Fact: An astounding 86% of Filipinos admit to having difficulties in financial management due to incorrectly prioritizing needs and wants. Many of them see personal loan as a solution.
73% of working professionals cannot properly identify their needs vs. their wants.
Can you relate? Well, you are not alone as clearly seen in these statistics.
Effective financial management depends on how we properly classify expenses. When it comes to needs vs. wants, our financial sense often goes out the window. We often place our trust on cash loans not realizing that recovering from debt will require the same discipline of properly handling needs and wants.
Do not be a part of the statistics.
The secret to laying out the foundations of an effective financial management takes root in the mind and begins in our attitude. This usually involves 3 steps:
1. Properly identifying your needs and wants
2. Prioritizing needs vs. wants
3. Letting go of wants when budget does not permit
Identifying your needs and wants
Do you know that author who said everything we need to learn we learn in kindergarten? Well, he’s right. In kindergarten I learned there are three things we need for our survival: Food, clothing and shelter – nothing more, nothing less. It makes up a triangle with food at the apex.
What does it tells us? That most stuff we see in retail stores is practically useless. Simple food, decent clothing and a comfortable enough home are enough.
Questions to ask before you buy:
- Does it fall under one of my basic needs?
- Does it have a cheaper alternative?
- Is it needed now? (Sales are never a justification)
- Can I still work well or live without it?
Prioritize what is essential
Food is a priority. Clothing can last for months so you can substitute other needs such as power bills, water bills, health, or education. Never skip on your rent or monthly mortgage and other obligations. Many Filipinos fall in an outrageous cycle of debt not because they could not identify the difference between a need and a want but because they cannot stick to their priorities.
That’s why most of us go out of budget. Not having a clear budget at all is another huge factor which delineates the importance of prioritizing what is essential.
Tip: Make a monthly budget of your income and expenses so that you can prioritize and plan ahead where your monthly salary will go.
The art of letting go
Letting go of your wants when budget does not permit takes courage. I know how painful it is to hold the latest gadget and putting it back to its rack, just because you couldn’t afford it. But brave up and be steadfast! Stick with your budget, and stick with your priorities.
Our “wants” should not be viewed as forever lost from our grasp but something to look forward to in the future. Wants are little sparks of hope and motivation. Gadgets lose value pretty quickly. Maybe you can own it down the road when you gain extra cash — and for a lesser price! But never go into debt just to keep up with the Joneses.
About the author: I’m Marie L. Torres, a marketing strategist of LoanSolutions.ph, a Philippine based company that provides fast and easy access to credit in different financial needs.
About the blogger
Louis Delos Angeles is a Certified Public Accountant, blogger behind Investing in Philippines, and author of Investing in Stocks: Preparing for the future small amount at a time. Learn more about Louis and his financial freedom advocacy here.