I have been thinking about a number of things recently but haven't had the time to write. 2008 has turned into a historic year on many levels.

Needs and Wants

One topic that has been on my mind again is the difference between needs and wants.

This issue is almost a constant in our household. Based on the economic news, I am thinking it will be a big topic for others too.

The number of things you can spend your money on is almost infinite. Even when you pick an object, like a watch, the amount you can spend varies greatly. You could buy a $5 digital watch, or a $50 running watch or perhaps the very simple-looking $5,000 Swiss watch I picked out last week - before I knew the price.

Our culture is obsessed with stuff and being a product of our culture, I regularly struggle with decisions about stuff. What do I want? What can I afford? These two questions invariably lead to the real question: What do I need?

A new era of frugality

My sense is that for years, many fellow citizens have started with the first question and skipped the other two. We have been consuming far beyond our ability to pay and we have filled our lives with things we really dont need anyway.

Now that period may actually be coming to an end. For a long time if not forever.

Of course I have been banging this drum for years but current events indicate that on a national scale, we may finally be facing the fact that borrowed money cannot take us any further. Eventually the capacity to afford things impacts our purchase decisions and we focus on what we truly need.

I dont think many Americans have suddenly bought Quicken and done an actual analysis of their spending but companies are doing it for them. Credit is drying up. Banks are failing. Everyone, consumers and businesses alike, are looking at their spending and their "wealth" and feeling poorer. It looks like the macro economy is forcing us to face the prospect of a painful financial diet.

we already have what we need

I was surprised to realize that both of my personal computers are now two years old. As a gamer and a professional computer user, that is the longest period I have ever gone without an upgrade.

My desire to upgrade was dormant but kicked into high gear recently. So I have been shopping and researching. Turns out a LOT of stuff has changed in the past 2 years and there are an abundance of neat new computer toys available.

But every time I put items in my shopping cart and look at our budget, I reluctantly face reality: my 2 year old computers are still just fine. They do just about everything I need them to do even if they arent as flashy as a new PC would be. In other words, my needs are already met even if my wants are falling short. So I click cancel instead of purchase and try to think about other things.

Resisting a purchase is good for our household finances even if it is bad for the national economy. I suspect there are a lot of folks out there like me who are going to forgo an upgrade because they really dont need it.

I have already written that the power of computers has surpassed the needs of consumers. Now I am looking at Apple, and Dell and Intel and wondering if we are going to see that have any impact in this new economic environment. There are billions of people that do not have a computer but the ones that do have one are the most likely to upgrade to a new one. Unfortunately, they are also the most likely to already have what they need.

The exact same situation exists for cars. I bought my car in 1996. It is not flashy or luxurious but it is totally reliable and will probably drive just fine for another 100k miles. Anyone that bought a car in the past 5 years is in the same boat. Detroit is in bad shape but we just dont need those new cars very much.

I suspect the same thing can be said for just about any consumer good. We have been buying new stuff and throwing out our perfectly good stuff for some time. We have been buying for fashion and style not for needs.

2009

I think the stock market is down about 40% from its peak, today the Federal government announced another bank intervention with Citigroup and Christmas is just around the corner. I am not expecting a big rally for corporate profits because our needs dont justify it and our wants cant afford it.