Putting your spending into categories based on whether it is a “need” or a “want” is one of the most important steps in making a monthly budget.
It is also one of the hardest things to do because everyone has different ideas about what they need and want.
It’s also easy to confuse wants with needs if you’re so used to having them that you can’t imagine life without them.
Learn how to make a better budget by putting your expenses into two groups: needs and wants.
What Are Needs?
Needs are the most important things that you have to have in order to live. In other words, a necessity is something that you can’t live without. People, for example, need oxygen, water, and food to stay alive.
Without these things, it would be impossible for people to live. Humans also need medicine, a place to live, clothes, and tools to work in order to live a healthy life.
If you don’t meet these requirements, it could lead to bad things. It could make you sick mentally or physically, or it could even kill you.
What Are Wants?
Wants are things that a person would like to have but doesn’t need to live. Everyone has unique desires.
Some people want a big house and a car, while others want to see the world, wear name-brand clothes, and hang out with friends.
Wants can change over time.For example, a young person might want a good job, but after a while, he might want to start his own business instead of working.
Not getting what you want doesn’t hurt you physically, but it can make you feel bad about yourself.
Key Differences Between Needs and Wants
|Description||Needs are things that a person should fulfill in order to survive||Wants are the things that a person only desires to do for his own satisfaction|
|Necessity||Needs are very necessary because, without these, survival is not possible||One can love without fulfilling the wants, but it can make life more comfortable|
|Categorization||There are two main categories of needs: subjective and objective physical.||Wants are also categorized into two groups: luxuries and comforts|
|Satisfaction||One can only get satisfied after fulfilling the needs||A person can get satisfied only by thinking of his wants or desires|
|Competition||There is no competition in needs, especially when it comes to basic human needs||Wants are mostly competitive; they compete against one another for satisfaction|
|Intensity||Needs don’t vary in intensity||Different wants have different intensities|
|Postponements||Needs cannot be postponed like healthcare would be needed when it is required.||Wants can be postponed; if a person wants a car, he can buy it when he has money.|
|Failure||Failure in fulfillment of needs can result in death||Not fulfilling the wants can cause mental health issues|
Examples of Need & Want
Examples of Need
Needs are usually things you need to live, things you need for your health, or things you need to do your job. Some of these could be:
- Rent or mortgage
- Utility bills
- Health care and therapy
- Work uniform
Examples of Wants
Wants are things you choose to buy but could get along without, like:
- Dining out
- Home purchases
- Monthly subscriptions or memberships
- TV or music streaming accounts
- New clothing
Wants don’t always have to be bad. They are fun and can often help you reach important goals, like staying in touch with friends and family, having fun, or staying healthy. But you don’t have to have them to live or be healthy.
‘Needs’ That Are Really ‘Wants’
Sometimes it’s hard to tell the difference between what you want and what you need, which makes it hard to figure out where to spend your money. There may be more than one reason for this.
How and why you use an expense is often the best way to tell if it’s a need or a want. If you work from home, you might need internet access at home. But if you only use the internet at home for entertainment, like social media or video games, it’s a want.
Some costs are things you have to pay for, while others are things you want. You need a shopping bill because you have to eat.
But if you buy chips and drinks along with your fruit, protein, and healthy grains, some of those things are wants instead of needs.
Which Option You Choose
Sometimes the type of expense is a need, but the specific choice within that category is a want. For example, you might need a phone to talk to family or coworkers, order medicine, or get in touch with your landlord.
But you can do all of that with a $20 flip phone. If you decide to buy a new smartphone for hundreds of dollars, that extra cost becomes a desire.
It’s not always a bad thing to choose a wish over a need. For example, buying organic food may be a moral choice that is also good for your wallet.
But you can do something else. Putting together a household budget is easier if you know which costs are optional and which aren’t.
Is Saving a Need or a Want?
When money is tight, it’s tempting to stop saving or put money toward long-term goals like:
- Emergency savings
- Paying off debt
- Retirement funds
- Life insurance
- Disability insurance
This kind of spending feels like a want because it’s not something you need right away. Even if you don’t save for retirement or make an emergency fund, you can get by this month.
