At the simplest level, when you break down everything you buy, or consume, it can all really be distilled in to 3 categories:
1. The stuff you actually need.
2. The stuff you want, that you think you need.
3. The stuff you want, that you know you don’t need.
I say “stuff”, but I’m broadly referring to all goods and services.
To know the difference between the three categories and appropriately label each potential purchase in to its rightful category is perhaps the most valuable skill you can ever teach yourself, as a consumer. It will endlessly help you grow and flex your frugality muscles. And it will free you from the oppressive pressures of consumerism.
The Stuff you Need
Lets start here.
Opinions are going to vary widely here (that’s why I have comments enabled), but the stuff you actually truly need to consume in order to live a pleasant and healthy modern day life is actually not an extremely long list. I came up with this list simply by mentally going through my daily routine.
- Toothbrush, toothpaste, soap (basic hygiene)
- Vision correction (consider yourself VERY lucky if you have 20/20 vision!)
- Basic clothing to keep warm (in cold months) and cool (in warm months)
- Proper protein, fat, and carbohydrates
- Heat and energy source (both debatable, and geography dependent)
- A safe space to get a decent night’s sleep (small, could be shared)
- Basic transportation (i.e. walking shoes, bike, bus, or other) to get food, health care, and income
- Health insurance (I debated including this on the list, but due to the extreme costs of some medical procedures, I believe it to be a necessity, even if you have a large stash of money saved up)
It is extremely liberating to remind yourself of how little you truly need with each incremental purchase that you make.
Minus a few pricey geographies, all of these needs can be had for less (sometimes much less) than $10,000 per year in total.
The next category isn’t so simple…
The Stuff you Want that you Think you Need
This category of consumption is more difficult to define, but very inclusive. Outside of the purchases that fall in to the final category, it is just about everything that we buy.
It is often times assumed that things on this list are needs. In fact, hundreds of billions of dollars and extreme social pressures exist to try to convince you that these items are needs and not wants.
And some of the things on this list (i.e. internet connectivity) can, in fact, add extreme value to our lives. There is a very wide spectrum on what you justifiably should and should not spend money on.
Often times, these purchases are upgraded versions of basic needs and almost all have varying steps or levels. Lets take a stab at a sample list:
- Internet connectivity
- Mobile device
- An upgraded place to sleep (solo apartment, larger apartment, home, etc.)
- Clothing that looks good on you and fits well
- Clothing accessories
- Exercise equipment and/or gym membership
- Upgraded or multiple forms of transportation (a vehicle, a fancy bike)
- Insurance (other than health, which I feel is a basic need)
- Organic, processed, gourmet, and other special food categories
- Pets and all associated costs
- Any form of drink other than water
- Kitchen utensils
Some consistently choose to purchase many more of these items than others and “premium” versions of the ones they do. But just about everyone with disposable income picks and chooses items from this list to spend their money on. Even the most frugal of us. Where you fall on that spectrum, however, will largely determine your personal savings rate and income needs. It’s extremely important.
The Stuff you Know you Don’t Need
Two sub-categories here.
The first is useless items that are mostly for the purpose of collection towards some sort of sense of accomplishment or fear of not being complete.
- a collection of cars
- rare art
The second sub-category is luxury. These are things that may actually have functional value, but you know you don’t need to buy and they don’t add any additional value to your life versus a quality version – but you still go out and piss away ridiculous amounts of hard earned money because you have convinced yourself that you deserve it and/or think it adds to your social prestige and status. In other words: ridiculous costs for zero or limited gain and attempt to fill an emptiness.
- rare, aged, “premium” alcohol
- rare, exotic food
- luxury vehicles
- luxury clothing accessories
- the $50,000 wedding
- luxury dwelling (often with a view) and travel accommodations
- first-class upgrades
These purchases should be avoided at any and all costs, unless you have an endless supply of cash (hundreds of millions+). Period.
Perhaps a mistake I’m making here is that most consumers know the difference between this and the previous category (in other words, they truly do know that they don’t need these items). I think that many do, but consumption could be so ingrained for some that they no longer do.
What Can you Take from This?
There are some parallels to Maslow’s hierarchy of needs that look at the 5-steps of human motivation. As a refresher, here they are:
Note that money and purchases from that money can mostly help you fulfill the bottom two categories: physiological (water, sleep, food, air) and safety. The top three categories (love/belonging, self-esteem, and self-actualization), however, require a lot more work and can’t really be achieved by spending money. Where we often fail financially is when we think they can fulfill those categories. And some of us spend away our entire lives thinking that “just this one more thing” will help us reach the pinnacle of fulfillment and self-actualization. Sorry, it doesn’t work that way.
So here’s what you can take away from all of this:
- separate true needs from wants and make sure your needs are covered with basic high value goods and services
- focus strictly on a few wants that add optimal value for the price
- eliminate all purchases that are driven by a desire to collect or add to your self-status
Doing so is incredibly liberating and will make your life as a consumer much easier and more fulfilling. And consumer impact reduction is one true path to wealth.