Gold Plating Needs Into Wants
In the business world, gold plating refers to the unnecessary and often expensive mistake of adding extra features or enhancements beyond the project’s initial requirements. Project teams gold plate in business settings because it is always easier to spend someone else’s money, particularly in billion-dollar enterprises with significant capital sloshing around.
Similarly, gold plating exists in personal finance contexts where individuals tend to inflate their needs into costly wants that ultimately hinder us from getting ahead financially.
Successfully navigating the fine line of what we require and what we desire is where true riches are made. This post explores the intricacies of distinguishing wants vs needs and provides insights on how to avoid the costly mistake of gold plating our needs into extravagant wants.
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Difference Of Wants Vs Needs
Steve Jobs once said that “simplicity is the ultimate sophistication”. Given that, we can simply define needs as things that people require for survival vs wants which are things that a person would like to have but not necessarily need for survival.
You can think of wants as things such as food, water, shelter and clothing. Meanwhile, an example of a need would be a 65” TV for the living room.
Here’s an example from my own life of a time I made the costly mistake of confusing my wants and needs.
My Biggest Wants Vs Needs Blunder Was Borrowing Money For A Fancy Car
Back in 2008, I bought my first car with around $8,000 in cash. It was a head turning ‘97 Camaro that was both loud and fast. I loved the attention I got from driving that car around as I blasted music from the 17 inch subwoofers.
However, there’s a crucial detail I failed to mention at the time – I purchased the car using money from student loans. And as a result, I found myself juggling the financial burden of purchasing this often broken down car for a staggering 13 years until I made my final load payment in 2022.
This experience taught me a valuable lesson about wants and needs.
While I may have needed a car back then, I certainly didn’t need one that was so expensive and flashy. And I definitely shouldn’t have bought one that I couldn’t afford.
As such, the consequences of prioritizing my short-term want for a flashy car extend well beyond the car’s hefty price tag as it held me back from getting ahead much sooner than I otherwise could have.
How To Distinguish Wants Vs Needs
Here in the U.S. we’ve grown so accustomed to the finer things of life that it can be hard to distinguish between what we want and what we truly need. Yet, those of us who want to build wealth or achieve financial independence will have to gain clarity on the fine line between wants and needs to ensure we reach our financial goals.
A great place to start with gaining this clarity is by asking ourselves what base function items, expenses, and decisions serve in our lives?
What base function does the items, expense, or decisions serve in your life?
This helps, because in doing so, we remove emotion, social conditioning, and whims that can cloud the decision making process.
We are then better able to reason through the financial moves we make with a more objective perspective. By thinking in terms of base functions, we can more clearly see which decisions would fulfill our wants and which would satisfy our needs.
Ultimately, we can then make better financial decisions across the board.
An Example Of Using Base Functions To Clarify Wants Vs Needs
Let’s use an example that we all can relate to. That is, let’s consider a person named Joe who is in the market for a new smartphone. At this moment, a base model iPhone 15 Pro would cost $1,000 versus a mid tier Samsung Galaxy A54 5G going for $400.
Split on the decision, asking himself what base function he would need to satisfy with the phone can help Joe resolve the dilemma. For most people, a phone’s primary function is for communication and secondarily a means to access information across the internet.
Which phone satisfies this function? The answer is both!
Gold Plating A SmartPhone Purchase
Realistically, purchasing any smartphone on the market would satisfy the function of communication and information access for our shopper. He could technically go for the cheap $30 phone at WalMart and satisfy his requirement, but let’s stick with the iPhone and Samsung for the moment.
The phones have drastically different prices with the IPhone costing 150% more. But they both allow for mobile calling and web browsing.
Considering the IPhone is the more expensive option, deciding to buy it would be gold plating because we’ve opted to pay 150% more to satisfy the base function when.
If Joe is wise he would consider the extra $600 for the iPhone a waste because he isn’t getting anything extra for the money. That’s not to say that the iPhone doesn’t provide more in terms of features. Rather, it’s to point at the those features extend beyond the requirements joe had for the phone.
The same applies in professional projects where teams add on things just for the sake of more and better. At the end of the day, it is inefficient and amounts to financial waste.
Most Wants Vs Needs Decisions Are Gold Plated
You may read this and think to yourself that this logic would mean that most wants vs needs decisions we make are gold plated. My response is that you’d be correct in your assessment and that we are notorious for enlarging our needs by turning them into costly wants that hold us back.
The good news is this means that there is a lot of opportunity for improvement. We have the potential for significant financial headway if we can get things right.
A smartphone purchase is one example, but let’s see how this plays out in some other common areas. We’ll consider the big 3 universal expenses of shelter, food, and transportation to see how easy it is to gold plate our needs into wants.
Need Vs Want In the Housing Category
At its core, the base function of housing is to provide shelter and safety from the elements and outside world, while also giving us a place to store our things and connect with those we love. Beyond that, most perceived functions of housing are superfluous and could cause us to gold plate our housing decisions.
