Needs vs. Wants

With my two kids approaching the end of their college career, I’d like to share some fatherly financial wisdom with their generation. When young adults start living on their own, they may have some preconceived ideas as to what is needed versus what is wanted. Here is a list of necessary items in approximate order of importance:

1. Food
2. Clothing
3. Rent
4. Electricity
5. Medical Insurance (see below**)
6. Phone (basic cell works fine)
7. Transportation 
   1. Walking
   2. Biking
   3. Bus or Public Transportation
   4. Personal car (if you can walk or ride a bus to work, then a car is a luxury item)
8. Laptop (an old one is usually fine)
9. Internet (you can use the library if money is tight)
10. Paying off college debt (if you pay it off early you will pay less)

** I realize that we live in a society that is teetering on socialism, so medical insurance is debatable. But today, medical insurance is still very important.

These are some luxury items that many young Americans might think are necessities:

• Flat Screen TV
• Cable TV
• Pay channels on cable TV
• A brand new car
• Electric windows & locks on your brand new car
• iPod, iPad, other electronics (that are not required for your job)
• Internet service on your cell phone (unless it’s required for your job)
• Evenings out at the local bar or restaurant
• Donuts & candy bars
• Sodas & energy drinks (I’ll talk about this more below*)
• The obvious one: cigarettes. The quicker you kick the habit the better.

That does not mean you can’t have them. It only means that you buy these things AFTER you have paid for the necessary items. You need to pay your rent and fill your refrigerator with food before you go to happy hour at or .

*Caffeine is difficult to categorize. If you have been drinking energy drinks or Mountain Dew every day for the past few years, then you are probably addicted to caffeine (though it's normaly a mild addiction). You can continue to purchase these caffeine products for the rest of your life to satisfy your addiction, or you can end the addiction and save that money. Spending $2 each day for a drink will cost over $7,000 in 10 years. The choice is yours: energy drinks every day, or free water every day.

I have food items on my luxury AND necessary lists so I probably should explain more. You need to think about this. You need a variety of foods in order to survive. There’s plenty of advice about good foods out there. Google can point you to plenty of good cheap food recipes. Just know that candy, candy corn, candy canes and syrup are not really the four food groups as mentioned in the movie "Elf". And frozen foods, while easy to cook, are usually filled with “processed food products,” not real food. So visit the produce section of the grocery store to stay healthy. 

If you have a credit card, here’s a financial tip you may have never thought of: completely pay off your credit card each month. If you have money in the bank, use it to pay off your credit card. But you may think, “I want that money in the bank in case of an emergency.” If that emergency happens, just use your credit card to pay for it (pretty simple). I digress, the lesson here is: do not buy luxury items on your credit card unless you have enough money to completely pay for it at the end of the month.

Going into debt will cost you money. Holding debt will cost you money. These are two facts that no one can dispute.

In life, there are some areas of debt that most Americans are unable to avoid; student loans, car loans, and a house mortgage. Going into debt to purchase a flat screen TV is foolish. Save your money first, and then buy it.

Don’t forget to call your parents every once in a while. And if you visit them, they may even take you out for a nice meal at your favorite restaurant.