You’re standing at a cash register with credit card in hand, or your finger is hovering over the “check out” button on a website with a full cart. How often do you ask yourself if you want or need what you’re about to spend money on? Sometimes it hard to distinguish between a need and a want and it’s easy to justify your answer either way. If you are starting to work on a budget, sifting through all of your monthly living expenditures, determining if they’re a need or a want is one of the first steps to better understanding your spending patterns and getting on track to living within your means.
You can think of a “need” as something that is essential for you to function in your everyday life.
These are things that would severely impact your life if you didn’t have them like housing, groceries, utilities, health insurance, auto/transportation. Some budgeting methods, such as the 50/30/20 framework, also include your minimum payments on credit cards (and other debts) as needs. The negative impact on your credit score if you didn’t pay them and late payment fees make these “needs” instead of ”wants”.
You can think of a “want” as anything that you can give up without major inconvenience.
Wants are things that makes your everyday life more comfortable, but aren’t strictly necessary. Some examples of wants include cable tv, eating out at restaurants, fancy coffees, gym membership, new clothes, entertainment and vacations. You’ll certainly miss some (or all) all of these things, but you would survive and wouldn’t be in a worse position by forgoing them.
It can be hard to precisely identify some spending as either only a “need” or only a “want.” Start with the basics such as food, clothing and housing. Everything you buy at the grocery store is not a need. There are definitely some wants in there if you shop like most people. The reverse is true too; clothes shopping is usually a want but there are definitely some needs in that category too. Some big decisions illustrate this difference too. You may live somewhere that you need a car to get around. But upgrading to a luxury car would almost certainly push that big expense into “want” territory. Other things like your cell phone may be a need, but turn into a want if you’re regularly upgrading to the newest model. The line between the two isn’t always clear and is personal to you and your situation. If it’s hard to tell the difference with some things then good! That means you’re doing it right.
The point is, it all comes down to choices. You are in control of your money and you decide how it is spent. You can choose to live minimally, with few or no “wants” in your budget. Or you can spend freely on all the extras and conveniences available to you. Once you understand the difference between needs and wants, it’s easier to make a budget work for you and live within your means.