Does the following scenario sound familiar to you?
You’re scrolling through Instagram when all of a sudden you see your friends posting about their amazing new purchase.
You want what they have – even if it means spending your hard-earned money!
But do you really need to buy the item?
Here are three reasons why you might not need to make that purchase — and how to weigh the costs!
1. The purchase is a want. (Or a needlet!)
Purchases that don’t fulfill a basic, primary need are obviously a “want.” Choosing to buy an item that we want is sometimes a waste of money. “I get that,” you might be thinking. “So what is a needlet?”
A needlet is a smaller need that we can survive without, but need to thrive in our lives right now. More on that below, but before making any purchase decision, we have to decide if the purchase is a need vs. a want (or needlet).
Start by identifying if a purchase is a want.
If you’ve ever seen (#nerdalert) Maslow’s Hierarchy of Needs, you know that our primary human needs are food, water, and shelter (the bottom of the pyramid below splits shelter into warmth and rest). We need these elements to survive.
Image from https://www.simplypsychology.org/maslow.html.
To determine if a purchase is a want, first decide if it fulfills a primary need. For example, say that you have a pair of sneakers, but they’re almost worn out.
In this case, you need a new pair of shoes and could find a pair at an affordable price. The purchase is justified.
But a pair of new Converses? That purchase could probably be classified as a want. It might also not be worth the cost since your need could be fulfilled at a lower price.
Okay, now let’s decide whether a purchase is a need or a needlet.
As an example, you don’t technically need a skateboard. But if your friends like to ride skateboards around your neighborhood, you’re missing out on valuable friend time. Your skateboard is a needlet.
If you’re caught in a needlet, think creatively. In this example, instead of buying a new skateboard, you could ask to borrow one from a family member or friend. Or you could buy a used skateboard online or in a thrift store.
And if the purchase is really important to you, set a savings goal for the item in the future.
2. You can’t afford the purchase.
You shouldn’t make a purchase if you can’t afford it. This statement sounds so obvious that Saturday Night Live made a skit about it.
And yet, overspending is a problem that plagues many adults, as well as teens which is why it’s #2 on our list.
It’s important to live below your means and spend less than you make (check out our video on the topic here). You then have the money to purchase things you need, when you need them.
Borrowing money or using your savings sounds great in theory for purchases (and sometimes necessary for certain needs), but you’re technically taking money away from your Future Self.
After all, you still have to pay back borrowed money. Instead of being able to save and prepare for your future, you’re stuck with payments months after the purchase was made.
And if you continually buy items on a credit card, you have to pay more money than what you borrowed thanks to interest. This means you could stay in debt for YEARS just because of one purchase.
In short, going into debt or digging into your savings to make a purchase creates a bad money habit. If you can’t afford something, don’t buy it.
3. The opportunity costs are too high.
You also have to consider opportunity costs before making a purchase. An opportunity cost is what you give up to get something else (check out our video here).
If opportunity costs are too high, you shouldn’t make the purchase.
Say that you want to spend $20 on Amazon for a pair of sunglasses. That $20 could be spent on a tank of gas for school today or a meal with your friends.
The money could also go towards your summer vacation goal at the beach or your college book fund.
These are your opportunity costs. It’s up to you to determine if the trade-offs are worth it. Later on in life, these opportunity costs could apply to purchases like buying a new car vs. saving for a down payment on a house.
To determine your own opportunity costs for a purchase, ask yourself the following questions: What am I giving up now to have this item? What am I giving up in the future?
Carefully evaluate every purchase.
Need a little more help? We’ve got the perfect checklist that you can use before making any purchasing decision:
The “Buy or Deny This Item” Checklist
✅ Decide if a purchase is a want vs. need.
✅ Think creatively if the purchase is a needlet.
✅ Avoid a purchase if it’s going to put you into debt or drain your savings.
✅ Weigh your opportunity costs.
It takes a little thought upfront, but helps ensure that your money is spent wisely. So while your friends might be splurging on purchases now, you’re preparing for your future!