There are some things that you need in life, and there are other things that you just want - like a new pair of jeans or tickets to see a band you really like. When it comes to budgeting, it’s very important to distinguish between them both.
And while it might seem like there’s an obvious distinction, our emotional wants can sometimes cloud our judgment when it comes to finances. Read on to find out how you can set a budget that addresses both your needs vs wants -- and how to keep them separate.
How to determine your needs
When you set up a budget, things that you need are your essentials. Needs vary by person, but some of the basic needs include things like food, housing, health insurance, and transportation. It’s basically everything you need to stay alive and function in society.
For example, if you need to wear a uniform or specific types of clothing to work, those items would be considered essential. As would a car if you need to drive to work. But if you live in the city and take the metro to work, then a metro pass would be considered essential. Housing essentials like gas and utilities, and even the internet, are also needs.
How to determine your wants
Everything else is a want. That cute sweater you saw in the store? Those new headphones for sale on Amazon? Those are wants. They are basically the things that make life easier. It can be things like magazine subscriptions, travel, entertainment, trips to the nail salon, and even gym memberships. Wants aren’t always frivolous spending- but they are items that you could live without if you don’t buy them.
Keep in mind that wants and needs aren’t the same for everyone. If you work in customer service, you might be required to wear the company logo or even wear a suit to work every day. In that case, those suits would go under your needs. However, if you work from home and don’t meet with clients on a regular basis, you don’t necessarily need a suit, but maybe you want one.
Don’t confuse your needs vs wants
As humans, we are very emotional. And even though budgets and numbers can be a bit on the dry side, we can often become emotional about them. This is especially true if we get confused between what we want and what we actually need.
It’s normal to feel attached to something or to really want it. But if you want to get your finances in check, it’s important to identify that feeling but not let it take control. I am not saying that just because you want something means you can’t have it. On the contrary!
Having things around us that we enjoy gives our lives joy. Instead, I am encouraging you to be realistic with your spending. Distinguishing between what you want and need can help you get your personal finances in control. Don’t let your emotions turn your want into a need!
Still wondering how to determine your wants from your needs? Let’s look at some examples.
Examples of needs
- Housing costs, like a mortgage or rent
- Utilities like gas and electricity, the internet and your phone bill
- Work clothes
Examples of wants
- Going on a vacation
- Entertainment systems like a PlayStation or Nintendo Switch
- Eating out or getting takeaway
- New clothes
- A second car or a fancier car than you need to get to work
How to budget for both your needs and wants
Now that you know what your needs vs wants are, it’s time to find out how to budget for both. It's important to make sure to prioritize your needs.
However, you can also plan for your wants and make sure you budget your finances so that you can hopefully afford both -- or at the very least, safe for your wants while paying for your needs.
1. Identify your wants and needs
The very first step to taking control of your needs and wants is to identify them. Refer to the earlier examples in this article to determine what your needs and wants are.
Write them down in two columns; one for your wants and one for your needs. Take your time to do this exercise to make sure you aren't getting your wants and needs confused!
2. Categorize the most important needs
Now figure out which needs are the most important. Rearrange your needs list to put the most important ones at the top.
These are the ones that you should always prioritize in your budget. These are the needs you want to always be able to accommodate in your budget.
3. Determine which wants take priority
Do the same thing as in step 2 and categorize your wants. Decide which ones are the most important to you. If you can’t afford everything you want right now, figure out which ones you want to buy first.
It's ok to designate specific savings over time for the wants you have that might take a while for you to afford.
4. Create a budget
Once you know your needs and wants and which ones take priority, you can set up a budget! There are a number of different budget styles and methods available, so find one that works for you.
Get clear on your needs vs wants!
Mixing up your needs and wants is very human. But unfortunately, emotional buying isn’t good for your budget. If you want to be serious about getting your finances in check, you need to figure out exactly your needs vs wants. But don’t forget to be patient with yourself!
We all make mistakes. Budgets can always be reviewed and redone. So if one month you find yourself spending more on your wants than your needs, own up to the mistake and correct it the next month.