On the other hand, saving money and getting rid of debt should be seen as needs because they are investments in your long-term financial and personal health.
For example, life insurance might not be something you need this month. But if you die suddenly, your family will need money to pay for your funeral or support your kids.
So, saving money and paying off debts should be seen as necessities. No matter how much you save, whether it’s $10 a month or $10,000 a year, planning for the long term should be a priority along with other necessary costs.
Some financial experts say that saving money and paying off debt should come before things like rent and food so that you are more likely to do them. “Paying yourself first” is a term for this.
The 50/30/20 Budgeting Rule
If you use the 50/30/20 budget system, your spending will look like this:
- 50% of your after-tax income spent on needs
- 30% spent on wants
- 20% spent on savings and debt reduction
Because of this, there’s nothing wrong with spending a lot on bread and milk or a Netflix subscription. Using the 50-30-20 budgeting rule, you can spend 30% of your take-home pay on things you want.
By putting a dollar amount on what you want, you can avoid paying too much and going into debt.
To make a budget, you need to pay more attention to how you spend your money. This lets you spend only what you can afford and makes sure your spending fits with your values and priorities.
Adjusting Your Spending on Wants
Getting rid of wants is often the simplest and quickest way to start saving money.For example, you might start running around the neighbourhood instead of going to the gym.
However, just because something is required does not mean that it will always be the same price.
For instance, if your monthly rent is $1,700, you can save money by
- Moving to a smaller apartment
- Getting a roommate
- Temporarily moving in with family
You may also have to go to work every day, but instead of paying for parking and gas, you can save money by:
- Taking public transit
- Carpooling with a coworker or neighbor
If you follow the 50/30/20 rule, you probably spend most of your money on things you need. Most of the time, changing how you see your needs can make the biggest difference in how much you spend each month.
Needs vs. Wants Pros and Cons
Needs Pros and Cons
Pros of Needs
- Needs are essential to human life, and these needs can help people do better at what they do.
- People can reach their life goals with the help of their needs. Because men can do anything they want when their needs are met.
Cons of Needs
- When people don’t get what their bodies need, it can make them sick or even kill them.
- When a person doesn’t feel safe or loved, or when he or she doesn’t feel accepted, it can make them sad and anxious.
Wants Pros and Cons
Pros of Wants
- Wants can get people going because the feeling of wanting pushes you toward your want.
- When you really want something and then get it, it feels much better than when someone hands it to you on a silver platter.
Cons of Wants
- If a person’s wishes or desires aren’t met, it can lead to stress and sadness, which can hurt their mental health.
- People sometimes want something so much that they take the wrong path to get it, which puts them in dangerous situations.
Frequently Asked Questions (FAQs)
What is a budget?
A budget is a plan for how to spend money over a certain amount of time. A budget should be based on how much money you make, and you should make sure you spend less than you make.
In their budget, many people include things like paying off debt and saving for retirement. You can make a budget on paper, in an Excel spreadsheet, or with an app.
What is a zero-based budget?
In a zero-based budget, you spend everything you earn. Its goal is to make sure that all of your income goes toward something, like paying off debt or saving.
People who use a zero-based budget don’t have a general savings account. Instead, they save for things like emergencies, vet bills, home repairs, auto repairs, or vacations.
How Are Wants and Needs Similar?
Needs and wants are similar in that they are both necessary to improve the quality of life and bring mental peace.
What Needs and Wants Might Be Specific to Certain Employers?
Employers want fair pay, job security, a good balance between work and life, and career growth. At the same time, the business may want someone to help them grow their business and brand.
What Needs and Wants are Hard to Answer?
Some needs and wants, like roads, security, and schools, are hard to meet or live up to.
What Are the Needs and Wants in Economics?
In economics, a “need” is something that a person needs to live, while a “want” is something that a person wants to get.
Wants and needs are two different things that mean different things, but sometimes they are used the same way. The words “needs” and “wants” are sometimes used to mean the same thing.
The main difference between needs and wants is that needs are things you have to have to live, while wants are just things you’d like to have.
A person can’t live without basic needs like water, food, and a place to live. But a person can easily live without satisfying their wants.