Kuta Beach

Kuta Beach

Wednesday, 22 October 2008

Don't Classify Necessities Using Simplistic Categories

I have noticed that losing weight and being biologically healthy is very similar to being financially healthy. When you want to lose weight, you must burn off more calories than you consume. When you want to be financially healthy, you must spend less than you earn. Is it then not surprising that Americans and Australians are both obese and indebted. I believe that the behavioral make-up of those likely to be obese makes them likely to have huge debt. In fact, debt can be seen as a form of obesity.

When you want to be thrifty, you need to identify the difference between needs and wants. Needs are those things that you really need for physiological survival, e.g. food, water, a bed, a roof over your head, etc. Wants are things like luxury cars and plasma TVs. The problem is that the distinction between wants and needs is not clear-cut. One person's want is another person's need. For example, a drug addict really needs drugs because he or she is dependent on it. For someone who is not addicted to that drug, it is not so important.

One solution to this problem I use is to make money hard to get. For example, take a box, put $500 in it, then buy 10 small padlocks and lock the box up. Then hide the keys all around the house. If you want to spend that $500, you have to put in a lot of effort to go around the house, find the keys, and unlock the box. The difficulty of getting this money I believe will ensure that you will only go through the effort of opening the box if what you want the money for really is a necessity.

The reason why I started this post was to warn people against classifying necessities using simplistic categories. What I mean by this is thinking that, say, food is a necessity. Food may be a necessity, but that does mean that certain types of food are not wants. For example, eating bran cereal (which is high in fiber) for breakfast I think is a necessity. However, eating a $1000 meal at an upscale restaurant is a want, not a necessity. Someone who goes around thinking that food is a necessity will likely use this to rationalize buying luxury food.

No comments: