For this section of the PCC Scroll, we will talk about “Going back to basics.” In today’s world, what does that even mean when it comes to finances?
Because of our busy schedules, we often opt to pay a premium for convenience. We can have groceries and food from restaurants delivered to our homes and jobs. We can buy meat, fruits and vegetables pre-cut. While it may save time, the costs associated with the conveniences quickly add up. It is important that we focus on what we are spending our money on and limit spending where we can.
I have long since thought that we have somehow managed to blur what we need vs. what we want. For example, while I may want wi-fi at my house or a data plan for my cellphone, are they really things I need? They are convenient, but are they life and death needs? For me, the answer is no. Though some could argue that both are necessary for the running of their household. So not only is want vs. need debatable, in some cases, they could be different. If you work from home, wi-fi is crucial for your day-to-day work. And according to financial advisors, in some cases, want vs. need could be less financial and more psychological.
So, what do we need? We need housing (shelter), transportation (car, gas or bus/train fare), insurance (health, car, etc.), groceries (food and toiletries), clothing, childcare, debt repayments (credit cards, student loans, etc.) and utilities (gas and electricity). What are some popular wants? Travel, entertainment (movies, cable, Netflix, etc.), designer clothing, coffee (not made at home) and gym membership.
Now, let’s break that down further. Even items in the need category can be blurred with a little want. You need a house, but a family of four may not need a six-bedroom house. In the same vein, while you need a car, you might not need a luxury car (Though if your job requires a lot of travel in your car, you may opt for comfort). While you need clothes, you don’t need to have designer clothes. While you need food, going out for lunch five days a week could add up very quickly and organic fruits and vegetables, though healthier in some cases (do a search for “clean” fruits and vegetables), add up.
As always, these are just guidelines. Based on your individual circumstances, what you consider a need may differ. We are meant to enjoy the fruit of our labor as much as we can. By rule, don’t go into debt for travel, food, clothes, electronics and other “stuff.” At the end of the day, the goal is to get to the place financially where you not only cover all your needs, but you also have money left over for some of those wants. My main vice is travel, but in order to take it, I have to save for it.
If you need help budgeting, the 50/30/20 rule is a popular approach. You spend 50% on needs, 30% on wants and 20% on savings and paying off debt.
Begin by tracking your monthly expenses: every expenditure from your mortgage to coffee to bubble gum. Place those items into broad categories like housing, utilities, insurance, food, etc. Divide these items into wants and needs. Insurance and phone would be a need but coffee and eating out is a want. If your needs are over 50% of your income, take the percentage out of your wants.
There is software (and even basic Excel) that can help you create a budget. When you create your initial budget, be flexible with it and yourself. Adjust your budget as you go until you have a solid budget and then keep it. Then as your income and circumstances change, revise your budget. And remember, leave a little room for fun. Otherwise you probably won’t stick to it.