We have all felt the pinch in recent months. In fact, according to Nielsen’s Global Consumer Confidence Survey for Q2 2018, 84% of South Africans have changed their spending habits to save money. And that’s before the recent petrol price insanity!

This makes the need for a budget, or as I prefer to call it, a spending plan, an ever more pressing one. Having a spending plan will allow you to see where your money is currently going, and where you can feasibly save.

So where are your fellow South Africans saving? Respondents in Nielsen’s survey are cutting down on the following categories:

  1. Takeaway meals – 65% of respondents
  2. New clothes – 59%
  3. Cheaper grocery brands – 55%
  4. Out of home entertainment – 54%
  5. Gas and electricity – 50%

Conventional wisdom tells you that an easy way to free up money is to categorise your spending as needs and wants, and then eliminate the wants, which are generally associated with luxuries. In the above numbers, takeaway meals or expensive new shoes arguably fall in the wants category. Even though we don’t like cutting back on these items (as if we ever like cutting back!), we can live without them.

But behavioural economists like Sarah Newcomb say it’s not as simple as that (I highly recommend her book, Loaded). When we consider our needs and wants, we should be mindful of an underlying need that might be addressed by a want. If we were to take things at face value, we might inadvertently starve a need, which in time will leave us even more frustrated and resentful towards our dreaded spending plan.

The fourth most cut category in the Nielsen’s survey, out of home entertainment, is an illustration of this. Perhaps you’re spending money on taking the family to the movies once a week. You might view that as a want that can be cut. Looking only at that specific action of going to the movies in isolation, you would probably be right. But the underlying need that a trip to the movies might be addressing is one of family time. The challenge would therefore be to find new, more affordable ways to satisfy the underlying need for family time, whether through movie nights at home, board game evenings or Saturdays at a botanical garden.

When my significant other and I embarked on our journey to fix our finances, this was a mistake we made. For one thing, we’d been wanting to take up martial arts classes for the past three years. We kept postponing because we had no room in our spending plan. Finally, about two months ago, we made room and joined a fantastic club. In the process we realised the underlying need that’s gone unaddressed – a feeling of vulnerability in a volatile society.

Before you cut an expense because you deem it as a want, consider if it might be satisfying an underlying need and rather find a more affordable way to address that need. If you don’t, you will severely weaken your resolve to maintain your spending plan.

If you want to chat about balancing your financial needs and wants, get in touch for a cup of coffee.