Smart Money Training Program

Needs vs Wants vs Obligations: A Deeper Dive

Needs are your top priority expenses and represent basic household necessities:

• Rent or mortgage: This provides you with a place to live.

• Utilities: Electric, heat, and water.  (NOT cable TV or streaming services).

• Food: Basic groceries and canned goods. (NOT dining out or fast food).

• Childcare: Daycare needed while you work. (NOT baby toys).

• Basic Clothing: Replacing worn and outgrown clothing. (NOT fashion items).

• Medical: Insurance, medications, and copays. (NOT cosmetic procedures).

Wants are those things that you value and make your life more enjoyable:

• Cable TV: You can watch shows for free with ad-supported streaming apps.

• Gym Membership: You can exercise on your own for free.

• Manicures: You can do your own nails or have a friend do them for you.

• Second Cars: Perhaps you could get by using public transit or by carpooling.

Desires are things that are for pure enjoyment, often called luxuries:

• Spa Day: Going to the Spa for a massage and facial once a month.

• Sports Games: Attending a weekly sporting event. You can watch it on TV.

• Dining Out: Going out to dinner once a week.  You can cook your meals.

Obligations are expenses you are legally required to pay, such as most loans:

• Spa Day: Going to the Spa for a massage and facial once a month.

• Sports Games: Attending a weekly sporting event. You can watch it on TV.

• Dining Out: Going out to dinner once a week.  You can cook your meals.

Taking a Hard Look at Your Expenses

The reason for prioritizing our expenses into Needs, Wants, and Obligations is to make informed decisions about our budget.

• It helps you to identify items that are genuinely required.

• It enables you to make those hard choices to achieve your goals.

• Many of these Wants and Desires often feel like Needs in our society.  Living without some may be extremely difficult or inconvenient, but in an emergency, you can get by and make ends meet without many of them.

Causes of Bad Spending Behavior

We are going to look at three common causes of Bad Spending Behavior:

• Habitual Spending

• Impulsive Spending

• Compulsive Spending

Habitual spending occurs when you spend out of habit or routine.  

These are habits and routines that are comforting to us but can also add up over time.

• Going out to eat with friends every Friday evening.

• Getting a manicure every Sunday.

• Did you realize that $4 morning Starbucks run costs you:

  • $4 x 5 days = $20 a week.

  • $20 x 50 Weeks = $1,000 a year!

To stop Habitual Spending, you have to break your habits and routines and learn to say “no”. This isn’t easy, but it is the only way to break a habit.

Impulsive spending occurs when you make a purchase without planning to do so. 

It makes you feel good at the moment, but at the expense of the long-term.

• Buying something you see in a store, even though it wasn’t in your budget.

•  You are more likely to overspend when you are pressured or rushed. This is why sellers of big-ticket items often use limited-time offers. Remember, any deal today will be there tomorrow or can be found elsewhere.
  
  

To stop Impulsive Spending, you have to give yourself a time-out or stay-out.

Use the 24-hour rule:

• You aren’t allowed to purchase it until you sleep on it.

• If the next day you decide you must have it, adjust something else in your budget to make up for the purchase.
  
  

Have a big-dollar spending rule:

• Any purchase over a certain dollar amount must be discussed and budgeted ahead of time with your budget partner.
  
  

Stay-Out!:

• Don’t go into stores unless there is something in your budget.
  
  

Compulsive spending occurs when you shop as a way to relieve uncomfortable feelings or stress.

• You go shopping after a bad day to relieve stress.

• You must have the latest smartphone as soon as it is released.

To stop Compulsive Spending, find a substitute for shopping, such as a sport, exercise, or some other feel-good activity. Remember, you are shopping not because you need something, but to make yourself feel better.

10 Ideas to Improve Your Shopping Habits

1. Use a List! Always use a shopping list with price limits.
   Remember:  “If it’s not on the list, it doesn’t exist”!

2. Pay with cash! Debit and credit cards make it easy to overspend. Counting out cash makes you see the cost!

3. Shop Around! Look for better deals at other stores and online. Shop at discount stores and warehouse clubs for great deals.

