How do we know what we ‘need’?

Power prices are due to go up again next year, so Pulse Energy did a bit of research, and from those they talked to it seems most of us aren’t willing to give up our Netflix subscription to save power. Instead, we will wash less! Or use power when it’s discounted (which is usually at night), so potentially sacrifice some sleep to put on a load of washing, or the dishwasher.

Really! What would your answer be?

For me, I’d cancel the Netflix so I could have a shower when I wanted it, and as I need my beauty sleep, I’d rather have no Netflix so I’m not up at midnight putting on a load of washing, cold water of course as that saves power too.

The results of the Pulse Energy research aren’t really that unusual when asked the question what would you give up if you had to save money?

That’s because we all have different perceptions around the concept of what is a need and what is a want.

Remember Maslow?  The guy who came up with the hierarchy of needs.  He very conveniently helped us decide what was a need (level 1 and 2), and what was a want, (anything above that).  This also helped with budgeting.  The theory being, if you needed to save money you chopped off anything that was in the ‘wants’ category and focussed just on needs.  Doesn’t this mean that everyone should cancel their Netflix subscription and allocate that money to the power bill, as power is definitely a need, and Netflix is a want?

So why don’t we? Let me introduce you to Sarah Newcomb (a behavioural economist for Morningstar), she was also intrigued by this whole needs and wants question. After researching it, she concluded that ‘every decision we make is an attempt to meet a need’.  She continues. ‘We know we don’t need a lot of the things we buy. We want them because we believe they will help us meet some deeper need inside us.’ ‘We do not need to learn the difference between a want and a need.  We need to learn the difference between a need and a strategy’.

Now that’s an interesting thought. Let’s apply it to our power vs Netflix question.

I would happily give up Netflix, yes, I do enjoy watching it in the evening as I wind down before bed, or on a wet weekend, I’ll binge watch something. Another strategy for me, would be to read, I have a bookcase full of books, there’s a library down the road where I can get books for free. This new strategy would meet my need of ‘winding down’ without the monthly Netflix subscription cost.

Would this strategy work for say a family with three young children? I’m trying to picture what that might look like in the school holidays on a wet winter’s day.  The Netflix subscription meets a completely different need for a family than it does for me.

Once you understand the need, it’s much easier to make the decision about how and where you will allocate your resources (your money).

So, before we judge others on their spending decisions, think about the need that it’s meeting. We all have the same underlying needs, and we all get to choose how we meet them. We just tend to use money first as it’s often the easiest way.

Next time you review your budget, rather than think needs and wants, think needs and strategies and see if you find it easier to stick to.