Don’t Just Survive. Thrive in 2022 (part 3)

We’ve given you a few weeks to settle into 2022 and start working on your goals so that you will THRIVE in 2022 – not just survive. In this part, we’ll address Needs versus Wants as they relate to your goals.

Identification of Your Needs and Wants

           The next step in GOAL BASED BUDGETING is to write down a list of each need and want for each of your goals. Alternative ways of achieving each goal should also be written down. Your list of needs and wants should contain a description of how it contributes to the goals of the family. Other than that, no judgments should be made at this point.

It should be noted that self-interest motivates both buyers and sellers in a society based upon capitalism such as the United States. This self-interest, or selfishness, will become evident very quickly as each member of the family contributes to the lists. Using the family’s goals that have been agreed to as a benchmark for identifying needs and wants will help redirect individual selfishness towards the welfare of the family.

There are four basic needs that people have in today’s society: food, shelter, clothing, and transportation. If you have debts, those should also be included in your basic needs. Debts must be paid. We also live under federal, state, and local governments that set laws which must be obeyed. For example, the law requires vehicle owners to carry insurance. If one owns a vehicle, insurance then becomes a “need” not because it meets a stated goal, but because it is the law. If these items are not tied to goals you have set, they will need to be included in your total list of needs.

Even within these four basic categories the question must again be asked is this a need or a want? Let’s take shelter as an example. Do you need a 3,000 square foot home or would a 1,800 square foot home satisfy your needs? Do you need to a home that costs $525,000 or would a home that costs and $300,000 satisfy your needs?

Immediately following the basic needs mentioned above, are the needs that provide safety and security. Adequate insurances are the easiest way of ensuring the safety and security of you and your family. At a minimum, all families should have medical insurance, homeowner’s or renter’s insurance, life insurance, and vehicle insurance. Disability insurance and long term care insurance become increasingly important as you age. You are the only one who can define what the term “adequate insurance” means for your family. As you evaluate whether or not you have “adequate insurance” and have budgeted correctly for “adequate insurance”, you should realistically access whether or not you have budgeted for and can easily pay all deductibles and items not covered by your insurance policies should the need ever arise. 

Analysis of Each Need and Want

The analytic process allows you to assess and justify each need and want. Several questions should be asked and answered during the analytical process.

• Does this need or want support and contribute to your goals?
• What resources are available to achieve this need or want?
• What alternatives are there to this specific need or want?
• What would be the impact on you if the need or want was eliminated?
• Can this need or want be accomplished more effectively and/or efficiently? (This question will require creative planning.)

            Let’s continue in our example of publishing a book by the end of this calendar year. You’ve listed your “needs” and “wants”. Now you’re going to analyze each of them which includes identifying alternative options.

Ranking of Needs and Wants

The first step in ranking your needs and wants is to list your goals in order of importance to you and/or your family. If you have goals of equal importance, you might want to order them chronologically by target completion date. For example, you may have set the following three goals:

1. We will take a family vacation to Hawaii next June.
2. We will pay off the truck by December 31^st of this year.
3. We will have new carpet installed in the house before next September.

You may decide that new carpet is more important than a family vacation to Hawaii. The ranking process is used to establish the priority of each need and want within the family. During the ranking process you will analyze each of the several needs and wants alternatives which you have already listed. The analysis allows you to select the one alternative that has the greatest potential for achieving the objective(s) of the needs and wants. For example, you may decide that a family vacation to anywhere is more important than paying off the truck by December 31^st, but the vacation doesn’t have to be to Hawaii.

Analyzing your needs and your wants against the goals you have set is a balancing act. Listing your needs and wants in order of priority is very difficult and can cause friction. This is where the preceding analysis of your goals becomes a beneficial tool. A “need” or “want” may be legitimate, but if it does not support a specific goal it should have a lower priority.

            Continuing in our example of publishing a book by the end of this calendar year, you’ve analyzed your “needs” and “wants”. Now you’re going to prioritize each of them.

In part 4 of “Don’t Just Survive. Thrive in 2022”, we will continue the review of the major processes of GOAL BASED BUDGETING. They are:

• Resource identification
• Resource allocation
• Budget preparation
• Monitoring and evaluation