4. Research big Purchases! Read reviews in consumer magazines and websites. Wait for big sales!

5. Buy Gently Used! Save by buying gently used clothes, games, and sporting goods. Refurbished or Open-box electronics and appliances often come with the original warranties.

6. Rent or Borrow! If you need something infrequently, rental stores offer tools, cleaning supplies, and even party supplies that can be expensive to purchase but are often cheaper to rent.

7. Consider the full Cost! Consider all the elements of a purchase, including shipping, tax, maintenance, and repairs. Look for a good warranty and return policy on expensive items.

8. Be a Coupon Hawk! Look at weekend papers and coupon websites for online and store coupons.  Subscribe to mailing lists or store sites that notify you of big sales.

9. Don’t Shop Too Happy or Too Sad! Whenever you’re really up or really down, you’re more likely to buy based on emotion. Instead, save your shopping for when you are more level-headed.

10. Is it a Need, Want, or Desire?  Think hard about the purchase. Exactly when and how frequently will I actually use it? What will I have to give up or put off if I purchase this now?

Breaking Bad Spending Habits

Changing bad behavior is hard and takes time and patience. As with any habit, the hardest part is getting started.

• Be patient! Don’t expect things to change overnight.  Research shows that it takes 3 to 4 weeks to break an old habit and form a new one. If you stick with it for 30 days, you have a better chance of making it a permanent habit.

• Start with the easier and simpler habits first.  Start with one easy one and work on it until you succeed. Then move on to the next one.

• Replace old/bad habits with new/good ones. It is easier to substitute a bad habit with a good one than to try to eliminate it entirely.

• Practice your habits every day. Try to go a week without an exception, then two weeks, and then a month!

• Think of the habit as a means to a goal. Don’t think about skipping your morning Starbucks as a penalty – instead, focus on how skipping it will help you get that big-screen TV.

• There will be setbacks.  Don’t get discouraged. Give yourself a little reward when you achieve a major milestone.

Expense Reduction Plan: The 3 Rs!

One method is to examine all your expenses using the 3Rs approach:

• Rid - Can you get RID of the expense by eliminating it entirely?

  • Example: Cancel a streaming channel you don’t watch anymore.
    
    

• Reduce - Can you REDUCE the cost or volume of the expense?

  • Example: Reduce your electric bill by installing a programmable thermostat.
    
    

• Replace - Can you REPLACE the service with a less expensive option?

  • Example: Switch your mobile phone plan to a different provider to reduce your bill. 

Expense Reduction Ideas:

In this section, we will explore ideas to reduce expenses in various categories.  Although not all will apply to everyone, these can really add up.

Housing:

• Consider a roommate or renter for an unused, extra bedroom. 

• Renting is often cheaper than owning, especially when you factor in maintenance costs. It’s okay to rent until you're financially ready to own.

• Keep it small. The bigger the space, the bigger the monthly costs!

Transportation:

• Living closer to work or using mass transit will reduce commuting costs.

• Carpool, take public transit, or bike/walk to work!

• Consider eliminating one of your cars if you can get by with public transportation. You can always rent a car when you really need one.

Utilities:

• Turn the air conditioning up by 5 degrees and use a fan.

• Install a programmable thermostat that reduces the heat when sleeping.

• Close your blinds/shades to reduce heat build-up in the summer.

• Unplug appliances and turn off power strips when they are not in use.

• Upgrade to Energy Star appliances that consume less energy and water.

• Replace your light bulbs with low-energy LED bulbs.

• Use low-flow shower heads and faucet aerators.

• Only run dishwashers when full and avoid heated-dry.

• Ask your utility company for an Energy Audit – many are at no cost.

• Enroll in a Budget Billing program, which spreads costs over the year.

Dining Out:

• Cut down or eliminate dining out.

• Pack your lunch instead of purchasing lunch or eating out.

• Make your own Coffee to Go instead of going to Starbucks/Dunkin.

Groceries / Household Goods:

• Use Coupons when shopping. Many are now through apps.

