For people like me, who do not have English as their first language, Need and Want is a synonym and they might be using them interchangeably. But if we pay a close attention to the usage of those words then they are miles apart.
Let’s first understand the meaning of these words from the dictionary.
Need : to have need of; require: (verb)
Want : to feel a need or a desire for; wish for: (verb)
Based on dictionary references here is my take on these words. NEED is something which we REQUIRE to fulfill otherwise we will feel a void in our life, and WANT is something which we DESIRE to fulfill and absence of it may be felt a little but may not be required.
In terms of Personal Finance, it’s essential to know differences of these words. We need to separate all our needs from wants. If we indulge too much on serving our wants then we may have to loose something which we may need. We need to prioritize them. Need must take first priority among these two, always. And Want should be either avoided or minimized.
How do we separate Need and Want?
There is no straight answer here. Based on situation and context a need can become a want and a want can be a need. For example, buying a home is a need for people who is planning to stay there wherein for others it becomes want as they are buying it purely from an investment point of view. Food is a need for someone who is hungry and it’s a want for others who just plans to exercise their taste-buds or pass the time.
In the age of Internet, it’s very tempting to buy right now, our decision timespan has become too short. In fact, sites and shops are made to create an environment where you feel urgent need to buy, that’s called impulse buy. Do you wonder why shops and sites always have discounts on the product you are looking for, and why that product is always shown to you on the top section of site / email promotion? That’s because they want you to give up on decision-making time between Need and Want and indulge in an impulse buy.
It’s not only products which we buy as an impulse buy, but we make certain investments too as impulse buy. Another day, I had a friend of mine, Amit 🙂 , was telling me that he has found an exotic stock or mutual fund and he was desperate to add it to his portfolio. I am sure promoter of stock / mutual fund did a good job on promoting it, he got the product in front of people and created an environment of urgency to have it. Instead of giving up on such impulse buy, it would have made more sense to judge it on Need vs Want and proceed based on judgment. Asset Allocation and Tagging Investment may help you with your judgment on Need vs Want for investment. These tools’ power comes post their applications, as they will make it clear whether the exotic stock or mutual fund is a real Need or a mare Want. Leverage them as much as you can for your investment.
Ensure to take care of your Needs and it will automatically take care of your Wants. 🙂
Also published on Medium.