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Friday, January 4, 2008

Personal Finance by Micheal Scott of The Office...

I am a big fan of The Office, both the British and Us versions. There is one episode from this season that is sticking in my brain as I sit and hear many of my fellow office workers talk about budgets and getting their finances in order and start managing their money better.

In the episode Micheal realizes that he is running out of money. His finances in shambles he overhears that some people's finances got so bad that they had to declare bankruptcy. Believing that this is an actual declaration ala Ye Olde Town Crier (not to be confused with Jon Cryer) Michael address the room and yells, "I am bankrupt, I am declaring bankruptcy!" Luckily Oscar takes pity on Michael and decides that he will take a look at Michael's finances and see if he can help him out.

The next scene show Michael looking at an Excel chart like the one in the picture. save that it is three instead of five columns.

Oscar: Micheal, this first small column is what you spend on your needs. You know the basic necessities of live like shelter, food, etc..

Oscar (points to next column, twice as big): Micheal this column is what you spend on things you don't really need, like dining out, etc..

Oscar (points to third column, well larger than the other two combined!): ...and this column is what you spend on things that nobody needs, like backup Magic Sets...

The point is many of us, especially those of us struggling with our finances, have a hard time discerning between our Needs, Wants and Desires. We don't lay these out like a hierarchy that they are, we run to what feels better, rather than what is better for us. Like the kid ( mine!) who is always full until Ice Cream is available!

Here is the Life and Liberty guide:

  • Needs - Don't get these and you...well die. Air, food water, shelter. The basic needs of life. Not I Need to be seen in a 535i BMW...not really the same at all.
  • Wants - Things that make our life more comfortable, a refined need if you will. I want to eat pizza, it is good. Food sustains; pizza is a preference of a type of food.
  • Desires - I desire to eat pizza from Wolfgang Puck's in Las Vegas, then see a show and retire to my suite for a massage...

Now it is OK to desire all of the better things in life; trips, fashionable clothes, Mont Blanc Pens, awesome watches (both my desires). But not at the expense of your other lower level priorities.

In other words a trip to Europe is a desire, contributing to my IRA so I don't eat Dog Food when I am 70 is a Want, much less making sure I have my own shelter (a Need).

So when you are budgeting and managing your money, really think about where in the priority chain the purchase of Your backup Magic Set is...


Anonymous said...

I think if we develop a sense of gratitude for what we have, we become much better at identifying the differences between the needs/wants/desires.
It really is all about shifting perspective.
Nice post...

RacerX said...

You are so dead on Dawn!

Thank you for reading!

PS I love your Icon...probably because although I was raised in Nebraska, I was born in Iowa !

Mrs. Micah said...

One thing I like about needs like food is that you can make really good stuff with cheapish ingredients. Like we're having two meals based off of beans and rice. :)

RacerX said...

And that is absolutly serving your base needs well.

Needs don't have to be boring and Desires aren't always super expensive, it is really about understanding your purchasing decisions!

Thanks, as always, for reading Mrs M!

Heidi at BankerGirl said...

I loved that episode of The Office. Poor Michael.

Confusing "needs" with "desires" is how I got in a load of debt. No one needs a $300 pair of shoes, a $500 purse, or a back-up magic set.

Great post.

RacerX said...

I like how you said "...or back-up magic set." Kind of like, "Should I get these Jimmy Choo's or my third disappearing quarter trick!"

Managing our Stuffitis is a challenge for a lot of us, me as well. I guess that is why we got into debt, and controlling it is the only way we'll get out!

Thanks so much for reading!

Anonymous said...

Great post. I'm whittling down my "needs" so that they are truly reflective of *my* needs (which are different from other people's). It's easy for me to put the fancy car in the wants column, but where I put my organic tomatoes is another question all together. I think values and principles play a major role in deciding what goes in which column.

RacerX said...

It does all need to tie to your values!

All personal finance is, well , personal. Eating Organic has benefits beyond most normal "wants" given the enviroment and health concerns.

Some would nail me for wanting another BMW. But as long as I can prioritise, spend on my needs and wants first, then there is no conflict. It is when it is upside down that issues come up!

Thanks for commenting!

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