• Buy food and household supplies in bulk and at warehouse clubs.

Financial/Banking:

• Have your paycheck or benefits checks automatically deposited.

• Use electronic debit for your bills to ensure they are on time.

• Avoid ATMs not part of your bank network to avoid ATM fees.

• Ensure you maintain the minimum required balances in your accounts.

• Watch your cash flow carefully to avoid overdraft fees.

Insurance:

• Increase your deductibles to lower your rates.

• Review your policies and eliminate options you do not need.

• Bundling your policies with one company can result in discounts.

Furniture/Clothing/Sporting Equipment:

• Visit Garage Sales, Resale stores, and consignment shops. They are full of new and nearly new designer clothes at a fraction of the price.

• Sporting equipment, tools, and recreational equipment can be purchased at second-hand stores.  Or rent them if only needed once.

• Check sites like Craigslist, Facebook Marketplace, and apps like Let-Go for furniture, sporting equipment, and appliances.

• Visit the closeout and scratch and dent sections of furniture stores.

• Get items at the very end of a season before next year’s models arrive!

• Look for sales tax-free weekend events.

Cable TV/Internet/Mobile Phone:

• Bundle your services with a single provider to save money.

• Eliminate premium movie channels. You can rent the occasional movie or borrow it for free through your library.

• Review your mobile phone plan and eliminate options you don’t need.

• If you need to upgrade your phone, go with the prior year’s model.  It will still be a significant step up, but it will be much cheaper.

Pets:

• Pets are wonderful but can be very expensive to own and maintain. The average dog costs $1,500 per year, and the average cat costs $900 per year, not counting initial purchase or adoption costs.

• Some breeds need constant grooming or are prone to health issues.

• If you travel frequently, you will need to factor in pet-sitting or boarding.

• Consider ways to make pets part of your life without owning one. You can walk your neighbor’s dog or pet-sit (and maybe make a bit of money!).

Charity and Gifts:

• If Charity is important to you, make sure giving is in your budget.

• Consider gifts of time rather than money, such as working as a volunteer.

Beverages:

• Drink more water - it’s cheaper than soda or juice and is better for you.

• Use a filtered water pitcher in the fridge instead of bottled water.

Prescription Medicine:

• Ask your doctor or pharmacist for lower-cost and generic alternatives.

• Many companies provide drug discount programs that you can enroll in.

• See if your plan has a mail-order option, which will often be much cheaper.

Vacations:

• Consider a group vacation package or using AAA or a warehouse club.

• Consider camping instead of staying in hotels.  It’s much cheaper and fun.

Gyms:

• Consider the local YMCA instead of a trendy fitness club.  They often have the same equipment at a lower cost, and many even offer babysitting.

• Many townships offer discount exercise classes to residents.

Generic Products:

• Generic brand products often work just as well as expensive, name-brand products.  In fact, most are made by the same companies!

Hair Cuts/Manicures:

• Beauty schools will often cut hair or do manicures for free.

The Best Things in Life are Free

Many enjoyable things can be had for little or no money!

• Enjoy nature – Beaches, parks, hiking trails are often free to use.

• Socialize with friends - Hold a backyard BBQ or a picnic at a park instead of going out to eat.  And enjoy some outdoor fun and games at the same time.

• Visit the library - Borrow books and movies. Many libraries allow you to borrow movies, eBooks, and audiobooks for free!

• Trade services with friends - Perhaps you can trim someone’s hedges for them in exchange for them to tailor clothes that need fixing.

• Discover hobbies - Many are low-cost yet enjoyable, such as hiking, wood carving, knitting, or birdwatching.

• Visit FreeCycle.org - Find household items, recreational goods, and kids' items for low cost or even free!

• Borrow items - Borrow from friends/family instead of purchasing things needed ‘once’.
  Free and low-cost events - Are often listed in the Sunday papers or posted on township websites, in post offices, and in libraries.

Remember the Key Takeaways:

• Changing bad behavior is hard and takes time and patience.

• To reduce expenses, follow the “3Rs”: Rid, Reduce, Replace