Wants vs Needs
Updated: Feb 23, 2022
When constructing a monthly budget, one of the most crucial tasks is to categorize your spending by whether it is a “need” or a “want.”
It is also one of the most difficult measures to take because what constitutes a need vs a want varies from person to person. It’s also simple to mistake desires for necessities if you’re so used to having them that you can’t imagine life without them.
Learn how to budget more effectively by categorizing your costs as necessities and wants.
What Are Wants vs. Needs?
When you fill out a budgeting worksheet, you categorize your expenditure as either desires or necessities. This categorizes your costs as what is absolutely required for your well-being and survival (needs) vs what you would want to have but do not require (wants).
📝Note: Needs are sometimes referred to as “essential” or “fixed” costs, whereas wishes are referred to as “discretionary” or “variable” expenses.
Needs are often your basic living costs, items essential for your health, or spending required for you to execute your work. These are some examples:
Rent or mortgage
Healthcare and/or therapy
Medication
Food
Work uniform
Transportation
Wants are items that you choose to purchase but could live without, such as:
Entertainment
Dining out
Home purchases
Travel
Electronics
Monthly subscriptions or memberships
TV or music streaming accounts
New clothing
Wants aren’t always bad. They are enjoyable and may frequently assist you in achieving essential goals such as maintaining in contact with loved ones, having fun, or remaining healthy. However, they are not required for your survival or well-being.
“Needs” That Are Actually “Wants”
The boundary between wants and needs can be hazy at times, making it difficult to determine which spending fit in which category. This might be due to a variety of factors.
1. Lifestyle
Whether an expense is a need or a want is frequently determined by how and why it is used. If you work from home, you may require home internet. However, if you solely use your home internet for amusement purposes, such as social media or video games, it is a want.
2. Split Expenses
Parts of a cost may be classified as a need, while others may be classified as a want. A grocery bill is necessary since you must eat. However, if you buy chips and drink in addition to your fruit, protein, and nutritious grains, some of those items are desires rather than requirements.
3. Which Option You Choose
Other times, the overall category is a requirement, but the specific choice inside that area is a want. For example, having a phone may be necessary in order to interact with family or coworkers, purchase medication, or contact your landlord.
All of those things, however, are doable with a $50 flip phone. If you opt to spend hundreds of dollars on a new smartphone instead, that extra expenditure becomes a desire.
Choosing the alternative that is a want rather than a need is not necessarily a terrible thing. Purchasing organic food, for example, may be an ethical decision that is financially worthwhile for you.
However, it is a decision. Understanding which costs are and are not optional can help you establish a household budget more successfully.
Is saving a need or a want?
When your budget is tight, it’s tempting to cease putting money aside for savings or long-term financial objectives like:
Emergency savings
Paying off debt
Retirement funds
Life insurance
Disability insurance
Because it is not an immediate need, this type of spending feels like a want. You can get by this month even if you don’t save for retirement or create an emergency fund.
Saving and debt relief, on the other hand, should be regarded needs since they represent investments in your long-term financial and personal well-being.
As a result, saving and debt repayment should be seen as necessities. Whether you save $10 per month or $10,000 per year, planning for your long-term well-being should be prioritized alongside other necessary costs.
💡Tip: Some financial gurus believe that saving and debt repayment should be placed above other costs such as rent and food in order to push oneself to complete them. This is referred to as “paying yourself first.”
The 50/30/20 Budgeting Rule
Your spending will be as follows if you employ the 50/30/20 budget system:
50% of your after-tax income spent on needs
30% spend on wants
20% spent on savings and debt reduction
Because of this split of expenses, there’s nothing wrong with buying expensive bread and milk or subscribing to Netflix. The 50-30-20 budgeting guideline permits you to spend 30% of your take-home earnings on goods you desire.
However, by putting a monetary value on your desires, you may avoid overpaying and going into debt.
The key to budgeting is to become more conscious of how you spend your money. This helps you to spend not just within your means, but also to ensure that your spending is consistent with your beliefs and goals.
Adjusting Your Spending on Wants
When you need to minimize your spending to save money, removing wants is frequently the simplest and most immediate place to start. For example, instead of going to the gym, you may start running around the neighborhood for exercise. However, just because something is required does not imply that its cost is fixed.
For example, if you spend $1,700 in rent per month, you may save significantly by:
Transferring to a smaller apartment
Obtaining a Roommate
Temporarily moving in with family
Alternatively, you may need to go to work every day, but instead of spending money on parking and petrol, you may save money by:
Walking
Taking public transport
Carpooling with a coworker or neighbor
Biking
Needs frequently consume the lion’s share of your money, especially if you adhere to the 50/30/20 guideline. You may typically make the most difference in your monthly expenditure by reconsidering how your needs seem.
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