Prioritizing Your Expenses

Wants and needs are often easily distinguished from each other, but there are times when the line blurs and we’re not really sure what might be causing us to spend the way we do. Abraham Maslow’s Hierarchy of Needs, first published in 1943, can help explain why we’re sometimes unable to tell the difference. The hierarchy is generally depicted as a pyramid consisting of five levels, with the first reserved for the satisfaction of our basic physiological needs.  These are the basic biological requirements for survival, including food, water, sleep, clothing and shelter. I don’t think any of us would argue that ensuring that these needs are satisfied motivates a fair amount of our spending, and rightfully so. They should be our first budget priorities.

Maslow suggested that satisfying the needs at the lower levels of the pyramid would enable us to move on to the next tier. In his second level, commonly described as safety needs, Maslow included such elements as personal and financial security, health and well being, and protection from accidents, illness, or the unknown – the type of general goals we accomplish when we buy insurance. Spending on items that help fulfill these needs may not always seem like priorities to us – for example, many of us probably know someone who has decided not to buy insurance, preferring to spend their money on something else. Maslow felt that the failure to satisfy such a need would result in an underlying feeling of anxiety, which wouldn’t be entirely resolved even if higher level needs were satisfied instead.

The next two levels, social needs and esteem needs, are responsible for a great deal of our spending, and not all of it healthy. The items Maslow assigned to these levels included the need to love and be loved, to belong to a supportive family or group, to have self-esteem, and to enjoy the acceptance and respect of others. The desire to satisfy these needs can often result in dangerous behaviors, particularly when it comes to the way we spend our money. You can probably think of someone you know who spends money just to keep up with the Joneses, that is, to gain social acceptance, even when doing so might deprive their family of the money they should be using to satisfy their more basic need for food and shelter. This is an unpleasant truth within Maslow’s hierarchy – that acting to accomplish social needs can often trump our real priorities, but recognizing the motivation behind such unhealthy spending is often the first step toward resolving such issues.

Let’s leave Maslow behind for just a moment and try an exercise to help you identify your wants and needs. Make three columns on a blank sheet of paper, labeling one for needs, one for wants, and leaving the final column for items that may be difficult to categorize at first.  Assign each item in your budget to one of the three columns, trying not to omit a single expenditure of any kind. Undoubtedly, you may experience difficulty in assigning a clear-cut definition of need or want to some of your expenses. If you’re unsure, go back to Maslow’s hierarchy for a moment and see what might be motivating you to spend on that particular item, and then re-evaluate whether you truly need the item or want it in a way that is symptomatic of unhealthy spending.

Before you start psychoanalyzing every move you make, rest assured that there is room in this exercise for compromise.  Let’s say an individual needs cable television service because they live in an area where there is poor reception.  However, they want the most expensive package that offers every premium channel.  In evaluating wants and needs the individual may decide to keep cable service as a need, but determine that the premium package is excessive.  The individual can decide to downgrade service and save money in the process – savings that can be reassigned within their Spending Plan.

Ultimately, this list of needs and wants should be used to help identify areas of your spending that can be readjusted.  While there may be opportunities to purchase cost-effective alternatives to many of the items you need, you can almost always save more money by eliminating wants.

For more information, or to speak with a certified credit counselor please contact Cambridge Credit Counseling at 800-897-2200 or

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