Wants, Needs, Habits & Financial Literacy
I’m Andy Temte and welcome to the Saturday Morning Muse! Start to your weekend with musings that are designed to support your journey of personal and professional continuous improvement, and to improve financial literacy around the world. Today is March 22, 2025.
Over the last two episodes of the show, we’ve been exploring the ways that our minds get in the way of financial literacy and good consumption and investing behaviors. Specifically, we’ve been talking about the impact of cognitive bias in our lives and have introduced the concepts of confirmation bias, decision fatigue, loss aversion, herd mentality, and overconfidence bias, just to name a few. If you’re just joining me on our journey toward improving financial literacy, I encourage you to go back and listen to those episodes.
Today, we’re going to continue our exploration of financial literacy with a fairly straightforward conversation about our consumption habits and how they can, over time, derail our ability to save for the future and establish the financial security that so many of us desire.
To kick things off, let’s make the distinction between financial security and financial freedom. Financial freedom means that you have the resources to live comfortably and fulfill your wants and needs without the need to work for a living. Alternatively, financial security is all about having enough savings and/or income to live life without the constant pressure of money worries. In general, we strive for financial security during our working years and financial freedom when we retire. Very few of us can experience financial freedom during our working years—a situation where work is an option and not a requirement. As we move forward, we’ll be careful to make the distinction between financial freedom and security. Most of the time, we’ll be talking about achieving financial security.
Now, with that distinction in place, let’s turn our attention back to consumption and habits. Back in December of last year, I talked about the power, and danger, of the habits we establish. Habits can be a strong, positive force in our lives if we periodically inventory and review our habits for their efficiency and impact on our quest to achieve our dreams and goals. Left unattended, habits calcify into “the way its always been done” and can lead us down the slippery slope into a fixed, unyielding mindset. Said differently, we must periodically consciously evaluate our day-to-day consumption and living habits by bringing them into working memory and asking a series of ‘why’ questions to ensure the habit is a net positive contributor to our life’s journey.
How to Determine Needs, Wants, and Question Spending Habits
But how can you actually go about questioning your habits and how will you know if you’ve inventoried and evaluated all of them? Here are a few recommendations:
When doing this work, it’s important to be in a mind frame that promotes mental agility and a willingness to question yourself and your behaviors. Don’t engage in this work when you’re tired, drained, or frustrated.
Be in a physical position where you have access to banking, credit card, and investment records. You’ll miss a lot if you simply close your eyes and think about what you buy and why. The data doesn’t lie, but as we’ve discussed, our brains routinely trick us.
Evaluate your financial records one by one. Most everything is in digital form now, so it’s both incredibly easy to access your financial records from anywhere, but it’s equally as easy to ignore financial transactions and financial records because they no longer come in the mail. The monthly confrontation with a physical credit card bill that just came in the mail, listing all of last month’s transgressions—I mean transactions—is no longer a wake up call we experience.
What does evaluation of a credit card statement look like? Log into each account and review the transactions line by line. For each transaction, remind yourself what the charge was for and ask yourself “why did I buy this?” Most importantly, ask yourself if the transaction fits into the following three categories: need, want, and impulse.
As a reminder, a need is something you can’t live without—it is essential to your current state of existence. Rent, utilities, food, and transportation to-and-from work are good examples. A want is something you can live without. Most entertainment and travel sits in the want category. Interestingly, a lot of our food purchases are also wants—ice cream, soda, alcohol, and myriad other treats are wants. Avoid categorizing wants as needs. It’s easy to convince yourself that a want is something you can’t live without.
I recommend labeling impulse purchases separately. Most impulse purchases also fit into the want category, but listing them out separately will give you an idea of just how much of your hard earned $$ is flowing out of your accounts because in that moment, you just had to have whatever that thing was. It will also give you a rough idea of your level of impulse control. Generally, less impulse control means less future financial security and is also an indicator of low financial literacy.
Once you have individual transactions labeled, look at the want and impulse purchases and ask yourself: “What value or utility did I derive from buying this thing?“ Then ask: “Do I need to buy this again in the future?” Question whether the purchase has become a habit and whether it’s a habit that needs breaking. Many times, we pee money away on wants or impulse purchases that we make out of pure habit and nothing else. For a refresher on what utility (usefulness) and value mean, please see my two Muses on the subject from February 2025.
Even expenditures that fit into the need category must be periodically reviewed. Yes, you may need a vehicle, but do you need to lease a fancy car, or something more functional?
Speaking of habits, the monthly review of your financial records should be a habit you adopt and never break. Yes, this habit should be reviewed periodically with an eye toward making the review more efficient, but it should be something you do every month for the rest of your life.
The next step in the process is to change your consumption behaviors based on your evaluation. Note that you’re likely not going to change your behaviors drastically immediately after your first review. Afford yourself the grace to make changes through time. Trying to change too quickly may lead to inaction or future backsliding. For additional help managing habits, author James Clear does a masterful job of helping folks understand and change their habits in his book Atomic Habits. Definitely recommended reading.
Until next time. Grace. Dignity. Compassion.
