The Difference Between Needs Vs. Wants: How To Effectively Budget Both4 min read
If youâ€™re one of those having a hard time budgeting, knowing and identifying the difference between needs vs. wants is the key to changing your life.
Every day, we are faced with different choices and understanding what the necessities are and being able to separate them from the luxuries enables us to reach our financial goals. Being aware of the differences guides our spending habits and helps us better budget our money.
Smartly categorizing both helps us decide what to acquire that wonâ€™t create a dent in our savings.
Needs vs. wants
Needs are basic requirements for you to survive, such as a cozy home, basic clothes to wear, and daily food. They are indispensable and remain constant over time.
As part of enriching ourselves, education is also a need. It enhances our professional lives and prepares us to be a productive member of our society.
Also, modern economics consider healthcare, medicines, and specialized treatments as need as they support our well-being.
Wants are desires that may change as time progresses. They apply to goods, services, and inessential things often described as splurges.
From an economistâ€™s point of view, wants are created by businesses that may add convenience to a customerâ€™s life. They are optional, creating a demand for something that is not necessary to survive.
A want can be a need or vice versa, depending on a personâ€™s lifestyle. For example, is having an internet connection a need or a want?
It is a necessity if your work demands a reliable internet connection, communicate effectively with friends and families that are based miles away, and do various things with modern convenience.
(Read: 10 Reasons Why You Need A Budget)
The benefit of knowing the difference between needs and wants
Recognizing what needs and wants are is the best foundation for efficient money management. It ranges from tracking personal expenditures to investing your excess savings. It also helps you figure out the required expenses and those that can be lessened.
How to determine your needs and wants
Classifying your needs and wants is the first step that can aid you in achieving financial awareness.
To differentiate, follow the steps below:
- From the cheapest to the most expensive, make a list of everything you spend on monthly.
- Categorize the items into needs and wants. Health procedures such as dental cleaning, vitamins, and your mobile phone plan will be placed under needs, while a subscription to Netflix and Spotify premium membership fall on wants.
- After tallying, rank your priorities using the 50/30/20 budgeting system in which 50% goes to your needs, 30% is allotted for wants, and 20% is for your savings.
For example, if your monthly income is P30,000, P15,000 must be spent on necessities, P9,000 is meant for indulgences and the remaining P6,000 must be deposited in your savings.
To improve your spending habits and create a satisfying balance, be honest and examine your listed items. Make sure they belong to the correct category.
Tips on budgeting your needs and wants
Budgeting is not a challenge as long as you have a long-term objective that requires money to push through. To help you grow your savings, read on.
How to cut your â€œneed expensesâ€
Explore alternatives such as a more practical rate for your mobile phone plan and use its internet data sparingly. Before committing to a health insurance plan, ask around and avail the one with the lowest premium but has the same coverage.
For your home, quarterly maintenance is advisable to prevent costly damages in the long run. Creating a home checklist enables you to act quickly if a repair is needed.
Finally, eating more vegetables than meat and other processed food is not only cost-efficient but may also enable you to save on unexpected hospital bills.
How to cut your ‘wants expenses’
Knowing your triggers in buying unnecessary things is the first step in lessening your shopping sprees.
Accept that personal stimulants exist and learn to control them by weighing their advantages and disadvantages before spending.
Also, ask yourself: â€œIs there a cheaper alternative?â€ and â€œWill it create a big dent on the money I am supposed to save?â€ Thinking before buying is important as it helps you evaluate and teaches you self-control.
Keeping a journal and writing down what you think is a â€œmustâ€ but is an â€œindulgenceâ€ helps you decide clearly. Understanding your cravings helps you create resistance against uncontrollable spending.
Also, seeking the support of your loved ones is effective as they can provide different insights that can positively influence your buying behavior.
Finally, avoiding your wants altogether should not be a goal as we are humans who need certain motivations to perform daily.
The aim is to control your wants, limit your needs and learn to save for a comfortable retirement someday.