Take for instance this story of a New Jersey couple who earns $300,000 per year while struggling to make ends meet because they are house poor. How does this happen?
They’ve gold plated their housing decision by upgrading their $500,000 starter home for a new home in the $1,200,000 price range – before ultimately engaging in a bidding war that ended with them paying $1,500,000.
I’m sure their new home is quite lovely, but I can guarantee it doesn’t satisfy the basic functions of housing any better than the last. And considering it cost them 200% more, it is no surprise they are now struggling to stay afloat.
My Biggest Wants Vs Needs Victory Was An Old Studio Apartment
I could have celebrated becoming debt free or making it to six figure earnings with the standard apartment upgrade many people would make.
But instead I chose to distinguish between wants and needs by actually downgrading apartments from a fancy 1br costing $1,500 each month to an old, somewhat dank studio that ran at $1200 per month.
In the end, this move helped me fortify my financial position in the months before my layoff. That $300 monthly savings has also been going back into a steadily growing pile of cash that is positioning me to make even stronger financial moves in the future.
Insert park knowels
Unlike the New Jersey couple, my housing decision was focused on fulfilling the base function of having a safe place to rest and store my things. The studio apartment satisfied those needs perfectly and anything more would have simply been gold plating.
Unlike the New Jersey couple, my housing decision was focused on fulfilling the base function of having a safe place to rest and store my things. The studio apartment satisfied those needs perfectly and anything more would have simply been gold plating.
Need Vs Wants In Transportation
Why is it that I’m willing to drive an beat up old Corolla that I bought for under $3,000 with a total operating cost of around $1,500 per year while most Americans have annual transportation expenses in the $12,000 – $13,000 range?
What more is the average person getting from transportation expenditures that I’m not for 10x what I’m spending?
The answer is likely very little aside from a much more luxurious ride. Beyond that, we’ve all met our base function of having reliable transportation to get us back and forth – so it is difficult for me to justify paying so much more.
At the end of the day it comes down to gold plated transportation decisions as the need is usually for us to simply have transportation, which we then transform into a want but opting for expensive vehicles that are far beyond many people’s budget.
At $726 per month, I’m sure many people could benefit from making wiser wants vs needs considerations before signing up for this average car payment amount.
Wants Vs Needs In The Food Category
We all need to eat. But we don’t necessarily need to spend the kind of money we typically do to feed ourselves. In other words, there is a good bit of room for improvement in our recognition of our wants vs needs when it comes to food.
One indicator of this is the fact that restaurant spending has continued to rise in spite of the fact that most households claim to struggle with ever rising prices due to inflation. Things are becoming more expensive, our budgets are being stretched, and we are having difficulty keeping up. Yet, at the same time, we are spending increasingly more at restaurants which are comparatively more expensive than cooking at home.
Someone please make it make sense?
What this tells me is that we are having a wants vs need crisis where many people are prioritizing the desire for convenience, deliciousness, and fun of eating out over financial prudence. We are ignoring the base function of needing to simply nourish our bodies and gold plating this need with the obviously less financially sound choice.
Wealth Is Built At The Gap Between Wants And Needs
Getting things right when it comes to wants vs needs offers a lot of financial upside for building wealth.
I’ve made a top income over the last few years, but have lived a lifestyle that costs a fraction of even the average earning household. Even with ridiculous restaurant spending, my monthly costs for housing, food, and transportation are about 43% percent less.
The real difference is I’m able to cut out the noise and focus on base functions rather than social pressures and emotions that motivate many people to gold plate needs into wants.
Sure, I could rent a nicer apartment. But I don’t need one. I could also drive a nicer car. But it’ll just be to satisfy a want. And finally, I can keep giving into my desire for restaurant food – but I’m cutting back because I can satisfy my base need for nourishment for far less money at home.
Thinking like this is what has enabled me to save 50 – 80% of my income over the last several years.
Have Nice Things But Don’t Let Them Have You
I’m not advising you to not have nice things. In fact, I hope we can all have everything our hearts truly desire.
I only suggesting we do a better job of discerning wants vs needs to ensure the things we own don’t own us back as they keep us stuck, treading water, and unable to get ahead financially.
For some, prioritizing needs over wants may feel like a lot of sacrifice. But I think it is actually the opposite. I think those who put their wants over needs are making the ultimate sacrifices to their time, money, and freedom as they give away all of these things for the sake of short term desires.
Then, like so many other financially strapped retirees, they may only be able to look back with regret for not making the right moves when they had them to make.
A sure fire way to avoid this fate is by focusing on the base functions of your choices and clearly identifying when you are overshooting your needs via gold plating.
Again, it’s perfectly okay to have nice things.
I just think it’s best we acquire them with clarity on what they will bring to our lives. Because when we are able to see the difference between a want and a need, we can be confident that all of our purchases move us toward where we ultimately want to go.