Home > My Financial Independence Key: Separating My Wants from My Needs

My Financial Independence Key: Separating My Wants from My Needs

December 17th, 2013 at 11:26 am

When I started planning in 2009 for a financially independent retirement, I was very clear about one thing. For me, this was all about time. About shortening as much as possible the time I would have to spend in a daily commute-and-work grind. About freeing as much of the time I had left on this Earth -- which is limited for all of us -- to do what I wanted to do and not what somebody else assigned me to do.

When I started this journey in 2009, I had "perceived" personal annual expenses of $33,280. Now, 4 years later, I am FREE... free with yearly personal basic living expenses of $15,000 net of income taxes.

It was my focus on the overriding priority and importance of time over other considerations that got me free. I reasoned that if this was about time then it was not about accumulating (or holding onto) unnecessary things... or about keeping up with the neighbors... or about indulging in lots of optional cost-ridden activities. And what I did to stay focused was to specifically and clearly separate and keep track of my basic living costs and the costs of my wants -- in writing and frequently. By doing this, I was able to so lower my financial freedom budget -- AND accelerate the growth of my stash -- that 4 years later I had reached my goal in January 2013. My time is now mine (and I actually have ended up with plenty of "extra" income to fund lots and lots of "wants").

The real key, though, is a mental one. I had to learn to tell the difference between needs and wants, which is not necessarily that obvious in our consuming-driven society. It was and is vital that I not mix and mingle -- that I not confuse -- my basic costs of living with the price tags for my discretionary toys and playtimes. Recognizing and acting on the difference cut years and years off my working life, and made attaining financial freedom much much more doable.

A Vehicle or a Status Symbol?
A House to Live in or to Show Off?

I need a reliable pick-up truck for a vehicle, and I have one in a paid-for 1996 Dodge Dakota that I've kept in great shape. Recognizing that I do not need to trade it in for a newer $30,000 truck (even if I wanted one) has kept my basic living expenses from increasing by at least $3000 a year -- and saved me from having had to work an extra two years to accumulate the capital required to fund that $3000-a-year expense.

A newer truck or two more years of my remaining life lived in financial freedom? For me, it's a no-brainer. How about for you?

I need a modest-sized house (1500 square feet for 2) with a garage and a workshop on a couple of acres or so (because I learned the hard way I need to not have in-your-lap next door neighbors). But in 2009 my wife and I owned a much larger house in a suburban community plus a 100-acre vacation property. At best, we used (needed) half the space in the house; the other half we just wanted for show. The vacation property we obviously did not need at all, and ended up wanting to visit it less than 12 days a year. An unexamined financial picture had kept us tied to both those places. Four years later, we've sold both properties and used the profits to acquire mortgage-free the right-sized house we really need in a more rural setting that's also more pleasing to us. Recognizing that we did not need the bigger house or the occasionally used vacation property reduced my basic living expenses by $8500 a year -- and saved me from having to work an extra five-and-a-half years to accumulate the capital required to fund that $8500-a-year expense.

A bigger house or five-and-a-half more years of my remaining life lived in financial freedom? To me that's also a no-brainer. How about you? And so it goes for me, even with the smaller expenses.

Basic Need Or Optional Want?
I no longer have a mortgage. I do need to spend money on groceries, medical and other insurances of many types, utilities, truck operation and maintenance, property maintenance and taxes, pet care, investment fees, and income taxes. After a year of judicious cost-cutting that did not require giving anything up, I was able to cut the total of those costs by another $3000 a year. And that saved me from having had to work another extra two years to accumulate the capital required to fund that $3000.

Unexamined living costs or two more years of my remaining life lived in financial freedom? Another no-brainer as far as I'm concerned. What do you think?

I can now cover all my basic living expenses on $15,000 (net) a year and still have a jolly good time enjoying my freedom to hike, bike, canoe, read, blog, movie watch, video game, listen to classical music, and more.

If I want to have even more fun, I'll spend more money -- other money -- on civil war tour trips, national park camping trips, eating at restaurants, snow birding in Florida for the winter, driving off into the country, tackling home or truck improvement projects, and whatever else may strike my fancy. But I am crystal clear that these are all wants. The money I spend on them is separate from what it costs me to meet my basic living expenses. I don't need the wants. And I don't let them morph into needs -- or even quasi-needs -- by letting them slip into my baseline living expense calculations or budget.

Even though my passive income is more than 3 times $15,000 a year, it gives me a tremendous sense of control and peace of mind to truly recognize that my personal baseline living expenses are $15,000 a year. The rest of my money spending is optional, discretionary, for fun and unnecessary. So I keep it separate -- and pay for it out of a discretionary FUND -- in order not to confuse myself into thinking that I actually need a lot more than $15,000 a year to be financially independent.

Have you thought of looking at it that way? How much income do you really, really need to declare yourself financially independent and start living free?

16 Responses to “My Financial Independence Key: Separating My Wants from My Needs”

  1. Rachael777 Says:

    Hi. great educational motivating post. I am sure we are all filled w questions. are you retired now.. how did you do it?.. how much did you retire with?age.. said you got 'there' in 3-4 years which sounds like you accelerated suddenly to reach your goal. Fill us in! Smile

  2. snafu Says:

    Waiting for a sidebar bio to help understand the process. I too am filled with questions... Is rural living more cost efficient than urban life or just a preference? What 'project' is next on your list? What categories/how many made it onto your Needs list? What is the spending ratio needs: to wants now pre retirement quest? What are you looking forward to reading? Any titles relative to money management, investment protocols, How to's, destinations of interest?

  3. Retired To Win Says:

    Hi, Rachael777...

    Yes, I am retired now. How I did it gets explained by looking at my investing strategy and my approach to budgeting. Posts are coming up on both. Rural living is both a BIG preference for me and also much more cost-efficient.

    Stay tuned! (Thanks for your patience: I don't want to inundate the site with a deluge of posts all at once.)

    Retired To Win

  4. Retired To Win Says:

    Hey, Snafu...

    My "about" blurb will be up by the weekend, I promise. When I put up my post on my budgeting, you'll see what it includes in all its gory detail. (Please see my reply above to Rachael777.)

    You know, I've got one heck of a collection of investing and personal finance books, but I've already read them all and don't have any new ones on my reading list. All my reading is for fun now: about 50/50 history books and popular fiction.

    Thanks for commenting!

    Retired To Win

  5. Jack A Says:

    Interesting observations. Will keep Good advice ergo we agree on many things. Jack

  6. Retired To Win Says:

    reply posted on the forum by disneysteve on July 23, 2014:

    "I think failing to distinguish wants from needs is one of the biggest things that gets people in trouble. Listen to Dave Ramsey or watch Suze Orman and you see this in action regularly. Even reading posts here at SA it's very clear that many people don't make that distinction.

    Yes, you need a dependable car. No, you don't have to spend $30,000 (or even $20,000) to make that happen.

    Yes, you need to get your kids a good education. No, you don't have to spend $15,000/year on private school.

    Yes, your kids need clothes. No, you don't need to go to every designer store in the mall to get them. Goodwill, Salvation Army, yard sales, and other thrift shops are a treasure trove of good quality and inexpensive clothing, as well as toys, games, books, and more.

    Yes, I believe that vacations are a need to some extent, but that doesn't have to mean a $10,000 luxury vacation in Disney World. I take my family to Disney every year and we spend under $2,500 for a week.

    It's all about mindset for sure. If you convince yourself that something is a need, you're heading down a dangerous path."

  7. Retired To Win Says:

    reply posted on the forum by bjl584 on July 23, 2014:

    "I'd say separating wants from needs is "a" key to financial success. Probably not "the" key or the only key. It is definitely a very important piece of a big puzzle however.

    As Steve pointed out, there are a lot of folks that come to this forum and make posts about their $40,000 car, their $30,000 wedding, their $5000 engagement ring, and their $8000 vacation. In their minds, these things are all non negotiable "needs." Definitely a dangerous mindset to have."

  8. Retired To Win Says:


    If your goal is early retirement -- or come to think of it, retirement at any age -- that mindset is not just dangerous, it can be fatal. In my case, at my on-the-job income level, a $40,000 car "need" would have added untold years to the length of time I would have had to stay on the job in order to accumulate the extra capital required to support such a "need."

    Even if you are not even thinking about retirement, something like that $30,000 wedding (or a few of the $10,000 vacations referred to by DisneySteve) would put the kabash on any realistic expectation of buying a home. At least, that would have been the case for me.

    The saddest part is that people think such extravagances are adding value to their lives... when in fact they are detracting value from it.

  9. Retired To Win Says:

    reply posted on the forum by 97guns on July 23, 2014:

    "I have a friend that is retired, he'd been doing great with rental properties that produce over 9K a month but bought a large $750K house to live in. ths is a guy that likes to keep up with his mucky muck friends who all have big boats, nice rv's and big homes, now he's under a lot of stress due to a 5K/month mortgage, his retirement may actually be in jeopardy, bit off a little too big a chunk."
    retired in 2009 at the age of 39 with less than 300K total net worth

  10. Retired To Win Says:


    That is an absolutely perfect example of what I mean about separating wants from needs and knowing the difference. And NOT hardwiring the cost of your wants into your basic living expenses budget, thereby morphing the want into a chain-around-your-ankle need.

    That is exactly what your friend did with that house. He could have satisfied his wanting "to keep up with his mucky-muck friends" in a lot of ways that did not require a recurring, long-term financial committment. But, ooohhh no. He had to strap that $5000 a month mortgage around his leg.

    Damn shame. Frown

  11. Retired To Win Says:

    reply posted on the forum by JoeP on July 23, 2014:

    "For virtually every purchase, you have quite a bit of latitude as far as price goes.

    In some cases that price is $0. For example, we pay $0/mo for cable TV. No, we don't steal it, we don't HAVE it. So while we could have it and pay anywhere from ~$30/mo up to a couple hundred, we decided the lowest end works for us.

    As Steve pointed out, weddings can be expensive, or not. Depends upon where you want to position the spend indicator. Our $4k wedding was perfect for us. If we spent less, it would have been just as good, but maybe lighter on the guest list or food selection or location. If we had spent more, I doubt we'd be "happier" now, and it might have very well hobbled us enough financially to cause marital stress or not have the money (we would have had a bigger loan) for the car we needed.

    I tend to lose my patience when I hear people on Dave Ramsey calling to look for ways to avoid filing bankruptcy or answering to debt collectors, just because they were unable to differentiate want from need, or didn't apply some common sense when it came to spending."

  12. Retired To Win Says:

    reply posted on the forum by jpham540 on July 28, 2014:

    "There are too many things I want right now, but I am also shooting for financial freedom. $15,000 a year in expense seems to low for me anyways. I would probably need at least $40,000+ a year for expenses. I want to do more traveling in the future so right now am investing my money and letting it grow. Hopefully I can retire or take a break and travel around the world in the next 5-10 years. As for as my budget goes it seems to be doing great and thatís thanks to my career decision so it has helped me reach some of my financial milestones."

  13. Retired To Win Says:


    My original post is not about living on $15,000 a year or on any other specific amount of money. It is also not about living barebones, never spending any money on anything but basic needs.

    My original post is about the importance of knowing the difference between one's personal real needs (for example, a vehicle) and one's optional wants (for example, driving a Ferrari). It is about the freedom of action and new life options that one gains from acting on that knowledge, and not hardwiring into one's monthly "nut" the cost of discretionary wants (such as the monthly loan payment on the Ferrari).

    Just rent the Ferrari for a day now and then (with discretionary money, of course) and give yourself the good treat of driving it without the bad trick of owning it.

  14. Retired To Win Says:

    reply posted on the forum by JoeP on July 28, 2014:

    "Some people spend a lot of time and money chasing what they are told are the trophies of success: big house, luxury car, big TVs. It takes a special kind of perspective to categorize those as needs, and I applaud RTW's pursuit in that area. However, some people do find enjoyment in those wants.

    So it is really a case of "to each his or her own."

  15. Retired To Win Says:

    Joe P...

    I have never thought I had a "special" kind of perspective. I guess in this consumer culture I have a minority perspective. As you say, to each his or her own, but I have to add/emphasize: to each his or her own but I hope as heck they are clearly aware of what their perspective is costing them and what other options they are failing to recognize as possibilities.

  16. Retired To Win Says:

    reply posted on the forum by JoeP on July 30, 2014:

    "Also consider: following other pursuits is either deferred, reduced, or simply not even known because of commitment to a job. We're so focused on the circular system of working to earn money to spend money to keep working to get more money to spend, that options outside this pattern may seem foreign.

    RTW makes good points, and for some they solicit involuntary rejection because most go against what's been drilled into our brains. Much of it makes sense only after abandoning one's familiar system of "rightness" and opening the mind to options that seem wrong at first."

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