2817: Prioritizing Wants versus Needs AND The Unexpected Emergency Funds Philip Dancy on Financial Advice

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[00:01:06] [SPEAKER_00]: This is Optimal Finance Daily. Prioritizing wants versus needs and the unexpected emergency funds.

[00:01:15] [SPEAKER_00]: Both by Philip Dancy of DancyWithMoney.com.

[00:01:19] [SPEAKER_00]: And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:23] [SPEAKER_00]: This is the show where I read to you and to myself, frankly, from some of the best personal finance blogs on the planet every single day.

[00:01:32] [SPEAKER_00]: And I actually have two posts today. So let's get right to them and start optimizing your life.

[00:01:41] [SPEAKER_00]: Prioritizing wants versus needs by Philip Dancy of DancyWithMoney.com.

[00:01:48] [SPEAKER_00]: Manicures, gym memberships, Savage Fenty, new car, Jordans, multiple vacations, professional hairstylist.

[00:01:56] [SPEAKER_00]: Depending on who's viewing this list, one may classify these as wants, needs, or even a mix of the two.

[00:02:03] [SPEAKER_00]: And that's perfectly okay.

[00:02:04] [SPEAKER_00]: We're human and we all want things that bring enjoyment and satisfaction to our lives.

[00:02:09] [SPEAKER_00]: However, understanding the difference between the two can be crucial in helping us build or maintain our financial health.

[00:02:16] [SPEAKER_00]: So exactly what is the difference between a want and a need?

[00:02:20] [SPEAKER_00]: I define the difference this way.

[00:02:22] [SPEAKER_00]: A want is an item or experience that brings you a level of satisfaction that you feel you can't live without.

[00:02:29] [SPEAKER_00]: But you really can.

[00:02:31] [SPEAKER_00]: Such as Netflix, going to the bar, or eating out.

[00:02:34] [SPEAKER_00]: A need is an item or experience that is essential to your day-to-day life.

[00:02:39] [SPEAKER_00]: Such as food, water, or a car to get to work.

[00:02:42] [SPEAKER_00]: By simple definition, nobody's wants and needs are going to be the same because everyone has different values.

[00:02:49] [SPEAKER_00]: If you were to take a couple minutes to write down your wants and needs and order them by importance,

[00:02:54] [SPEAKER_00]: you might shock yourself by discovering what you really value.

[00:02:58] [SPEAKER_00]: That need to have a monthly gym membership might be a want if it falls lower on the spectrum of importance.

[00:03:05] [SPEAKER_00]: But now that you know the difference, how does this help you?

[00:03:09] [SPEAKER_00]: Although there are numerous benefits from separating wants from needs,

[00:03:13] [SPEAKER_00]: one of the major ones is that allows you to prioritize your spending.

[00:03:17] [SPEAKER_00]: When you prioritize, you're able to get what you really value without taking away from your other financial goals.

[00:03:24] [SPEAKER_00]: After you pay yourself first and realize you only have a certain amount of funds left for wants and needs,

[00:03:30] [SPEAKER_00]: you can do one of two things.

[00:03:32] [SPEAKER_00]: Number one, reallocate or shift things around.

[00:03:36] [SPEAKER_00]: You might notice that this month you can live without item and experience A

[00:03:40] [SPEAKER_00]: and move it further down the list to get B instead.

[00:03:44] [SPEAKER_00]: Number two, eliminate some wants and or needs.

[00:03:49] [SPEAKER_00]: If the priorities at the top can't be moved because they really are that important,

[00:03:54] [SPEAKER_00]: consider cutting down on your lower priorities in order to make room for higher ones.

[00:03:58] [SPEAKER_00]: Whether it's getting your nails done, hair done, or going on those multiple trips,

[00:04:03] [SPEAKER_00]: take a moment to reflect on where it falls on your list.

[00:04:06] [SPEAKER_00]: If you practice prioritizing, you will soon discover you can continue getting your most valued wants and needs

[00:04:13] [SPEAKER_00]: while still saving for the future.

[00:04:15] [SPEAKER_00]: It might just take some adjusting or cutting down in other areas.

[00:04:23] [SPEAKER_00]: The Unexpected Emergency Funds by Philip Dancy of dancywithmoney.com

[00:04:30] [SPEAKER_00]: $400.

[00:04:32] [SPEAKER_00]: According to the Fed's Survey of Household Economics and Decision Making,

[00:04:36] [SPEAKER_00]: that is the amount of money 40% of Americans cannot come up with in an emergency.

[00:04:42] [SPEAKER_00]: Picture this.

[00:04:43] [SPEAKER_00]: You go to your routine medical exam thinking your insurance covers everything.

[00:04:47] [SPEAKER_00]: However, you get handed a $500 bill that you cannot afford.

[00:04:52] [SPEAKER_00]: A lot of people will place the bill on their credit card with 18% APR

[00:04:57] [SPEAKER_00]: or even get a payday loan knowing they have other financial obligations to take care of.

[00:05:02] [SPEAKER_00]: In return, the individual spirals into a debt cycle that they can't seem to get out of.

[00:05:08] [SPEAKER_00]: Although this is an extreme example, this happens every day

[00:05:12] [SPEAKER_00]: and could even happen to you if you're not prepared.

