without affecting my FI.

I agree, I like the challenge of cultivating a life lived using the free things that the community and nature have to offer. The library, museums, just walking around the city here to look at architecture--it's all free. Well, I pay for some of it through taxes, but that's a sunk cost.

I still have "wants"  and some of them are very pricey, but rather then slap myself with "you don't need that!" I analyze how much trouble the thing will be once I get it to help kill the desire for the thing. How much life energy it will take away from me, to caretake it? To pay for it? Why can't I just love its beauty and go to visit it from time to time?

Well I DO give in to my wants too (so says the girl with the new car she doesn't really need :-)!). But like you, I analyze the hell out of them before taking the plunge. It does help to keep my "want money" in a separate place from my "need money" - as well as being an all-cash-all-the-time person (yes, even for the shiny new car). Keep impulse spending down a lot as well as overspending beyond my ability to pay for something.

[Retired To Win]

...I think changing how you relate to things and stuff in general helps a great deal for sure. I have cut many things about which has then allowed me to focus on those things that I truly value, my wants have definitely lowered and I do feel better for that for sure.

Even though my passive income is more than 3 times $15,000 a year, it gives me a tremendous sense of control and peace of mind to truly recognize that my personal baseline living expenses are $15,000 a year. The rest of my money spending is optional, discretionary, for fun and unnecessary. So I keep it separate — and pay for it out of a discretionary FUND — in order not to confuse myself into thinking that I actually need a lot more than $15,000 a year to be financially independent.

Have you thought of looking at it that way? How much income do you really, really need to declare yourself financially independent and start living free?

[Retired To Win]

For me the key to FIRE at a fairly young age (42) wasn't about separating wants and needs - it was learning to love "wants" that are free or low cost things so that I can still enjoy all the things I love without affecting my FI.

I went through that too, although I did not really have to "learn it."  It just fell into place for me.  Now, on a daily basis, l have a jolly good time enjoying my freedom to hike, bike, canoe, read, blog, movie watch, video game, listen to classical music, and more.  All pretty much no-cost or low-cost.  All great fun for me.  All good!

[Retired To Win]

I try to think of each purchase as a question:  "Will this purchase give me more or less happiness than the equivalent amount of freedom that the required money could buy?"

If the answer is yes, I buy it, whether it is a want or a need or a complete triviality.

Happiness is the name of the game for me, not frugality.

Agreed.  But I also think that -- at least in my case -- frugality facilitates  long-term happiness.  There is a cause and effect relationship, IMO.  That is the bottom line of why I practice frugality.

[sobezen]

Always!  I've started with the end in mind and taken time to reflect before making purchases that are questionable.  Most purchases are tied to my lifestyle and if I am just buying to address a want.  So for me, if it isn't something I've planned for: vacation, car, home, eating out, hobbies, to put it mildly, I use to look but I do not buy anymore.  As time has gone on, I stopped looking entirely and I no longer think about the wants as something I desire, rather I reframe it, gee... I could buy that BMW, but why?  Will it help me achieve or retain my goals?  Oh no it won't?  Well then, strike that thought and onto something else more meaningful. :)

[Retired To Win]

It's a stupid question because like most paeans to our own folksy wisdom it leaves the terms undefined and is designed to leave everyone sagely stroking their chins and thinking how clever they are. What is a need? For every living thing on earth up to humans "needs" constitute primarily maintaining homeostasis, which here in the first world we are blessed to be able to do entirely for free by rustling through a garbage can or committing a murder. That's not what anyone means when they say to separate wants and needs, but it illustrates what they really DO mean: everyone should think the same things are important as what I, myself, think. Then they smug chauvinistically into the stratosphere, disdaining the choices of the fools below.

I do recognize -- and I think most Mustachians do as well -- that what one person considers to be a need is going to be personal, subjective and not the same for every person.  So the point is not that "everyone should think the same things are important as what I, myself, think," as you put it.  The point is that everyone should be aware of how much their perceived needs cost them in terms of the time   they must take out of their lives to meet those needs.  And be aware of the enhanced life options and freedom to be gained by reexamining -- and hopefully -- redefining some of those perceived needs.

[soccerluvof4]

I think its a combination of things of what was suggested prior. Definitely taking the time to separate your wants and needs by asking yourself and being patient about such things as well as learning to enjoy more wants that are less costly.  Everyone's wants and needs are different and learning and prioritizing on the more expensive wants what are you willing to give up to have them.  But I am finding more and more that by finding things that I enjoy that don't cost anything it allows my to have the wants that cost money after I have thought hard and long about them , less but more willing to purchase!

Wow that was babble!!

[Retired To Win]

... It does help to keep my "want money" in a separate place from my "need money" -- as well as being an all-cash-all-the-time person (yes, even for the shiny new car). Keep impulse spending down a lot as well as overspending beyond my ability to pay for something.

