The distinction between what you really need and desperately want can be a fuzzy one. Wants can feel like necessities as you see your friends, colleagues and social media network reach milestones like buying a first home, upgrading a car or investing in a vacation property. However, spending to keep up with the Joneses―without the financial resources to back it up―can put real stress on your financial situation, now and for years into the future.
Whether you’re a 30-something buying a new car, a family upgrading your home, or a retiree with ambitious travel plans, you may be at risk for confusing wants with needs, says Peter Ficek, a Certified Financial Planner® professional with Terra Firma Financial in Calgary.
Directing income to indulge in niceties versus necessities can limit your ability to pay for adequate life insurance, a child’s education, a fully funded retirement or a rainy-day fund for unexpected expenses, to name just a few competing priorities.
How can you make the right choices so you can enjoy the life you want at a price you can afford?
Peter offers these important first steps to help put you on the path to a rewarding financial future:
1. Understand your relationship with money:
Recognize and understand that emotions impact decision-making. Think about what drives your strengths and weaknesses, then work to balance them to your best advantage. For example, spending triggers may be a recent loss, a stressful time at work or overall feelings of inadequacy. Looking inward to figure out the root causes of your spending will better equip you to live the life you want and can reasonably afford, instead of one that’s out of reach.
2. Get crystal clear on what you need—and want:
When you get a handle on needs vs. wants, you can better stabilize your expenses and plan for the future. Once the rent or mortgage, car payments and household budget are covered, you can set goals, timelines and pathways toward attaining your “nice to haves” without outspending your income.
3. Start small:
Setting attainable goals and taking small steps toward the lifestyle you want can make a big difference in reaching the finish line. Those small steps might begin with getting better informed about insurance or mortgage renewal options prior to renewal, or setting aside 5% of your income toward an established goal. Every successful small step will empower you to achieve the next milestone.
4. Talk to an expert:
A CFP professional can look at your overall financial picture and help determine where your spending might need an adjustment. They can help you set financial goals and create a plan to reach them―both needs or wants―and ensure you’re prepared for the inevitable changes along the way.
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