[00:05:14] [SPEAKER_00]: Now, I know that stat might have some of you shook,

[00:05:18] [SPEAKER_00]: but there's one thing everybody can have in order to help prevent something like this from happening.

[00:05:23] [SPEAKER_00]: An emergency fund.

[00:05:25] [SPEAKER_00]: An emergency fund is an account for money set aside for those unexpected scenarios

[00:05:30] [SPEAKER_00]: including losing your job, medical bills, or car repairs.

[00:05:34] [SPEAKER_00]: And no, you shouldn't use your emergency savings for that trip you didn't budget for

[00:05:39] [SPEAKER_00]: or those new pair of Jordans that just dropped the other day.

[00:05:42] [SPEAKER_00]: Many personal finance experts usually suggest having a standard three to six months worth of expenses saved.

[00:05:49] [SPEAKER_00]: Whether you have the standard or just $1,000,

[00:05:52] [SPEAKER_00]: there are a few benefits that come with having a healthy emergency savings.

[00:05:56] [SPEAKER_00]: It creates a cushion for your finances by having additional funds during times of need.

[00:06:02] [SPEAKER_00]: It decreases the likelihood of taking on unnecessary debt.

[00:06:05] [SPEAKER_00]: By taking on unnecessary debt, there's a big chance you may fall into the debt cycle.

[00:06:11] [SPEAKER_00]: You can live your best life.

[00:06:13] [SPEAKER_00]: You don't have to cancel your planned trips just because of an unexpected expense.

[00:06:17] [SPEAKER_00]: So where do we start?

[00:06:19] [SPEAKER_00]: Rome wasn't built overnight, so don't drive yourself crazy trying to get three to six months worth of expenses saved.

[00:06:25] [SPEAKER_00]: It took me almost two years to get my emergency savings to six months.

[00:06:29] [SPEAKER_00]: First, set a goal to reach $1,000 and then go from there.

[00:06:33] [SPEAKER_00]: Next, in order to help keep yourself accountable, do the following two things.

[00:06:38] [SPEAKER_00]: Use a separate savings away from your day-to-day bank,

[00:06:41] [SPEAKER_00]: dedicated for emergencies, and automate the transfers.

[00:06:45] [SPEAKER_00]: Doing this will help with temptation and you'll be saving without lifting a finger.

[00:06:50] [SPEAKER_00]: Now that we know the importance of having an emergency savings, let's get started.

[00:06:58] [SPEAKER_00]: You just listened to the post titled, Prioritizing Wants vs. Needs, and The Unexpected, Emergency Funds.

[00:07:07] [SPEAKER_00]: Both by Philip Dancy of dancywithmoney.com.

[00:07:11] [SPEAKER_00]: And I'll be right back with my commentary.

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[00:08:16] [SPEAKER_00]: Deciding if something is a want or a need is such a personal thing.

[00:08:21] [SPEAKER_00]: But I think the thing that helps the most is actually stopping to think about it.

[00:08:26] [SPEAKER_00]: Much of our spending is just mindless.

[00:08:28] [SPEAKER_00]: We're not considering wants versus needs because we're running on autopilot.

[00:08:33] [SPEAKER_00]: So simply pausing and thinking about it can make a huge difference.

[00:08:37] [SPEAKER_00]: And when you realize that something is a want that is outside your budget,

[00:08:42] [SPEAKER_00]: you might be able to console yourself by finding a greater want.

[00:08:47] [SPEAKER_00]: I had a friend back in New York City who was a fitness fanatic and also a ninja when it came to saving and investing.

[00:08:53] [SPEAKER_00]: Whether she was talking about healthy eating and exercise or money decisions,

[00:08:57] [SPEAKER_00]: she would always use the phrase,

[00:08:59] [SPEAKER_00]: find a greater want.

[00:09:01] [SPEAKER_00]: I would think of this when my alarm would go off at 6 a.m.

[00:09:05] [SPEAKER_00]: and I wanted to sleep in rather than go to the gym.

[00:09:08] [SPEAKER_00]: I would remind myself that as much as I wanted to stay in my warm bed,

[00:09:12] [SPEAKER_00]: I wanted the benefits of exercise much more.

[00:09:17] [SPEAKER_00]: I was able to find the greater want when I was making a decision in that moment.

[00:09:22] [SPEAKER_00]: And it made it much easier to get out of bed.

[00:09:24] [SPEAKER_00]: Now the second article here talks about the importance of emergency funds

[00:09:29] [SPEAKER_00]: for things like unexpected medical bills.

[00:09:31] [SPEAKER_00]: And I wholeheartedly agree.

[00:09:34] [SPEAKER_00]: But I want to point out that when it comes to medical bills specifically,

[00:09:38] [SPEAKER_00]: having the ability to pay that bill addresses one part of the issue.

[00:09:43] [SPEAKER_00]: Did you know that medical billing fraud is an $80 billion problem?

[00:09:48] [SPEAKER_00]: Healthcare is the only thing we pay for

[00:09:51] [SPEAKER_00]: where we have no idea how much it could cost before we get the bill.

[00:09:54] [SPEAKER_00]: But it is possible for us to be better consumers of healthcare.

[00:10:00] [SPEAKER_00]: And that'll do it for another edition of Optimal Finance Daily.

[00:10:04] [SPEAKER_00]: Thank you so much for joining today and every day.

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