This topic’s been discussed here and other places before. And it’s the headline advice in today’s installment (the 20th out of 21!) of CNNMoney.com’s best money tips ever series. It’s one of those simple tenets that’s almost never simple in practice: “Focus on your needs, not wants.” And it comes from Liz Claman, Fox Business Network anchor and author of The Best Investment Advice I Ever Received. We’ll talk about why it’s not as simple as it seems below. Let’s dig in. Here’s there rest of the advice, from the article:
Best advice I can give: We all have to learn from our mistakes of overleveraging ourselves and acting like 5-year-olds — “I want four cookies.” You don’t need four cookies; you only need one. It’s not about what you want, it’s about what you need.
We all must reassess our consumer behavior. It’s not good enough to live within our means — we have to live beneath them.
Best advice I ever got: My father, Mo Claman, would say, “Liz, buy good companies going through bad times.” When I was growing up, he was a big believer in Kodak, and every day he would get the paper and run his finger down the stocks column to check on it. The stock went through some rough periods, but he kept his Kodak shares, knowing it was a good company. He swears he put us five kids through college thanks to that stock.
My take:
I think this is the first time I like the advice the speaker gives better than the one they get. Yes, I get it. Buying good companies going through bad times is an amazing way for some people to make money (especially if your name rhymes with Borren Duffet (anyone?)). But for a lot of people, buying single companies is a terrible idea – especially if you think they’re a good company going through a bad time. How many people thought Enron was one of those? How about Lehman Brothers? Bear Sterns?
I know we’re only years removed from those messes, but how many people haven’t even heard of those companies? Any of them? I bet most of my readers have. But take a walk down the hall and ask the “new guys and gals” in the office what they know about Enron. Or ask them what business Enron was in. If you’re in college ask the person in front of you in the lunch line. You get the point, right? It’s tough for anyone these days to “know” a company is “good.” And good luck trying to identify the difference between “going through a bad time” and “going broke” these days with any certainty.
If you’re not studying this almost full time, you’re probably better off just taking it slow and investing through mutual or exchange-traded funds. You’ll sleep better at night. Spread the risk. I think Mr. Claman’s advice had its day, but for most of us, funds are a better way to go.
But the reference to bad times is useful in one way. It’s often not a good idea to stop investing in bad times. Regular investing in good times and bad will almost always pay off in the long run. Don’t overcomplicate things by trying to time the good times and the bad. It’s almost always not worth the headache (and risk).
But Liz, Liz, Liz, I love your advice. If only it were that simple though. You put four cookies on a table and ask three different people how many cookies they “need” and you’ll probably get three different answers. One person will be more hungry than the others at that point. One person may love cookies. And one person may be allergic to one of the ingredients. Get it? It’s subjective. And when things like this are subjective you end up with so much waste that the line between a need and a want is so blurred that it’s almost a useless distinction.
Let’s take one recent example. You need shelter. You (well hopefully not you!) this junk (don’t get me started again)! Get it. You need food. You want steak. You need clothes. You want skinny jeans.
I could go on (but I won’t).
The truth of the matter is if we only focused on “needs,” or at least basic needs, you wouldn’t be reading this right now (or at least it wouldn’t have loaded as fast as it did). So it’s unrealistic to try and actually limit spending to “needs.” But when push comes to shove, when the budget is tight, or when you find yourself overwhelmed by debt or reaching into your wallet for that Amex, ask yourself the following questions:
- Do I need this;
- Why do I actually need this;
- Is there a better alternative;
- Is there a simpler alternative;
- Is there a cheaper alternative;
- Do I need this now;
- Why can’t this wait; and
- Why do I need to buy this exact product or service, from this company, at this time, from this store?
Get it? I bet there are only a few purchases that would survive. So it’s probably a “want” and not a “need.” That’s OK – I’m not going to tell you to only buy what you need. But if you’re upside down on your finances, you may want to consider asking at least some of these questions. Over-consumption – especially when borrowing to consume – is a one-way ticket to the poor house. Best way to avoid that? You guessed it. Put your credit card down and slowly step away from the mall!
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