When it comes to Financial Planning, have you asked yourself what is more important – Your Needs or Your Wants?
Not too sure what is the difference between the two?
– Your Needs In General
In a general sense, your Needs can be anything from Goods to Services that are necessary for living, e.g. Food, Clothing and Shelter
– Your Needs In Financial Planning
In a Financial Planning sense, your Needs can be setting up an Emergency Fund to providing an Income Replacement in the event of Death, Permanent Disability, Critical Illnesses and even have enough coverage for Hospital & Outpatient Expenses.
– Your Wants In General
In a general sense, your Wants can be anything from Goods to Services that may not be necessary for living, e.g. Toys, Cars, Games and Entertainment.
– Your Wants In Financial Planning
This can be saving enough for a Expensive Car, for a Private Property when you already have a Shelter, and even for a Luxurious Retirement.
Even though the meaning behind a Need and a Want can be quite straightforward like what’s mentioned above, but do you know that when it comes to differentiating and prioritizing one’s needs and wants, many people are still having difficulties?
The Example Of How People View Their Needs And Wants
I was working with a few young professionals (this may not be the case for all) on going through their Priorities & Preferences and we even brainstorm for their Short Term, Middle and Long Term Goals and Objectivities.
A few common findings are that they are attracted to the same idea of getting their First Car, First Private Property, First $500,000 in the very near future (from less than 3 years to near to 5 years time frame). Most of their saving or investments plan are dedicated towards these Goals.
And getting a Car or a Private to them is a Need and not a Want. Do also note that for them, they have not planned anything for their Emergency Fund, or have any income replacement plans against the unforeseen. In planning for this, they see this as a Want, they only Want to plan for this when they feel that they are ready.
If only they have followed my Financial Planning Tip #4: Settle Your Basic Financial Planning, they should know that should not be the case!
And There’s A Good Reason For The Confusion Between Needs And Wants
This good reason is what we know as Advertising. Due to the power of Advertising, many people think they need things that they, in fact, want!
There’s this confusion that they must have what is advertised before anything else. Financial Planning is always the last thing that they may want to consider.
Just think… would you prefer to show off your latest Car Purchase or the $500,000 Term Insurance?
To bring you to reality, should anything happen, in the midst or have acquired these expensive items (there’s always such a possibility), that render you – Permanent Disabled or Down With A Major Illness like Cancer (but you will survive) – and you are faced with an absence of income…
What can really help you and your affected family members? Is it…
- A Car that depreciates in value the moment you drive out of the Garage
- A Property that you may have difficulties selling it off to the current property market
- A Limited Bank Account or
- An Investment Plan still waiting to bear Fruits
- A Comprehensive Medical Plan that takes good care of your Hospital Bills and Outpatient Treatments
- A Term Insurance that pays out $500,000 lump sum even though you may have just serviced around a year of premium
- A Disability Insurance that still take care of the 75% of your last drawn salary
Bearing in mind, that what you may have up above – the Car, the Property, the Savings and Investment Plan are still there for you. You still have a Car that your family members can drive you around, a Property for you to rest and recover and your Savings & Investment meant for other great things!
So you can see why something that you feel that you need (a car) is actually what you want. What you want or hope to plan for (a Term insurance) is actually what you need right in the first place!
So What Am I Suggesting To You For Your Financial Planning?
First is to know that what you need may be just be what you want. Differentiate that out right from the start! If you have planned all your Resources for your Wants, my suggestion is to concentrate on taking out some of these Resources to plan for what you Need.
You may, because of this, achieve what you want in a longer time frame but a good thing is that you have taken care of what you Need. If your Needs are all well taken care of, you can be assured that what you want the next time, you will have no worries!
With this, I dedicate this post to be my Financial Planning Tip #7 for you to know your what you really Need first and what are those that you can consider Wants!