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Money Matters: Needs, Wants and Crisis

Can you list 10 things that you are currently spending money on regularly that you do not need? Go ahead and try it. If you are like most people that I talk to, you will have difficulty with this. The first 4 or 5 come easy, and then you really have to think about. Did you get 10? What about 15?

This an activity that I do in all the classes that I teach and people are rarely able to come up with 10 in 10 minutes, which shows that taking time to really think about needs and wants isn’t too elementary for most of us.

Let’s not kid ourselves.

Our society is seriously confused about this difference and some of that has rubbed off on us. The goal of all marketing is to make a product a need for us. As sad as it sounds, when enough experts (I’ve mentioned previously that I do NOT have a love affair with experts) tell us we need something, we tend to eventually agree. We then purchase a product, sign up for a monthly plan, tie up more future income, and give said expert another reason to laugh him/herself to sleep each and every night.

This constant brainwashing, even if we see through most of it, is what tends to make this list hard to generate. Did you list cosmetics? Kleenex? What about the temperature that you keep your house at? Internet? Cable/dish (if you have this and it isn’t on your list, put it on your list – now)? Netflix/Redbox? If you have a car loan, did you list all of the extra features (you are paying for these regularly – leather seats, sun roof, engine upgrades, make and model, etc.)? I could keep going and going and going.

Another way to frame this exercise is to list all the changes that we would make to our spending if we found out that our total income would be cut in half tomorrow. This one takes some real creativity. My house goes on the market in that scenario. Internet leaves the building (ouch!). This is a crisis scenario and extreme measures are called for.

Here’s the issue. My hope is that you are not currently in a financial crisis. If this is true, and things are somewhat stable for you, then spending on wants is not a bad thing, as long as there is a concrete form of regular savings in the mix. I do believe that most of us should be bulking up our savings even in the good times (make a goal of getting to the point where you can save 15% of your income—form new spending decisions around this goal—your future self will rave about your wisdom), but we don’t need to go extreme. Let’s not ever forget, though, that we are not immune to the possibility of a household economic downturn.

The best time to prepare for this scenario is now. When a crisis begins, stress levels go through the roof and paralyzation can set in quickly. Decisions that seemed obvious and easy before suddenly seem about as easy as swimming in quick sand. Without a plan, we can become like deer caught in the headlights. If the deer would just use its significant athletic ability, it could likely avoid a bad situation turning a lot worse. Similarly, if we dig down into the reserves of creativity, thriftiness, and necessary pragmatism (choosing what is needed over what is wanted), we will likely weather the storm. Preparedness ups the likelihood of this happening significantly.

Now is a great time to analyze all of your regular spending and look for the leaks. In all of your spending categories, try and define the point where they cross over from needs to wants. Can you put a dollar amount to this? As an example, Gretchen and I probably spend around $300 per month on food. This is a quite frugal food budget, but is it all needs? We eat a lot of fresh produce, which is wonderful, but is it a need? It is a high priority for us, but pragmatism says that there would come a point where rice and beans would need to suffice. Pragmatism is all about the ability to mitigate the conflict between the reality and the ideal (ideally, I would eat a lot of fresh produce, but fresh produce costs money—I don’t have money, therefore, I cannot eat fresh produce right now, even if it is ideal –congratulations, you live in the real world). I can say conclusively that we as a culture generally are terrible at this. Sometime I’ll get up really high on a soap box and write an article on just this one thing J.

If you take time to think about the changes that you would make given the above crisis scenario, you will most likely have thought of some painful choices. Downgrading or even eliminating cell phones, cutting cable/dish, eliminating eating out (yes, that includes Starbucks), adjusting the thermostat, putting items up for sale, etc. are all going to hurt. But that’s the thing, a crisis hurts—otherwise it wouldn’t be a crisis. We’ve got to be strong enough to make the painful decisions (I’ve mentioned before that any form of downgrading seems to strike fear into even the most courageous of Americans). That want organ in us needs to learn that it is not what dictates our decision making. This is very similar to disciplining a child. If our want organ rules the show, we’re in a tailspin towards serious trouble.

The other question to consider is how soon into the crisis do we take drastic measures? In my counseling of families facing foreclosure or other financial hardships, I have found that the response to a crisis stimulus often comes way too late or never. If you think about the reflex test that doctors do when they hit your knee, the reaction should be natural and quick. When income or expenses change suddenly, our budgets need to respond quickly. Yes, we may resolve the situation quickly, but, we also may not. I know a lot of people who are in serious financial trouble whose lifestyles are significantly more luxurious than my own. This tells me that people either lack the courage to choose the necessary over the ideal or have just stuck their head in the sand and are hoping it all just works out. Neither is an option that is available to us, unless we want to be road kill.

When you institute deep cuts in your spending, the beautiful thing is that if circumstances improve, you can always add back in some luxuries again. The other thing is that you may find that you identify some things that you were spending on just by habit and you actually prefer not having them. If you don’t make immediate spending cuts, you will set yourself up for a much greater fall in the future. Set your jaw, grit your teeth, look in the mirror and pose with one of those tough looks that your grandpa gave in every picture when he was young, and make the hard choices.

Taking the time to think about this now will do so much to insure that we act appropriately when the opportunity arises. If we chart a course before the emotions and the stress come, we will be better able to act decisively when they are there. Identify want spending now.

Remember doing fire drills and tornado drills back in school? I remember doing a fire drill in my house with my family growing up. This is a crazy thought, but what if a household would do a 3 month financial crisis drill? What if we practiced making the cuts and got a taste of the horrors of pared down living? Use all of that extra money to sock away some savings (the other huge factor in preparing for crisis scenarios). Gretchen and I did this for a few months back when we decided to jump start an emergency savings fund. I have good memories. I think it would be a great thing to do again when our kids get a little older. It would provide an amazing teaching opportunity.

It always comes back to this, but as we take steps to prepare for crisis, think about the invaluable lessons that we are passing on to our children. As we explain the steps that we are taking and the plans that we are making, we are giving them the tools to handle life’s surprises with positive, decisive action as well. As with other aspects of money management, let your kids see what you are doing and let them in on the process at a level that they can understand. Help them understand the difference between a want and a need early on so that the distinction is deeply ingrained.

Consider doing a financial crisis drill with your family or at least talking through how you would handle one. Practice makes perfect and the very nature of a crisis necessitates good, quick decisions. If a crisis never happens, the principles gleaned from this practice are still hugely valuable and applicable in so many areas of life.

How would you handle a household financial crisis?


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This post was linked to Monday Mania at The Healthy Home Economist, The Welcome Home Link Up at Raising Arrows, Better Mom Mondays at The Better Mom, Homestead Barn Hop at The Prairie Homestead, Seasonal Celebration Sundays at The Natural Mother’s Network,  Fat Tuesdays at Real Food Forager, Frugal Days, Sustainable Ways at Frugally Sustainable, Living Well Wednesdays at Women Living Well, Your Green Resource at Live Renewed

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