Why planning for "needs, wants and wishes" is misguided

Karen Van Voorhis |

There’s no doubt that we have a savings crisis in America. The list of problems is long: we don’t have enough in an emergency savings account, we don’t have enough saved for our kids’ college, we don’t have enough saved for retirement.

Conventional wisdom goes like this: you need to save more. And, in order to do that, you need to spend less. In order to spend less, stop doing certain things that are clearly superfluous – stop buying your daily latte, stop buying your lunch out, stop going out to dinner, to name some of our more popular vices.

In some cases, it’s relatively easy to make this change and to turn over a new leaf. Indeed, a few years ago I had a client who, at the end of his first year using Quicken, discovered that between he and his wife, they had just spent $7,000 over the past year at Starbucks. Horrified, they quickly cut that in half, and then cut that amount even further. After all, there’s a reason that “stop buying your daily latte and put that money towards retirement instead” is a popular admonishment.

But for the rest of us, let’s just say what we all know deep down is true: the ubiquitous “stop going to Starbucks” advice doesn’t work. Or, even if it does work to some degree, it sure doesn’t feel good, which in turn creates its own set of problems.


Sarah Newcomb is a behavioral economist who explores our relationship with money. Her book Loaded does a great job of debunking the ubiquitous categorizing of “needs, wants, and wishes” as an effective budgeting strategy – because it isn’t.  

The theory behind the original strategy is that you should rank your spending according to vital importance. You definitely need shelter and food, so paying your mortgage, utilities and going to the grocery store is ok. You want to be able to stop at Starbucks on your way to work a few times a week, but that’s definitely a luxury that you have to budget for. If all goes well in your life, you wish that you could plan to take a vacation in Europe someday when the kids are out of the house; however, this is such a big-ticket item, and surely will only happen once in your life, so saving for it is definitely the lowest on the priority scale.


The reason the needs-wants-wishes strategy fails to be effective is that it operates from a place of scarcity. It feels like going on a diet. And while funding may indeed be scarce, this strategy also misses the much bigger point: EVERYTHING IS A NEED. The question should not be, “What’s a need, and what’s a want?” but rather, “What are my needs, and how can I meet them?” 

People can’t quit their Starbucks habit because it’s not actually about getting coffee – going there serves some sort of fundamental need. For some, the need is mental: getting out of the office or the house mid-morning to clear your head, or maybe to sit and work. For others, it’s physical: taking a walk to get there, or your body needing a warm beverage on a cold morning. Or, and most critically, it might be an emotional need: meeting friends or colleagues for coffee, or seeing the barista who knows you – after all, connecting with others is one of the most basic of all human needs. It’s not about the coffee. If it were, we would all just brew our own at home or at the office, right down to the actual beans that Starbucks uses.


Once you view your coffeeshop habit in this light, you may be able to cut your spending by thinking about how to serve the need at hand. If getting out of the office is the need, can that be done by taking a walk around the block, or to a nearby park, or going to a different location to work? If drinking something warm is the need, could this need be met by buying less-expensive tea or hot chocolate instead, or by making your own? If human connection is the need, can you do that at a different location? Or, still go to Starbucks to see people, but not buy anything, or buy something much less expensive?

You can apply this pattern of logic to any spending pattern that you are trying to modify, and look for other ways to serve the need that is present. Looking for a way to avoid spending money on an all-inclusive resort vacation on an island? Dissect it – what need is it serving? Is it the warm weather that’s a drawing you? The island environment? The all-inclusive aspect? And, can any of those needs be met in another way?


My parents worked through a similar situation: my father loves boats and always wanted a boat. After many years, they bought a tiny sailboat and quickly realized that owning a boat took more time, money, and skill than he had bargained for. Among other stressors, boats cost money – to purchase, to maintain and repair, and to store. In the end, my dad figured out that his real need was simply to be on a boat, on water; because they happen to live in Florida, this need had a variety of ways it could be met. So, he sold the sailboat, drove over to Disney World, and applied to be the captain of one of their pontoon boats. Needless to say, he loves it. He spends eight hours a day, three days a week, taking vacationers from one spot to another along Disney’s manmade waterways, and he gets paid to do it, to boot. (Be sure to say hi to “Captain Joe” if you go!)

It’s important to realize that a need doesn’t ever magically go away, just because you’ve decided to reduce or eliminate that expense. Instead of framing your financial situation in terms of wants and needs, start by realizing that it’s all a need of one kind or another, and be thoughtful about how that need can best be met. Only then will you be able to wrangle your Starbucks habit into something more effective.