By Ryan Laspina
Senior Specialist, Red Flags and External Reviews at APUS
Maslow’s Hierarchy of Needs argues that humans only have a few basic needs that they need to have met. These needs include physiological, safety, love and belonging, esteem and self-actualization needs.
While Maslow’s psychological theory may have been true in earlier ages, we must be more introspective today to determine what our financial needs are. In our technologically advanced world, the line between needs and wants is blurry.
On one hand, we have many need/want options to choose from in our society. On the other, it’s tougher to determine what is now a need and what is still a want.
Below are some tips and examples to help you determine your financial needs and wants.
- Standard technology is a need. Online college students need Internet access to complete their assignments. Items such as computers, cell phones and automobiles, are now needs to function properly in society.
- The fanciest models of cell phones and computers are wants, not needs. This is the number one obstacle the current generation faces. They will have to determine where basic need stops and luxury begins. An iPhone 4 doesn’t have the same features as the iPhone 6, but it serves the same basic purpose.
- Large loans may be a need, so you can progress in life. These loans include student loans, car payments and mortgages, but you should explore these loans thoroughly before you sign any contracts. Borrow responsibly, make sure you do not live above your means and shop around for the best interest rates.
- It is ok to occasionally use spending money for something you want. Sometimes you just need to splurge a bit to avoid binge spending. If you have some extra discretionary income, don’t feel bad about treating yourself every once in a while. People with high financial literacy know how to limit impulse purchases.
In some ways, people in the past had a much simpler time balancing their finances. We live in a country where we have luxuries right in front of us on a daily basis. The media, celebrities and department stores all try to influence your financial decisions.
To be financially literate, you must differentiate between current needs and current wants. A good rule of thumb: If you are buying an item for any reason other than its basic reason for existence, that item is probably a luxury want instead of a basic need.