Friday, December 18, 2009

By 

James W. Stone

The news reports tell us the nation's economy is getting better. Advertising tells us we ought to spend. Our bank account tells us not to spend on anything we don't really need. So, what's a person to do?

This year, many of us got a quick (and harsh) lesson about the problems of having credit card debt. Banks cranked up the interest they were charging, raised the minimum payments, and ruined our household budgets in the process. We learned the problem would have been avoided if we didn't have debt in the first place. To solve that problem, many people decided to do everything they could to pay off credit card debt—and well they should. The language of managing household spending became a comparison of "WANTS versus NEEDS." The idea is that you can reduce your cash outflow and reduce your debt by telling yourself, "If you don't need it, don't buy it."

After a while the use of "wants versus needs" begins to create new problems. For one thing, it makes us feel deprived. Worse yet, it can take away our feeling of self-worth. It's like saying you should only want to eat enough to live. That gets old in a hurry.

If you already follow the "wants versus needs" approach, you can actually make better spending decisions if you ask yourself what problem you are trying to solve with your purchase. There are two good reasons why this is the case: First, if you are using only the "wants versus needs" criteria to make your decisions, you are really trying to find some way to deny yourself the opportunity to spend money. And if you are always trying to say "NO!" to yourself, you are likely to cheat the truth sometimes to avoid being so negative. If you are not honest with yourself, you can't make good decisions about spending.

Second, if you identify the problem you are trying to solve when you buy something, you give yourself a chance to find the best way to solve that problem. This technique let's you use your mind to solve your problem in creative ways, rather than deny something as only a "want." And if you are trying to solve a problem by spending, you need to shop and compare different ways to solve the problem.

If you make your spending decisions as a means of "solving problems" you must remember your ultimate goal. If your ultimate goal is to get out of debt, you can't afford to solve short term problems spending money that will be needed to pay off that debt. You will face many "problems" before you can pay off a significant amount of debt. Not all problems need to be solved. Some of them just want to be solved. I know that sounds a lot like "wants versus needs." But in the practice of solving problems, you might be able solve problems without spending money (or a lot of money) if you think about different ways to solve the problem.

The desire to go out to a movie is obviously a "want." If you manage your spending using "wants versus needs," a night out at the movies will lose every time you attempt to make that decision. You know you don't have to go to the movie, so you tell yourself to stop thinking about it.

However, if you manage your spending by trying to "solve problems" you might find other ways to satisfy the problem that don't cost as much as your first option. These other ways might even be free. Instead of going to a movie, you might rent a movie you never got to see. In such a situation, you have still filled your evening with a movie. You had a wider choice of movies to choose from, and you avoided the expensive concession counter. And during this movie you can talk! You can even run it back to replay a scene.

It's true that you really don't need to see a movie at all. But if you ignore the problem building up from a lack of entertainment, you won't feel good enough about yourself to analyze other spending decisions accurately. Always "doing without" is a tough road. It is better to accept that some of your "wants" represent a basic "need" in disguise.

Ask yourself why you want something. Your answer will help identify the problem you are trying to solve. A fresh look at solving your problem will be much more rewarding than simply telling yourself not to spend any money at all. And it puts you back in control. But don't forget that long-term objective out there on the time horizon — you still want to pay off your debt.

James W. Stone
Copyright 2009, James W. Stone, all rights reserved worldwide