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.
It will make you a wise ole’… oh my goodness, look how cute that owl is!!! Sorry, I’ve been looking for a way to add a photo of the saw-whet owl in to a post.
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.
This should be taught in schools like sex ed.
Definitely agree Jean. Looking back I would have been so grateful for some financial common sense advice. Lets hope the Government wakes up and starts educating our young to become financially savvy.
Excellent post. It is liberating to know what is essential for survival and then have the ability to differentiate everything else. The problem I have is that society expects you to have most of the items on all of the list which actually puts a burden and pressure when it comes to fixing your finances. I wish society as a whole would recognise that everything is not needed then personal finance would be easier on an individual basis.
Good post, but I’d argue many items in “The Stuff you Want that you Think you Need” are actually needs, at least for most people (though you acknowledged people would disagree with your list :).
For instance, nice clothing. I’m not saying everybody has to buy $500 shoes, but a large proportion of people who work in offices are expected to dress the part and come to work in decent clothing. Now, one could easily get quality clothing for a reasonable price, but it’s more expensive than your list implies of having the bare minimum.
Another item is a car. Depending on what city you live in, having a car may be absolutely essential due to lack of reliable public transportation to get to your money-making job and to buy the minimum groceries you need. In New York City, sure, it’s not a need. In rural South Dakota, it absolutely is.
Then again, admittedly, I’m not nearly as thrifty as you are. But, I still manage to invest about half of my annual income, so I’m leaps and bounds better than your average American in his twenties. :)
“Minimum acceptable level of dress to maintain employment” as a need is something I can get behind.
Car? Sorry – can’t do it. People have existed for thousands (maybe millions) of generations without cars and most still do today. See my response to Lisa for more on my thinking on this, but a “want to live in this specific location that has no viable transportation alternatives to get to this specific job I want” does not equal a need, in my opinion. Once you push yourself to go without a car, you realize how unnecessary they can be. Sure you may still need a rental here and there to transport very large items.
Great post, GE! I totally agree with most everything in your article. One item I think could be added as a need would be child care.
Yeah – that’s an interesting one. In a one-parent household, I totally agree. But in a 2 parent household where you could get by on one of the parent’s income I would see it more as a “Want that you think you need” because the argument is “I want to keep my current (or advance my future) career, therefore I need to find someone to watch my kids”. The want and the pursuit of the want results in the perceived need. It’s like saying, “I need to work more hours to pay off this auto loan”. In fact, the choice of having kids in the first place is almost always a “want” in our modern society. That didn’t use to be the case as children were needed for their labor.
Kids changes the game. You just cannot believe the expense they bring and trust me, my wife and I make everything we can. But from medicines, clothing they grow out of in short order, shoes, nappies, development paraphernalia. Our lives were simple, now it is bat crap chaotic and expensive and we’re very frugal. Craigslist is our friend as is youtube for learning how to do everything.
Life changes when it is not about you anymore.
This is pretty much how we break down our purchases. We’re all about determining how little we actually need to live on annually. We do, however, include some tier 2 and 3 items in our monthly expenditures–internet, coffee, wine, our hound :). But, these decisions to spend were all made consciously and we see them as luxuries. I think picking and choosing one’s luxuries is crucial to attaining sustainable frugality. We live a happy and fulfilling life while saving 65%-85% of our income, which is made possible largely by allowing ourselves the creature comforts we most desire. Thank you for this post–and for the owl pic :)!
Brilliant post. When you boil fine to the basics it does make you realise how little you need!i have to say though that for me internet connectivity would be essential!!!!! Can’t live without my daily fix of Facebook – lol :)
Thank you for summing up what is wrong with the world today.
Get off your high horse of condescension, Tom. This doesn’t contribute to the discussion at all.
I love this post! What a great reminder that we all need from time to time. Just this past weekend I made 2 impulse purchases and I realized later that I felt worse about one of them than the other because 1 was less “needed” than the other.
I agree with this post except for the part on kitchen utensils being in the second category? Is one supposed to eat out of the can/with one’s hands then? :)