Understanding Your Financial Needs and Wants
One of the easiest ways to stay on budget and avoid overspending is to understand the key differences between your financial needs and wants.
Whether you’re looking to tighten up a budget or build one for the first time, knowing the differences between a need and a want can help you find new ways to save and better prioritize your spending. So, with that in mind, here’s everything you need to know to help you break down the needs and wants in your life.
What Constitutes a Need?
Financially speaking, a “need” is something that you’re unable to live without. Generally, this includes things like basic food, water, shelter, and clothing. Needs can vary from person to person however, depending upon their personal situation.
Needs can vary from person to person however, depending upon their personal situation.
For example, while a car might be a necessity for someone who lives in the suburbs, it might not be as vital for someone living in a city with a good public transportation system.
A good way to determine what purchases you make are “needs” is to examine your monthly expenses and make a list of the things that are absolutely essential to maintaining a standard quality of living. Avoid including discretionary expenses like takeout food, coffee runs, and designer clothing and stick strictly to the basics. Rent, groceries, utilities, and in some cases transportation are just some of the things you may see in your “need” list.
And What About a Want?
While needs are things you have to have, wants are items or services that you’d like to have. These sorts of purchases are indulgences; non-essential and purchased purely for the sake of entertainment of luxury. Concert tickets, trips to the spa, and meals at restaurants are all things that can be considered wants.
Typically expenses leftover after discovering your “needs” can be considered a want. While there isn’t anything wrong with having some wants, it’s important to make sure the toll they’re taking on your budget isn’t putting you at financial risk. If you’re struggling to make ends meet or need to free up some cash to help pay off some bills, your wants are the first thing you’re going to want to cut back on.
What Happens When They Overlap?
Now here’s where things can get tricky. Sometimes, our needs can be influenced by wants, and this could lead to their cost rising unnecessarily. For example, let’s say you’re looking at a home for you and your family. While you only need a three bedroom, one bath ranch, you could want a five bedroom colonial with a pool in the backyard. In situations like these, it’s important to make sure your practical needs are met by your budget before tending to your wants. It’s not a good idea to go after that bigger house if it means you’ll be struggling to afford your groceries every week!
Like most things in life, striking a balance is key. While your needs should always take priority, you’re probably going to want to be sure your budget can tend to some of your wants. Providing you track your expenses, stick to a budget, and make smart financial decisions, you should be able to easily tend to your needs while still satisfying some of your wants!