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For Better Spending Habits, Focus on Needs, Not Strategies

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Dec 09, 2022

Working for a major financial firm, we were recently asked, “What single behavioral science principle is most harmful to people’s financial behaviors?” While there's a lot of competition on that list, we think the top spot goes to present bias

Present bias, also known as hyperbolic discounting, is our tendency to focus more on immediate rewards, experiences, and consequences than on those in the distant future. A cousin of immediate gratification, this bias helps explain why we put off creating an estate plan, don't think we need life insurance while we're alive, and make impulsive purchases we subsequently regret. 

It's this last point about regret that we want to explore in more detail. We’ve all heard that money is a leading cause of friction in romantic relationships.1 This friction typically comes from a mismatch between spending patterns and priorities among partners. For single folks as well, most of us could use some help spending more mindfully. With inflation running high and the markets low, it’s a great time to look to behavioral science research for ideas on how to spend more wisely. As a first step, let’s start with what the research shows us doesn't work. 

What doesn't work

One piece of advice that often falls short is a message of self-restraint — to simply stop buying things you don’t need. Of course, this approach assumes the individual recognizes their problematic spending in the moment and has the willpower to intervene and stop doing something that brings them joy (however fleeting). 

Unfortunately, as nice as it sounds, this is not how our minds work. Because of present bias, and because we are so heavily driven by our emotions, we want what we want right now

The self-control needed to override that desire is a limited resource: it is constantly being depleted by excessive demands on our effort and attention. And especially when we are under time pressure or emotional strain, we simply fall back on the habits that take no effort and bring us comfort. Goodbye money, hello frequent flier miles. Goodbye savings, hello new leather jacket. 

Needs vs. strategies

A more promising avenue for healthier spending can be found in Sarah Newcomb’s book, Loaded: Money, psychology, and how to get ahead without leaving your values behind.2 Newcomb draws from the work of psychologist Marshall Rosenberg, who studied interpersonal communication.3 While it may seem unrelated on the surface, Rosenberg's ideas on how to resolve conflicts between individuals can also be applied to resolve conflicts between our spending and our other needs.  

The basic idea is this: Behind each thing we want, there is a core psychological need that thing serves. Oftentimes, we are not consciously aware of it. For example, we want that new car. Okay, but why do we want it? What need does it serve?

Maybe we need safe, reliable transportation, which we don’t currently have. Or maybe it’s a Jeep that serves our need for a sense of fun and adventure. Or perhaps it's an expensive luxury car that satisfies the need to feel accomplished, the need to be admired by friends, or the need to attract attention from potential romantic partners. 

For each purchase we make, we can think about the underlying needs that purchase serves for us, which in turn gives us insight into what we’re really trying to accomplish. 

In short, one thing that can help us rein in bad spending is understanding the difference between needs and strategies, and harnessing that understanding to spend in ways that better support our core values. To summarize:

  • A need is something that exists deep inside us; something that is important for our physical or psychological well-being. Some examples of needs include feeling accepted, feeling safe, having fun, exploring, creating, being healthy, etc.
  • A strategy is a behavior in which we choose to engage in order to meet a need. For any given need, there may be hundreds of strategies we could employ. Importantly, not all strategies involve spending much, or any, money.

Claudia's dinner party

To illustrate what this approach might look like in practice, let’s imagine we have a friend named Claudia. 

For the past five or six years, Claudia has thrown an annual dinner party for her friends and colleagues. Claudia used to really enjoy hosting the event. But now, the invitation list has more than doubled. Because Claudia pays for and prepares all of the food herself, the party has become a source of stress and financial strain. 

At this point, let’s stop and ask: what needs does this tradition serve for Claudia? For one, it provides social connection and fun. It’s also a creative outlet: Claudia enjoys the planning process in and of itself, and throwing a party gives her the opportunity to design a menu and decorate her home.  

The current strategy is no longer tenable, but Claudia's needs have not changed. What’s more, the increased cost of the dinner party is now in conflict with another of Claudia's needs: the need to stay on budget. Claudia must now rethink her strategy for meeting her needs. Does she continue the dinner party but look for inexpensive food options? Or should she ask people to bring dishes to share? Or perhaps she should abandon the dinner party tradition altogether and look for a new strategy to meet her needs for social connection, creativity, and fun? 

Claudia decides to shift away from food and entertainment and instead pursues a shared cause with her friends: organizing a group charity project. She gets everyone together to donate their time to a cause they all care about. After the big day, they can all celebrate together — with everybody picking up their own tab. Claudia's initial needs for social connection, creativity, and fun have been met, along with her need to stay on budget. And in this case, she has also satisfied another need of feeling a sense of purpose through community service.

Beyond finances: Family dynamics

This strategy of parsing out needs from strategies can be used to break unhelpful habits in domains outside of personal finance, too. For one, this approach can help to reduce conflict in relationships. 

Conflict over spending

When couples fight about spending, it is often because one person makes a purchase that fills a need for them, but conflicts with the needs of their partner. For example, your friend James wants to install a pool in the backyard, but his wife Molly does not. Why the disconnect?

