In our “Make Credit Work For You” post this week, we have a great article from Savingsguide Australia. Just subscribing to this blog alone will give you some invaluable tips you can use to help you rise to greatness with your finance goals. The article today is “How To Spot the Difference Between Needs and Wants.” If you have decided to live a life of frugality and perhaps have heard of the concept of Affluenza (when too much is never enough), then you will know a bit about the distinction of wants and needs. We may need to eat, but we might only want the big screen TV. Making the decision which is which is an ongoing battle. Thinking wants are needs causes many of us to buy more than we can afford, and we find ourselves struggling to pay back credit. Too many runs of this, and we end up defaulting on our repayments and a Credit Provider somewhere penalises us with bad credit that takes 5 years to shake off. Education and awareness is the key to changing this kind of behaviour – which is natural in all of us. So have a read of this article, and hopefully it helps you spot the difference.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.

By Fran Sidoti

I’m always the worst when it comes to thinking of how many needs I have. I need an expensive haircut. I need clothes with a more expensive price tag. I need, need, need. Life becomes a much simpler business when I realise that, in fact, these are wants, not needs and they are not essential to my well-being.

 What do I need? Enough food to not feel hungry, a warm place to sleep at night, a couple of goals to chase and people who love me to surround myself. Beyond those things, I probably don’t need much.

This new Zen me is a little bit inspired by Adam Baker’s guest post on Get Rich Slowly, discussing his wants and needs. Returning from their nomadic lifestyle, Baker and his wife decided to look for a rental with three bedrooms, not the absolutely necessary two bedrooms, so Baker would have a space to work.

The house they eventually settled on had flaws, but Baker suggests that by concentrating on the fact that three bedrooms was, in itself, a luxury, the flaws of the house tended to lose their importance.

So, how can we start to fulfill our needs and appreciate our wants for what they are?

 Write it down  

The best way to understand your own psyche is, sometimes, to write it all down. Construct two tables and write down your needs and your wants. Have a look at the list. Are there things that are under ‘needs’ and are really more things you want? Write down the list again, this time with a bit more self-reflection, and see what that reveals.  

Ask yourself if you really need this  

Before you buy anything, repeat the shopaholics’ mantra- do I need this? You’ll end up saving a lot of money that you might otherwise spend on unnecessary purchases. Sometimes it turns out you neither need it or, deep down, want it all that much. So many of my purchases are due to boredom or a mild inclination. Don’t buy things you’ll never really wear or use. Save the purchases for something you’ll really love.  

Fund your needs  

Ever spent all your money on entertainment, only to discover you’re short on rent, bills and will be reduced to eating baked beans for a fortnight? Fund your needs first, then fund your savings, and then spend some money on your wants, You might think that constant partying is the thing that makes you happiest but, in the end, the anxiety that accompanies constant money problems is probably not helping you get the best night’s sleep.  

Know your important wants  

In all of this, it’s easy to lose sight of how to enjoy life. Don’t cut every single want from your life. Don’t become a martyr to the savings cause. If you cut out all the little wants from your life, you’ll end up with the money to spend on the important wants- like travel, or a renovation. Use your spare cash on special things, and appreciate them for what they are. I don’t need an expensive haircut, but I know how good it makes me feel about myself and how much I love the whole ritual of a good haircut, so I’m willing to wear cheap clothes and have nights with friends at home so I can spoil myself once in a while. An odd want, but there you have it.

This concept can be easily applied to credit. Just because you use credit, shouldn’t give you a licence to buy whatever, whenever. Understand just because you don’t pay now doesn’t mean you won’t pay at some point for the credit you use. Save your credit for your important wants, and appreciate them all the more for their rarity.

Maybe throw that long sought after holiday on the credit card and take the family away. Or take out repayments on an educational course that will change your working life forever. Or perhaps buy a home, but after years of good saving. One that fits all the requirements of what you need, rather than what you want. A home you don’t have to work 24/7 to pay off because it is priced within your means.

What you shouldn’t do is spend money you don’t have, on things you don’t need, and ultimately find yourself with what you don’t want – debt, unhappiness and a bad credit history.

Here’s some extra reading on this concept: http://mycra.com.au/blog/2011/07/caught-affluenza-affect-credit-rating-health/

What does your credit file say about you?

Think of your credit file as a mirror on your finances. It can reflect your assets, your good history, but it can also reveal your financial shortcomings. It can be a reflection of your inability to stick with something, your disregard for repayments and it shows the financial potholes we fall into that are sometimes impossible to climb out of.

A bad credit rating can completely change your financial situation. The black marks placed there by creditors show up on your credit file for 5 years. Bad credit can limit your choices and can perpetuate the debt cycle by leading you to choose loans with higher interest rates and more fees, so the struggle to make repayments can be even harder.

If you want to try and start again with credit, it may be possible to wipe the slate clean, particularly if your bad credit rating should not be there.  Firstly, obtain a free copy of your credit report from one or more of the credit reporting agencies, Veda Advantage, Dun & Bradstreet and Tasmanian Collection Services (TASCOL). If your credit file contains obvious inconsistencies or even if you’re not sure, you may be a good candidate for credit repair.

A credit repairer can work with creditors on your behalf to completely clear your credit file of all defaults, clear-outs, writs and Judgments which contain errors, are unjust or just should not be there. This means we you longer have a bad credit rating, but a completely clear credit file, giving you the financial freedom to use credit whenever we need to.

The rest is up to you.

Image: David Castillo Dominici/ www.FreeDigitalPhotos.net

Image 2: graur razvan ionut/ www.FreeDigitalPhotos.net