Needs vs. Wants: How to Prioritize Your Spending
Understanding the difference between “needs” and “wants” is essential for financial literacy and budgeting. Before making a purchase, you should thoughtfully consider your wants and needs.
What Are Needs?
Needs are your basic living expenses, items required for your health, or expenses required to do your job, for example, your rent or mortgage, utility bills, medication, transportation, food, clothing, and healthcare.
What Are Wants?
Wants are items you purchase but could live without, such as entertainment, dining out, subscriptions, gym memberships, electronics, travel, and so on. Although they are not required for survival, they help improve your quality of life and make you more comfortable.
How to Tell Them Apart
The line between wants and needs can be blurry sometimes, making it difficult to determine which expenses belong in which category. Whether a payment is a necessity, or a desire is frequently determined by how and why you use it. If you work from home, you may need internet. However, it is a desire if you only use your home internet for watching shows and playing games it is a want.
Create a Budget
Now that you’ve determined your needs and desires, it’s time to figure out how to budget for both. It is critical to prioritize your requirements. Begin by writing down your wants and needs, categorize the essential needs, decide which takes precedence, and create a budget.
The 50/30/20 budget offers guidelines to assist users in developing a budget that works for them. Budget categories are divided into 50% needs, 30% wants, and 20% financial goals. This enables users to afford what they require while also paying for what they desire.