  (bold added)


Keeping the moneies separate is super useful, and it is something I have done for a long time.  One checking account for the "need money" and one for what I term the "discretionary fund."  And that last one is the one that pays for travel, toys and what not on an as-wanted basis.

[Retired To Win]

...  I think one thing that should be acknowledged is the essential want or the needful want.  This is a luxury you're genuinely interested in on its own merits.  You don't sacrifice a lot of your needs to it but you do sacrifice most or all of your wants... 

Agreed, but it is still a want and not a need.  One such needful want of mine is my history book collection.  Sure, I could read most of those books by borrowing them from the public library.  But I have this needful want to own them, have them around me, collect them.  So I have accrued over 300 of them, and I have bought or built several bookcases to display them.  Even making sure I am "frugal" in my buying all of that, it is still lots of money spent.

Same is true for my needful want to collect horse figures.  I have more than 40 now in my collection.  And  they share those bookcases with my history books, so the "visual pleasure payoff" for me from owning all that is substantial.

HOWEVER, those unessential and discretionary needful wants of mine are paid for out of my discretionary fund as and when a buy opportunity comes along.  But they are NEVER incorporated into my basic living budget (i.e., $XX a month for books).  That is what sinks people: they hardwire the cost of wants -- needful or otherwise -- into their budgets.

Have you checked for some of that hardwiring in your budget?

[Retired To Win]

Always!  I've started with the end in mind and taken time to reflect before making purchases that are questionable... As time has gone on, I stopped looking entirely and I no longer think about the wants as something I desire, rather I reframe it, gee... I could buy that BMW, but why?  Will it help me achieve or retain my goals?  Oh no it won't?  Well then, strike that thought and onto something else more meaningful. :)

Very similar thought process for me.  Before I reached FI, the questions I would ask myself -- especially if a lot of money was involved -- were:

(1) How much longer will I have to wait for financial freedom if I hardwire into my budget the cost of buying/doing this "thing" I want?

(2) What do I actually want more: that "thing" or the extra time living in financial freedom that I will have by not hardwiring the spending of that money into my budget?

(And remember: our life time is a finite resource. We don't get to tack on extra time at the end to make up for... getting that "thing"!)

I STILL ask myself the same questions (from the perspective of STAYING financially independent).

[Dicey]

My answer is hell yes, it's key. But if I died tomorrow, I'd be damn glad that I also made a place for a few important wants along the way. Separation is key, but so is balance.

[Retired To Win]

My answer is hell yes, it's key. But if I died tomorrow, I'd be damn glad that I also made a place for a few important wants along the way. Separation is key, but so is balance.

Yes, I get my wants satisfied too, but my key point is that funding the wants is not hardwired into my basic living expenses budget.  Instead, my wants are funded out of my discretionary fund -- as the wants arise and as there are discretionary funds to cover them.

A couple of silly-ass examples of what I mean would be:

(1) not hardwiring 2 vacations a year into the basic budget, but instead having the option to take serial  vacations whenever $1000 to $1500 accrued in the discretionary fund.

(2) not hardwiring a "restaurant night" on a weekly basis, but instead having the option to go eat a special restaurant meal whenever I chose to take $30 to $50 out of the discretionary fund for that purpose.

And like that...

(I should make the point again, though, that I am already FI so accumulating the FI stash is a done deal.  Ergo, the ample and continuously swelling discretionary fund.)

[Spartana]

My answer is hell yes, it's key. But if I died tomorrow, I'd be damn glad that I also made a place for a few important wants along the way. Separation is key, but so is balance.

Yes, I get my wants satisfied too, but my key point is that funding the wants is not hardwired into my basic living expenses budget.  Instead, my wants are funded out of my discretionary fund -- as the wants arise and as there are discretionary funds to cover them.

A couple of silly-ass examples of what I mean would be:

(1) not hardwiring 2 vacations a year into the basic budget, but instead having the option to take serial  vacations whenever $1000 to $1500 accrued in the discretionary fund.

(2) not hardwiring a "restaurant night" on a weekly basis, but instead having the option to go eat a special restaurant meal whenever I chose to take $30 to $50 out of the discretionary fund for that purpose.

And like that...

(I should make the point again, though, that I am already FI so accumulating the FI stash is a done deal.  Ergo, the ample and continuously swelling discretionary fund.)

This is pretty much how I do it too. No budgeting for those "wants" just do them as the extra cash become available out of my income stream.  Money comes into my checking account each month, I pay my bills to cover my needs, then can use what's left to either invest/save for some future "want", or use it for fun stuff immediately.

