Personal Finance and Be Money smart! – Part III: Do you want one or do you need one?

Key takeaways:

• You my want to own many things, but you don’t need all of them;
• Learn to distinguish the difference between wanting and needing;
• With this in mind, you know how to spend money;
• While you spend less, you have more to save and invest;
• In the long run, you have more!

When my kids were small but big enough to know what money was and what money could do, we started educating them about money. As a parent, the most challenging place to go to with my kids is to bring them to a shopping centre. Why? Because they always want to buy everything. Kids cannot reason why parents don’t buy them toys every time we go to KMart. Kids cannot understand why they can’t buy that pretty water bottle with a Disney figure on it (because there are already 5 water bottles at home!).

So, we started teaching our kids how to distinguish wanting from needing.

Do you need a Porsche 911? Perhaps not. What you need is a ‘car’ to drive from A to B. Of course, a Porsche is nice to have, but a Toyota does the same job to bring you from A to B. If there is MRT or a bus service between A and B, then the public transport does exactly the same job. So, do you need a Porsche or do you just “want” a Porsche? That’s exactly the point.

Knowing the difference between wanting and needing is a big step for personal finance. This understanding tells you how to spend your money. I’m not suggesting that you shouldn’t get a Porsche. In fact, for some situations, you do need a Porsche or a nice car. I have a friend running quite a big business in Shanghai, China. At an occasion, I had a cup of coffee with him in Shanghai. I noticed that he wore an IWC on that day!

I joked: “Hey mate, is that IWC a real IWC”? He said: YES….! OMG, that IWC could buy me a BMW 3 series. So, I asked him why he had such an expensive item; was he a watch lover? He said: “No. I need it because many people judge his business capacity and capability by what car he drives and what watches he wear“. I got the point. Then I remember that my father did exactly the same when he was running his construction and property development business back some time ago. They do need Porschy stuff, although they may not want one! I’d rather drive my BMW than wearing it on my wrist.

Once you can well distinguish the difference between wanting and needing, then come back to check your spending behaviour. Do you need the Apple Watch or an ordinary watch will do, given that you’ve go a Fitbit and an iPhone already? Do you need the LV bag or an ordinary bag will do? Do you need a Lexus or a Toyota will do? Do you need a Beats headphone, or an ordinary headphone with noise cancellation function will also do (which is only half the price)?

It took me years to realise this, but it took me even longer to change how I spend money. I want to have a Harley Davison motorbike and I have been wanting it since I was a child. Could I afford one now? Yes, I can but I don’t need it. Good to have some day but not the priority for now.

If you spend less and you spend on something you need, then you have an abundant life because you have all you need. Living an abundant life is not to have everything in the world, but to have what you need. Further, you can have something you want that contributes or even perfects your lifestyle. It’s even better. In the long run, then you will have more and live an abundant life.

A real rich person is not a person who has a lot of money. In stead, a real rich person has all she needs and has money to buy something that she may want. We always want something extra but having all we need itself is satisfying. If you realise this, then you are living an abundant life. In the long run, you will have more; wealth and happiness will also follow. That’s what an abundant life is about.

Dr. C. Richard Wu@ REEAConsulting.com

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