Defining Needs vs. Wants in your budget is an effective way to prioritize your spending, make financial decisions, and stay true to your goals.
The challenge is actually defining them. Needs and wants vary from person to person. They will change depending on what stage of life you are in. You might want to take some time to define what yours are.
Needs vs. Wants: what is the difference?
Needs are basic living expenses and are your priority.
List of NEEDS:
- Rent or Mortgage
- Utilities such as gas/electricity/water
- Taxes – includes income tax as well as property tax if you own a home
- Insurance – examples are renters, homeowners, auto, life, disability, medical
- Transportation – can include automobile and auto expenses such as gas, maintenance, registration, and repairs. Transportation may included public transit such as bus or train fares.
- Groceries
- Household items – includes paper products, soaps and toiletries, cleaning supplies
- Childcare
- Work uniforms and basic clothing/shoes
Wants are the expenses that you can live without if your needs are not met.
List of WANTS:
- Travel
- Entertainment
- Dining out and/or more expensive foods
- Electronics
- Designer clothing/shoes/accessories
- Expensive car
- Memberships and subscriptions – gyms, gaming, television
- Home purchases /renovations that are not necessary for basic living
When “wants” feel like “needs”
There is a very gray area in which wants actually feel like needs so when you are defining your needs vs. wants it is very important, to be honest with yourself.
As you look over the list of your wants ask if this is something that you need in order to survive. Yes, that coffee might feel like it is necessary for your sanity but is it really necessary? Only you can decide for certain what is a need or a want.
Adjusting your budget for needs vs. wants
A budget is a living document which means it needs to be monitored and adjusted regularly. It is okay to make changes to your budget while working to achieve your financial goals.
When reviewing your budget, check if you can make adjustments to any of your needs and wants in order to reach your goals faster.
Here are some options for adjusting the spending on needs vs. wants.
NEEDS:
Rent/Mortgage
Although this is generally a fixed number there may be options to save. Can you get a roommate to help share the expense? Is it possible to move into a less expensive place?
Utilities
Check out your utility company’s website for tips to save energy and water. You can also ask if they have programs to help reduce your bill.
Transportation
Is it necessary to take long leisure drives and spend money on gas that is not a necessity? Any gas money spent on something other than going to work or the grocery store is really a want. When the weather is nice, I opt for walking to the bank, library, and convenience store. Is this an option for you? Maybe you can ride share with a co-worker or perhaps you don’t even need a car and public transportation is sufficient?
Insurance
Shop around to see if there are policies that cost less and offer adequate coverage. Are there any discounts that your current provider offers that you are unaware of?
Groceries
Evaluate what you buy and scale back where you can. Use coupons and store rewards for savings. There are tons of budget-friendly recipes online to consider. Try them and you might find something new to cook.
Household items
Buy what you need and bulk up if on sale only.
WANTS:
Adjusting your wants may be necessary in order to satisfy your needs. If your needs are met, you may also choose to adjust your wants, especially if you have any short-term, mid-term or long-term goals you are after.
Travel
Take two-weekend getaways at the local beach or mountains this year instead of a luxury vacation in Hawaii or Aspen (unless that is your local beach or mountain)
Entertainment
Change to monthly instead of weekly nights out, skip the concerts for a year or only enter one 10K race instead of four this year. Watch movies at home instead of on the big screen. I’m sure you can find a way to scale back whatever your form of entertainment is.
Dining out
If this is an area that is difficult for you to reduce then play with the idea of cutting down the number of times you dine out. Maybe reduce the number of times per month to half and see how it feels. Be careful, not to spend more….the idea is to reduce spending.
Electronics
The average household in the United States has access to 10 electronic devices. That is just crazy…..yes, my household is right up there with the average. Not only is there the expense of the devices themselves but think of the energy used when these devices are plugged in.
Memberships/subscriptions
Gym memberships come to mind. Yes, you might justify this by saying it is for your health but it is not really a need. You can easily exercise without a gym membership. There are tons of free streaming programs out there. You can also create a makeshift gym at home. If anything, just put on music and dance your ass off for an hour and I bet you will burn quite a few calories. Mother nature is a great place to exercise. Walking, hiking, biking, skateboarding, and running all can be done fairly cheaply. Go to the local school or park and use the playground equipment for pull-ups and sit-ups or have fun and create an obstacle course to do with your kids. Get creative.
Gaming memberships is another pricy one. I do not want to know how much my kids spend on these. It is their money, their choice but if you are a gamer think about this as a want expense that can be reduced.
Is savings a need or a want?
Emergency savings is a need. This is money to cover your basic living expenses if something were to happen to your income or if an unexpected expense came up that takes your current funds from your basic living expenses.
If all of your basic living expenses are covered then saving for an emergency is where to put your additional money. Remember, your emergency fund number is fixed so once you have the amount you need to put away then that contribution can be allocated toward something else.
Saving plans for short-term goals are a want. You are choosing to put money aside for a particular reason, therefore choosing to reduce some of your “want” spendings in order to achieve your financial goals.
Is debt payoff a need or a want?
This is a want. Debt payoff, just like savings other than emergencies, is not necessary for basic living. Although debt payoff is a great way to lift the burden of expenses it is still a financial goal.
Summary: needs vs. wants
Understanding the difference between needs vs. wants is critical when planning your budget and making any spending decisions. This fundamental mindset will continue to keep you on track with your financial goals regardless of what stage of life you are in.
Look over your budget and be sure that you are able to cover all of your needs, include contributing to your emergency savings (unless you already have one).
Anything extra allocate toward your goals, whether they are short term, mid term or long term. Evaluate your wants and make adjustments as necessary in order to achieve your goals.
One side note about understanding your needs and wants. When faced with a financial decision, ask yourself this question.
Do I really need this or do I want it?
A need generally cannot wait. You need housing, you need food, you need warmth, you need to get to work, your child needs diapers…..a want can always wait.
If you have any questions or comments, please reach out. I’d love to chat!
Thanks for readng,
Stay balanced,
Jill