Finance 101: Broke by Monday

AuthorAuthor

YoungBlackProfessional Network & Jarry Ngandjui
April 15, 2024

Key takeaways

  • Lower expense or higher income; one is easier to achieve.

  • Our individual psychology towards money is revealed in how we classify expenses as wants or needs.

  • External forces change what we perceive as necessities.

  • List of questions to classify your personal expenses as wants or needs.

Life no balance

Payday is one the best days of the week. It makes a Monday feel like a Friday. 

Four days after my first biweekly paycheck, I was broke. I spent my last $50 between a Wendy's 4 for 4 meal and a Playstation Plus Subscription. Two weeks went by with times when I needed money and had a credit card just a back pocket away. I managed to hold out. 

I waited for that next paycheck. 

Wants and Needs

For a long time, I never entered a new pay cycle with any money left from the last one. I was bringing home a paycheck but after all expenses my net income was zero. 

Net income = Incomes - Expenses

It was a personal life lesson in that paychecks go faster than they come.

We reflect on this experience and want to share a framework that stretches our money into long-term financial goals by cutting down expenses. Classifying expenses as wants or needs starts a process of eliminating unnecessary spending. I use this process to redirect my expenses from goods and services toward a growing emergency fund. 

Currency of choice

Goods and services we purchase can be categorized as needs or wants. Needs encompass expenses vital for basic living—non-negotiable costs like housing, food, transportation, and utilities. Wants are discretionary expenses that enrich our lifestyle but aren't imperative for survival. These include dining out, entertainment, vacations, shopping, and luxury items like cars. 

Despite prioritizing needs, some of our expenses indulge in luxury lifestyles when more affordable alternatives are available.

Here is a snapshot of all expenses, including basic necessities, broken up as needs vs wants. We may not agree on this breakdown, but the idea is that the column of "Wants" is the starting point for cutting down expenses. In this example, we can imagine getting back at least $500/month by scaling down each want.

Needs

Wants

Rent/Mortgage, thrifted furniture, Ikea

Interior decoration/furniture, Wayfair

Groceries, meal prep

Dining out, order in

Public transportation, commuter car, repairs

Uber, Lyft, taxi, luxury car, upgrades

Electricity, water, gas, internet, cell phone bills

Cable, YouTubeTV, ESPN Plus

Health Insurance, gym membership

Spas, facials, weekly hair days

Thrifted, Primark, Walmart clothing

Prada, Louis Vitton, Gucci, Zara

Tuition fees, books, supplies

Chegg

Emergency funds

Stocks, cryptocurrencies (riskier)

None

Movie tickets, concerts, dates, travel gadgets, video games

While definitions of wants and needs are clear, classifying expenses remains debated, influenced by individual psychology towards money and situation.

Forbes, in its article "Science Says Your Employees Need Days Off," cites research demonstrating that vacations, particularly those in warmer climates, lead to increased productivity and reduced exhaustion among employees. Perhaps passport bros and gyals view getaways as essential to stamping out stress. On the other hand, some families must forgo vacations in favor of spending quality time in their backyard to save up for a future home.

Spending on wants should happen after a rational evaluation that considers long-term loss over short-term gains. In the case of needs, short-term gains consistently outweigh long-term losses, thus neglecting a need carries adverse consequences. Consider the plight of homeless individuals who lack essential needs, resulting in detrimental effects on their health. 

Classifying expenses as wants or needs is a distinction that evolves with our personal situation and overall psychology towards money. We encourage you to periodically reflect on where you draw the line between wants vs. needs and whether it helps your long-term financial and promotes overall wellbeing.  

External forces

Controlling what you call wants or needs is a great addition to your psychology towards money. 

We believe the concept of wants vs. needs is more relevant than ever due to the influence of modern marketing channels like TikTok, IG, Facebook that create the perception of necessity.

Social pressures to purchase works so well in the black community, it was recognized as one of the three key "negro" buying habits in 1954. Habit 2 says, "the Negro buys by quality and prestige because when the negro buys, they buy for the admiration and approval of friends and relatives," per Finance 101: Chained to Consumerism post. 

Some people have fallen into the trap of designer consumerism culture and will fault those that cannot participate. Yet, we believe minimizing the input social influence has on our expense may lead to better financial decisions.

Staying in control

Credit repairs website offers some questions that can make it easier to decide on whether an expense is a want or a need:

  • Will not having this in my life cause me any sort of harm?

  • Is this purchase something that only makes me happy in the moment, or is it something that will still serve its purpose two years from now?

  • Will this affect my long-term financial goals?

Having something to save towards is a great way to use the extra cash to increase your net income. Next post we will dive into setting long-term goals to close out this series on Finance 101.

"It is not the man who has too little, but the man who craves more, that is poor." - Seneca, Roman super-rich, railed against consumerism even as he accumulated more wealth. But then, aren’t we all hypocrites?

Thank you for reading.

References

Net Income (NI) Definition: Uses, and How to Calculate It
https://www.investopedia.com/terms/n/netincome.asp 

Needs vs. wants: how to differentiate them in your budget
https://www.creditrepair.com/blog/finance/needs-vs-wants/