Defining Needs & Wants
Needs:
Definition: Needs are essential items or services that are required for basic survival and well-being. They are necessary for maintaining health, safety, and basic functioning in daily life.
Examples: Food, water, shelter, clothing, healthcare, transportation for work or essential activities, utilities (electricity, water), basic education, hygiene products, and basic communication services.
Wants:
Definition: Wants are non-essential items or services that enhance quality of life and provide comfort, enjoyment, or convenience. They are desires that go beyond what is necessary for basic survival and well-being.
Examples: Designer clothes, entertainment (movies, video games), dining out, luxury items (expensive jewelry, high-end electronics), vacations, subscription services (streaming platforms), home decor, gym memberships, and premium coffee from cafes.
By understanding the difference between needs and wants, individuals can prioritize their spending, ensuring that essential needs are met before allocating resources to non-essential wants. This distinction helps in creating a balanced and effective budget.
Examples of Needs and Wants
Needs:
Food: Essential for survival and maintaining health.
Water: Necessary for hydration and life.
Shelter: A place to live and stay safe from the elements.
Clothing: Basic clothing to protect from weather and provide modesty.
Healthcare: Access to medical care and medication.
Transportation: Basic transportation for getting to work, school, or essential activities (e.g., bus pass, car for commuting).
Utilities: Essential services like electricity, water, and heating.
Education: Basic education and school supplies.
Hygiene Products: Items necessary for personal hygiene, such as soap, toothpaste, and toilet paper.
Communication: Basic phone service to stay connected for emergencies and essential communication.
Wants:
Designer Clothes: High-end fashion items that are not necessary for basic protection or modesty.
Entertainment: Movies, video games, concert tickets, and other leisure activities.
Dining Out: Eating at restaurants or ordering takeout instead of cooking at home.
Luxury Items: Expensive jewelry, watches, or accessories.
Latest Gadgets: The newest smartphones, tablets, or electronic devices that are upgrades rather than essentials.
Vacations: Leisure travel and trips that are not essential for daily living.
Subscription Services: Streaming services, magazine subscriptions, or other entertainment services.
Home Decor: Decorative items and furniture upgrades that enhance the aesthetic of a home but are not essential.
Gym Memberships: While exercise is important, a gym membership is a want if free or low-cost alternatives (like home workouts) are available.
Premium Coffee: Daily coffee from expensive coffee shops instead of making it at home.
Questions to ask yourself
Does this fulfill a basic need?
Will you be okay without this?
Will this make you happier or healthier in the long term?
By understanding these clear examples of needs and wants, you can prioritize spending and make more informed financial decisions. This is the first step in making a personal financial budget,
Budget for both needs and wants
Ideally, you would follow your budget to the letter every month, never going over. While some master budgeters may have accomplished this, the beginner or everyday budgeter will likely need to work on this skill. This is where the 50/30/20 budget comes in.
The 50/30/20 budget is a way of budgeting that provides guidelines to help users create a budget that works for them. Budget areas are divided up to 50 percent needs, 30 percent wants and 20 percent financial goals. This allows users to be able to both afford what they need and pay for what they want.
A 50/30/20 monthly budget would look like this:
50% Needs:
Definition: This category covers essential expenses that are necessary for basic living and well-being.
Food: Essential for survival and maintaining health.
Water: Necessary for hydration and life.
Shelter: A place to live and stay safe from the elements.
Clothing: Basic clothing to protect from weather and provide modesty.
Healthcare: Access to medical care and medication.
Transportation: Basic transportation for getting to work, school, or essential activities (e.g., bus pass, car for commuting).
Utilities: Essential services like electricity, water, and heating.
Education: Basic education and school supplies.
Hygiene Products: Items necessary for personal hygiene, such as soap, toothpaste, and toilet paper.
Communication: Basic phone service to stay connected for emergencies and essential communication.
30% Wants:
Definition: This category includes discretionary spending on non-essential items and activities that enhance your lifestyle.
Dining out and entertainment (movies, concerts)
Hobbies and leisure activities
Travel and vacations
Subscriptions (streaming services, magazines)
Personal care (gym memberships, beauty treatments)
Shopping (clothes, gadgets, decor)
20% Savings and Debt Repayment:
Definition: This portion is dedicated to building savings, investing, and paying down debt.
Emergency fund contributions
Retirement savings (401(k), IRA)
Investments (stocks, bonds)
Extra debt payments (credit card debt, student loans)
Savings for future goals (buying a home, education, vacation)
This budgeting method is useful for people who want to be able to have a fun with their money, pay for what they need and also get ahead of their financial goals.
Be specific with budget categories
It’s usually better to be specific than to generalize, and budgeting is no exception. One way to build a budget that works for both needs and wants is to be very specific when making your budget.
Instead of having generalized categories like “food,” “entertainment” and “utilities,” separate these categories into specific subsections as best as you can. For example, this would mean “food” has two subcategories: “groceries” and “dining out.” The “entertainment” category would be expanded into three subcategories: “going out,” “cable” and “books.”
The more specific you can be, the more you can accurately budget for each specific category. This helps you see your spending at a glance and helps prepare you for all of the various categories you’ll come across on a monthly or weekly basis.
Mindful spending when using your credit card
Impulse purchases happen, and as long as you’re budgeting and doing what you can to stay on top of your spending, you shouldn’t feel guilty for indulging in something you want but don’t need from time to time. However, be sure you are not whipping out your credit card for everything you want at the mall or when out at dinner.
Putting too many wants onto a credit card could hurt you down the road for something you hardly remember buying. This could include your credit score dropping, meaning you’ll need to put in the hard work necessary to rebuild your credit score.
It’s important to understand both the difference between needs vs. wants when it comes to budgeting, and how to build a budget that accommodates both your needs (like rent) and wants (like a new pair of jeans). By budgeting accurately and making smart spending choices with your credit, you’ll be on your way to being able to comfortably pay for what you need and afford what you want.