It may be that James believes a pool will lead to more quality family time and keep their teen kids safe at home a little longer. Molly, however, may feel that their home already requires more upkeep than they can manage. She’s looking to simplify things, not add new responsibilities. Here, the pool is one strategy for meeting important needs for James, but it conflicts starkly with what Molly needs. 

One way to resolve this is to look for creative solutions that satisfy both people’s needs at the same time. In this case, perhaps they do get the pool, but James agrees that he and the kids will handle all the maintenance so that Molly won’t have to lift a finger. Or maybe they forget the pool and instead create a basement rec room with ping pong, darts, and a big screen. This increases family time and gives teens a place to hang out without adding ongoing to-do’s.

Conflict over saving

Another common source of conflict arises when partners are mismatched in their overall desire to spend vs. save. This may stem from one person’s need to feel a greater sense of financial security and preparedness for the future (by saving) butting up against the other partner’s desire to enjoy having the things they want today. Or maybe it stems from one person wanting to keep up with the Joneses, while the other wants a simpler life with a smaller footprint. The goal is to identify both people’s core needs and to find some kind of balance that everyone can be happy with. 

For parents

Kids can also benefit from learning about needs vs. strategies. Children understand the difference between needs and wants at a very young age. They should also understand the difference between needs and strategies around 8th or 9th grade, which is handy as this is when many kids start earning and spending money on their own. Learning how to spend in ways that meet their most top-of-mind needs (such as social approval) without sacrificing other needs (like saving for a car or college) will help them create healthy habits that last into adulthood.

Take action

How do you put this new knowledge to work? Here are a few simple steps you can take to start building healthier spending strategies. 

  1. Get to know your spending. You may find it helpful to use a digital budget-tracking tool if you want a precise picture of your spending patterns. Or just scroll through your credit card bills and expenses for the past few months, and make a note of areas where you're uncomfortable with the amount you've spent. 
  2. Identify your pain points. As you review your spending, make a note of sources of friction in your relationship or in your life. What items have you regretted purchasing? What expenses have you been embarrassed to admit to, tried to hide from others, or fought about with a loved one? Write down each purchase or category of purchases that you often regret or that lead to friction. For example, if your mortgage payment is more than you can comfortably afford, write that down. If you spend too much going out for lunch on workdays, write that category down. 
  3. Drill down to the underlying needs. Next to each item or category, write the need(s) that it serves. In order to do this, you’ll have to think deeply and honestly about what needs those things serve for you. Don’t be afraid to be honest with yourself — your needs are legitimate. It’s our strategies for meeting those needs that can get us into trouble. If you're not sure how to identify your underlying needs, you can refer to this online needs inventory.4
    What you should have now is a list of spending pain points, and next to each point, a need (or list of needs) served by that purchase. Remember, the needs are within you. The purchases are simply strategies for meeting those needs. 
  4. Brainstorm alternative strategies. The next step is to get creative about how you might meet your needs. Contrary to messages we often hear about financial responsibility, it’s not a good idea to simply cut spending and allow needs to go unmet. This often backfires in the long run. Instead, can you think of new strategies that support — or at least do not sabotage — your other needs? Are there ways to meet your needs that cost less? The following section describes a personal example of how this has worked for one of us in real life. 

Food for thought

I (Laurel) overspend on restaurant food. Restaurant food is a strategy that fills my need for quick, easy food in the evening when I’m too tired to cook. It also allows me to spend evening time with my family rather than in the kitchen alone. However, this strategy often conflicts with my need to stay within my budget as well as my need to maintain my physical health, given that restaurant food is often high in fat and sodium.

I have developed some potential strategies to address these needs:

  • I can use a cheap meal service that specializes in speedy meals. 
  • I can ask my kids to help out in the kitchen, and we can talk about their day while we prep meals together.
  • I can spend some time each weekend prepping a few healthy freezer meals that just need to be reheated during the week.
  • A couple of days a week, I can rely on heat-and-eat meals that are healthy, such as grocery store rotisserie chicken or frozen pastas. The amount of time required is less than eating in a restaurant, and it's healthier and less expensive.
  • I can find restaurants that give me large portions for inexpensive prices. This way, I still get the restaurant experience occasionally, and I can have leftovers for my lunch tomorrow!

The bottom line

Hopefully, the idea here is intuitive. There are many ways to meet our various needs. Retailers pummel us every day with opportunities to exchange our money for needs like status, convenience, pleasure, or security. But don’t let them fool you — spending more money is not a silver bullet for making sure your needs are met, and often there are inexpensive or free ways to meet your needs even more fully. It’s just that no one is marketing those to you, precisely because it does not make them money. 

Money is a tool. And like any tool, we need to know when and how to use it. We can’t just dive in and hope for the best. When we become mindful about our needs and learn to spend in ways that honor those needs authentically and in balance, we move closer towards a life of true bounty. 


  1. Holland, K. (2015, February 4). Fighting with your spouse? It's probably about this. CNBC. 
  2. Newcomb, S. (2016). Loaded: Money, psychology, and how to get ahead without leaving your values behind. Hoboken, NJ: Wiley.
  3. Rosenberg, M. B. (2015). Nonviolent Communication: A Language of Life (3rd ed.). Puddle Dancer Press.
  4. Needs inventory. (2005). Center for Nonviolent Communication. Website: Email: Phone: +1.505-244-4041.

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