Budgeting Tips: Needs vs. Wants

 

Something that can be tricky with making a budget is figuring out the difference between needs and wants. For me, this was a lesson I had to learn the hard way when things were tight, and I didn’t always have a choice. If you’ve ever felt that way, I see you, and I hope this helps. 

1. Understanding Needs - Needs are the things that keep you going—food, a safe place to live, or even taking care of your mental health. It’s okay to name those things without guilt."  

2. Recognizing Wants - Wants aren’t bad. They’re the little things that make life more enjoyable, like a new book or a treat. It’s just about knowing when they fit into your bigger picture."  

3. How to Decide - When I’m unsure, I ask myself: “Will this help me feel safe or just happy in the moment?” That helps me prioritize when resources are limited. 

 Balancing needs and wants isn’t always easy, especially when life feels uncertain. But remember, you’re allowed to care for yourself in both ways. What’s something that feels like a need for you right now? Let’s talk about it. 

When creating a budget, it's critical to think of needs vs wants. Needs are things that are necessary for survival — think food and shelter. Wants are things you decide to buy, but don't actually need — think subscription services and new clothes. Here's a helpful guide for understanding the difference between needs and wants. 

Some common expenses that fall under needs: 

1. Housing 
2. Transportation 
3. Insurance 
4. Gas and electricity 
5. Food 

Wants are expenses that help you live more comfortably. They're the things you buy for fun or leisure. You could live without them, but you enjoy your life more when you have them. For instance, food is a need, but daily lunches out are likely more of a want. 

Wants typically include things such as: 

1. Travel 
2. Entertainment 
3. Designer clothing 
4. Gym memberships 
5. Coffee/Restaurants 

Understanding the difference between your needs and your wants is crucial. Your needs are essential for your survival and well-being, while your wants can enhance your life but are not necessary for your basic needs. It's vital to be able to distinguish between the two in order to make sound financial decisions. 

For example, let's say you need to get to work. The need is simply getting to work to earn a living. However, how you get to work could fall into the wants category. Do you buy a car, take a cab, use public transportation, or buy a bike? These are all options that can fulfill the want of getting to work, but it's essential to consider the financial implications of each choice. 

You can make informed decisions about your wants by understanding your needs and grasping your financial situation. It's important to ask yourself questions like, "Can I afford a car right now?" or "How much would I save by taking public transportation instead of a cab?" These questions help you prioritize your wants based on your financial stability. 

Another example of an impulse purchase is when you see a new pair of boots in a store window. While your old boots may still be in good condition, the new ones catch your eye. In this scenario, buying the new boots would likely fulfill a want rather than a need. It's important to consider whether you can afford the purchase without financial trouble. 

One method that can help when deciding on wants is asking yourself if you could purchase multiple times without financial strain. If the answer is no, holding off on the purchase may be best until you are financially stable. 

Understanding your needs and wants can lead to more intentional and responsible financial decisions. By being conscious of the distinction between the two, you can prioritize your needs while enjoying some of your wants without jeopardizing your financial stability. Take the time to assess your needs and wants and implement a method that works for you. 

The 50/30/20 budget 

A good goal is spending 50% of your income on needs, 30% on wants, and 20% on savings and debt paydown beyond minimums. (Your budget may look different if you're starting out or live in a high-cost area.) 

More Resources:  

https://www.nerdwallet.com/article/finance/financial-needs-versus-wants 

https://www.premiercommunity.com/how-to-understand-the-difference-between-needs-and-wants.html 

 

Contributing Authors: Everina Mustafa-Bennett, Anthony “Tone” Trotter