When we talk about "financial prudency using needs and wants' principle" we are reffering to making intelligent financial decisions by understanding needs and wants I.e prioritizing the expenditure in the order of necessity considering the fact that there is always a limited income to be used or spent on the unlimited expenditure.
It is known fully well that the principle of want is in such that it can never be met irrespective of one's financial buoyancy, because meeting a particular want will always open door for another. For instance, for an individual who has the latest car let's say,
2018 Lexus LS
will still be desiring for 2019 model. That is the principle of want, which can never be satisfied until death comes.
** Definition of terms **
Financial prudency :
To be financially prudent, actually entails an individual to be wise and diligent in making financial decisions. This connotes that the limited income or resources is expected to be used on commodities that are of necessity. Those thing are called (must have)
** Needs and want **
Inferably we usually use these two terms for each other or to mean the same thing, of which they are two different terms with different meaningful meaning in the world of financial education. Thus , there is need for us to get it right. What is actually the meaning of needs and of course what is the word want all about? How do they contribute to making good financial decisions?
** Need **
These are material and immaterial things in which people will require for their survival and life sustainability, thus needs are often times called must have's
These are also material and immaterial items in which people will like to have to improve their social status and also living conditions. Here, the wants are often called ** nice to have's **
Now, looking at the two : needs and wants, it could be seen that our survival depends on one (needs) while life does not depend on the other (want)
The needs of man can be classified into different categories depending on the persons priority; but the primary needs of man are food, shelter, air and cloths. However it should be noted that wants can also end up as needs, and needs and wants may interchange over time depending on the person's specific living situations.
In every life decision we are making, we should put into priority first our needs before we then check out the wants because failure to fulfill out needs against our wants may lead to:
- Illness or even death if the basic needs like food or medical treatments are ignored.
- Injury if safety needs are not catered for.
- Loneliness, boredom, low confidence and depression may also set in if some other psychological needs are not met.
How to identify your needs
- If you cannot live without it.
- If it helps you ensure your future well being and income are in place e.g school fees, insurance premiums etc
- If the absence of such an item at that time can cause psychological, physical, medical or mental damage to you. e.g Healthy food.
** Some key factors that influences wrong financial decisions**
- Peer pressure
- Lack of information
- Unexpected financial expenses
- Lack of personal responsibility and carelessness.
We now need to know how to make sure our needs are satisfied without mixing it up with our wants
** How to satisfy our needs **
- You should be aware of them
- You should prioritize them
- You need to generate income to satisfy them.
- Set your budget
- You need to live within your means.
Knowing how to be financially prudent is very important. One of the key factors that allows these to be possible is understanding the principle of getting to differentiate between our needs and wants as this helps in setting our financial priorities right.
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