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What Is the Difference Between Wants and Needs?

Understanding your expenditures is crucial to gaining control of your budget

When you're building a monthly budget, one of the most critical tasks you need to do is classifying your spending by whether it is a "need" or a "want."

It is also one of the most problematic tasks since what is a necessity vs. a desire might differ from person to person. It is also possible to miscategorize desires as necessities if you are so used to them that you have difficulties visualizing life without them.

Learn how to budget more efficiently by splitting your costs into necessities and desires.
Key Takeaways 

Needs are the things you can't get by without, such as a place to live and food to eat. 

Wants are items that are good to have but not absolutely required, such as entertainment or gym subscriptions.  

Some items you purchase could appear like necessities but are really desires since you're picking a version that's more than you truly need.  

When you adopt the 50/30/20 budgeting strategy, you create place for both requirements and desires as well as savings.

What Are Wants vs. Needs?

When you fill out a budgeting worksheet, you categorize your expenditure as either desires or necessities. This differentiates your costs into what is absolutely required for your well-being and survival (needs) opposed to what you would want to have but do not need (wants).
Note
You may also see necessities referred to as "mandatory" or "fixed" costs and desires as "discretionary" or "variable" expenses.

Examples of Needs

Needs are frequently your fundamental living expenditures, goods essential for your health, or expenses that are needed for you to execute your work. These might be:
  • Rent or mortgage
  • Utility bills
  • Health care and treatment
  • Medication
  • Food Work uniform 
  • Commuting

Examples of Wants

Wants are items you choose to acquire but could live without, such as:
  • Entertainment
  • Dining out
  • Home purchases
  • Travel Electronics
  • Monthly subscriptions or memberships
  • TV or music streaming accounts
  • New clothes
Wants are not necessarily harmful. They are enjoyable and frequently may help you achieve key objectives like keeping in contact with loved ones, having fun, or remaining healthy. But they are not vital to your survival or well-being.

'Needs' That Are Really 'Wants'

The line between desires and necessities is frequently hazy, and it may be hard to sort out which spending fall in which category. There might be numerous explanations for this.

Lifestyle

Whether an expenditure is a necessity or a desire generally relies on how and why you utilize it. Home internet may be a necessary for you if you work from home. However, if you solely use your home internet for leisure, such as perusing social media or playing video games, it is truly a desire.

Split Expenses

Parts of a cost may be classed as a necessity while others are a wish. A food bill is a necessity because you need to eat. But if, along with your vegetables, protein, and healthy grains, you also purchase chips and drink, then some of those items are desires rather than necessities.

Which Option You Choose

Other times, the category of spending is a necessity, but the precise item you pick within that category is a desire. For example, having some form of phone may be a necessity so that you may interact with family or colleagues, purchase your prescription, or contact your landlord.

All those things, however, can be performed with a $20 flip phone. If you opt to spend hundreds of dollars on a new smartphone, that additional price is now a wish.

Choosing that alternative that is a wish rather than a necessity is not always negative. For example, choosing organic food may be an ethical decision that is worth the money for you.

But it is a decision. Understanding which costs are and are not optional can help you more successfully establish a family budget.

Is Saving a Need or a Want?

If your budget is tight, it might be tempting to cease putting money towards savings or long-term financial objectives such as:
  • Emergency savings
  • Paying off debt
  • Retirement funds
  • Life insurance
  • Disability insurance
This form of spending seems like a wish since it is not an imminent requirement. You can live this month even if you don't put aside money for retirement or develop an emergency fund.

However, saving and getting out of debt can also be considered necessities since they are investments in your long-term financial and personal well-being.

Having life insurance, for example, may not be something you need this month. But if you should die away suddenly, there will undoubtedly be a requirement for your family when it comes time for them to pay for your burial or care for your children.

Because of this, saving and getting out of debt should be considered a necessity. Whether you are saving $10 a month or $10,000, preparing for your long-term well-being should be taken care of together with other required obligations.
Note
Some financial gurus advocate that saving and paying off debt should be prioritized even before costs like rent and food in order to drive yourself to complete them. This is known as "paying yourself first."

The 50/30/20 Budgeting Rule

If you adopt the 50/30/20 budget technique, your spending will break down to:

50% of your after-tax income spent on requirements
30% spent on desires
20% spent on savings and debt reduction
 
This split of expenditures implies there's nothing wrong with purchasing premium bread and milk or subscribing to Netflix. The 50-30-20 budgeting rule of thumb permits you to spend 30% of your take-home money on items you desire.

By putting a tangible value to your desires, you protect yourself from overpaying and ending yourself in debt.

The key to budgeting is to become more conscious of how you are spending money. This helps you to spend within your means and also make sure that your spending corresponds with your beliefs and objectives.

Adjusting Your Spending on Wants

When you need to trim your spending to save money, removing desires is typically the simplest and first area to make adjustments. For example, you may give up your gym membership and start jogging around the neighborhood for exercise. But just because something is a necessity does not imply its pricing is fixed in stone.

For example, if you are paying $1,700 a month in rent, you may save money by:
  • Moving to a smaller flat
  • Getting a roommate
  • Temporarily moving in with family
Or, you could need to drive to work every day with a commute, but instead of paying money on parking and petrol, you might save money by:
  • Walking
  • Taking public transit
  • Carpooling with a colleague or neighbor
  • Biking 
Needs frequently make up the most percentage of your budget, especially if you are following the 50/30/20 guideline. By reconsidering how your needs appear, you may frequently make the most improvement in your monthly expenditure.

Frequently Asked Questions (FAQs)

What is a budget?

A budget is a plan for your expenditures within a specific time. A budget should be based on your income and guarantee you spend less than you earn. Many also add objectives like paying off debt and saving for retirement into their budget. You may construct a budget on paper, using a spreadsheet, or utilizing a budgeting software.

What is a zero-based budget?

A zero-based budget assigns all of your revenue to spending. It's meant to guarantee everything of your money has a purpose, including paying off debt and saving. Instead of having a wide category for savings, people following a zero-based budget will concentrate their money into particular categories, such as saving for emergencies, vet costs, house repairs, auto repairs, or vacations. 

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