A need is something you cannot function without: housing, food, basic transport. A want is everything else.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
The line moves
A phone is a need for a job that requires one and a want for its newest model. Judge the specific purchase, not the category.
Opportunity cost
The opportunity cost of a purchase is the best thing you gave up to make it. Money spent once cannot be spent again.
Recurring costs add up
A $5 daily coffee is $1250 a year over 250 working days. Small repeated costs outweigh most large one-off ones.
Annualise before judging
A subscription at $15 a month is $180 a year. That is the number worth deciding on.
Wants are not the enemy
A budget with no wants in it gets abandoned. The goal is choosing deliberately, not eliminating enjoyment.
The line is not always obvious
Housing, food and transport to work are needs; their level is a choice. A phone may be a need and the newest model a want. The distinction is usually about degree, not category.
Opportunity cost
Every dollar spent is a dollar unavailable for something else. The real cost of a purchase is the best alternative given up, which is why comparing a purchase against nothing understates what it costs.
Recurring costs compound
A subscription of 15 a month is 180 a year and 900 over five. Small recurring amounts are easy to approve individually and add up to substantial sums, which is why they deserve annual arithmetic.
Priorities make the trade-offs decidable
Without stated priorities every trade-off is argued from scratch. Deciding in advance what matters most is what makes individual spending decisions quick and consistent.
Step 2: Try It Yourself
Tap and try it out.
Daily coffee
Streaming
Bought lunch
Bought lunch has the most. It has 1820 more than Streaming.
Step 3: Watch an Example
One step at a time.
Watch Rosa Annualise a Habit
Rosa buys a $5 coffee every working day and wonders whether it matters.
- Step 1
A working year is about 250 days.
Step 4: Your Turn
Practice makes it stick.
The Habit
Problem 1 of 2
$5 a day for 250 days. Annual cost in dollars?
dollars
The Subscription
Problem 2 of 2
$15 a month. Annual cost in dollars?
dollars
What Is It Really Costing?
1 of 8
$4 a day for 250 days. Annual cost in dollars?
2 of 8
$25 a month. Annual cost in dollars?
3 of 8
$8 lunch for 250 days. Annual cost in dollars?
4 of 8
Three subscriptions at $12, $15 and $9 a month. Annual total in dollars?
5 of 8
Cutting a $5 daily habit to twice a week, 50 times a year. New annual cost in dollars?
6 of 8
$2 a day for 365 days. Annual cost in dollars?
7 of 8
Sort each item as a need or a want in most situations.
Tap something to move it.
- Empty
- Empty
8 of 8
$30 a month gym. Annual cost in dollars?
Step 5: Quick Check
Show what you know.
Question 1 of 2
$6 a day for 250 days. Annual cost in dollars?
Question 2 of 2
What is opportunity cost?
What You Learned
- A need is what you cannot function without; everything else is a want.
- Opportunity cost is the best alternative you gave up.
- Annualise recurring costs before judging them.