[Dicey]

Hey RTW and Spartana,
I've been busy and hadn't checked in for a while. LOL, I am FIRE too and *shocker alert* I have no budget! After so many years of frugal living, it's pretty much automatic now. Occasionally, I have trouble spending. Earlier this year, a trip was starting so run up a tab that made me uncomfortable. DH had to tell me it was okay to loosen the purse strings a bit. We really enjoyed the trip, so I'm glad I listened! And yes, the piggybank is still intact, albeit a little lighter. See, even the girl who preaches balance needs a little nudge now and then.

[tofuchampion]

I think it's pretty obviously a big part of it.  For me, though, I've found that it's more important to examine the "wants," and determine what's actually going to add value to my life.  Fancy coffee is nice and is one of my guilty pleasures, but in the long run, it's not going to make me happier to stop at the coffee shop every day.  Being able to spend time outdoors, and to pursue fitness goals (I'm a competitive powerlifter), both add a lot of real satisfaction and value to my life. 

So, it's worth it to me to give up my coffee habit, and put that money towards lifting gear and meet expenses.  Likewise, one of my motivations for achieving FIRE is to have the time and resources to take 6 months to thru-hike the Appalachian Trail, and my big dream is to eventually move out in the country and set up a small farm/homestead type of thing.

Keeping my eyes on the big things puts my decisions in perspective.  I have a lot of little wants, but when I think about the big wants, it's easy to give up the new shoes, makeup, coffee, etc.

There has to be some room for "wants" in the budget; if you feel deprived or like you can't enjoy anything, you won't be successful at being frugal.  The key is to figure out what non-necessities add value and meaning to your life, and which don't, and living accordingly.

[RetiredAt63]

I don't have a formal budget either.  I transfer a set amount to a specific account twice a month (matches my former paydays) and use that account for living costs (mainly food and gas).  Now that I don't work, my driving is way down, and I usually end up with leftover money.  But in a busy month I might use it all, and that is fine.

I find that as I assess needs versus wants, value is coming into decisions more.  I started taking music lessons last year, 1/2 hour sessions, and they always ended too soon.  They have started again after the summer break, and since someone cancelled I was able to go for an hour yesterday - wonderful, we could actually discuss how a piece should go, possible variations, etc.  So I have now committed to hour classes - double the cost, but definitely more than double the benefit.

Of course I could not have done this if I never had money "left over", but since I am basically living under my allocated budget I had the luxury to do this.

[NoraLenderbee]

I think it's pretty obviously a big part of it.  For me, though, I've found that it's more important to examine the "wants," and determine what's actually going to add value to my life.  Fancy coffee is nice and is one of my guilty pleasures, but in the long run, it's not going to make me happier to stop at the coffee shop every day.  Being able to spend time outdoors, and to pursue fitness goals (I'm a competitive powerlifter), both add a lot of real satisfaction and value to my life. 

So, it's worth it to me to give up my coffee habit, and put that money towards lifting gear and meet expenses.  Likewise, one of my motivations for achieving FIRE is to have the time and resources to take 6 months to thru-hike the Appalachian Trail, and my big dream is to eventually move out in the country and set up a small farm/homestead type of thing.

Keeping my eyes on the big things puts my decisions in perspective.  I have a lot of little wants, but when I think about the big wants, it's easy to give up the new shoes, makeup, coffee, etc.

There has to be some room for "wants" in the budget; if you feel deprived or like you can't enjoy anything, you won't be successful at being frugal.  The key is to figure out what non-necessities add value and meaning to your life, and which don't, and living accordingly.

Well said.

[Zikoris]

I think with the "wants vs needs" style of thinking it's waaaay to easy to talk yourself into "needing" things. For example: I live in Vancouver. Based on average costs here, it would be very easy for me to decide the following are needs and just accept paying them without a thought:

- $1200+/month rent
- $100/month transit
- $80/month phone
- Whatever outrageous amount you can think of for groceries, internet, clothes, etc

My perspective is a combination of "Nothing is a need, throw EVERYTHING under the microscope" and trying to get the most bang for my buck as far as frivolity goes.

If you consider rent, phone internet, food, and transit needs, everything else wants, our breakdown is roughly 20% needs, 5% wants, 10% travel, 65% savings.

[oinkette]

I'm currently working on my "wants" vs. "needs."  It's funny how it's going along.  A few weeks ago my fridge broke and I am hesitant to replace or repair it because I may be moving out of state and renting and won't need it.  Other than not being able to make eggs in the morning I haven't missed it at all!. My job has a fridge and I do breakfast, lunch, and dinner via that.  We've downsized substantially so I'm not even taking up that much space there.

I've gone without: home internet, cable (no going back), a home computer, microwave, air conditioning, heating, a car, a bed, a functioning shower (used the gym).  Some were worse than others.  But it did make me push my limits and realize what I really need in life.

But I can't seem to shake my weekend Starbucks.  Especially Pumpkin Spice season. Go figure.