Personal Finance Tips – How to Make the Distinction Between Your Needs and Desires

Personal Finance Tips – How to Make the Distinction Between Your Needs and Desires

If you start tracking down your expenses to the smallest detail, you will see that it will be much easier to keep track of what you really need to spend money on – like transportation from your home to your work and back – and things you desire, like an energy drink that helps you thorough the day. The difference between your needs and things your desires help you control your spending.

There are situations when the two overlap: maybe you will see some new pants for $70. There would be no arguing you need a pair of new pants, but the price tag would make you think twice. However, there is no point in buying something that is cheap, but you are not entirely happy with: why are you working to make money if you can’t have any joy in it?

There are some questions to ask yourself to see what the difference is between the things you really need and the things you desire. What is the purpose of this purchase? Can it save time, energy or money for you? Will it help you do something you want or must do? When will you use this purchase? What are the pros and cons of buying it now versus waiting?

What are the things you must give up to buy that thing? Do you have to say goodbye to your savings? Will there be any delays in the purchase of other things? Can you make this purchase and stick to your plan to pay down debt? Keep in mind that the real price of a thing you buy can not be defined by its price plus sales tax. If you buy something, you may loose an opportunity to invest that money.

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A good trick is setting your own price tag to different things: before you decide to buy something, a lunch, a car or a vacation, ignore its price tag, and decide how much that thing is worth to you. If you do this, it will be less probable you overspend on something you don’t really need.

So if you decide how much a flat screen TV is worth to you and you are not willing to pay more on that, you will see that the yearnings for the things only rich people can afford. You will walk away freely from things that have a price tag that doesn’t match your own price.