Understanding the Differences Between Wants and Needs

wants and needs
Photo by mentatdgt from Pexels

One of the reasons why budgeting becomes challenging is because we can barely differentiate wants from needs. Oftentimes, we wanted to be in with the trend. Thus, we buy more than we need, which should never happen. To avoid living from paycheck to paycheck, spending less than what we earn is always the answer. 

Need Vs Want

So how do we differentiate a need from a want? Well, it varies from person to person. But, generally, a need is something you unquestionably cannot live without. These are the essential things you need daily like food, shelter, transportation, gas and electricity, and insurance.

While want, on the other hand, is the things you like to have but you can live without. Why buy the new iPhone worth over a thousand dollars when you can still use your current phone just fine? Albeit, this works when you have a decent amount of spare cash.

Despite the definition and differences, one’s needs and wants are just separated by a tiny thread. Food is a need; however, it will become a want when you opt to have dinner in a fancy restaurant. Clothes are also a necessity, but buying from expensive brands is not necessary, thus it will fall into the want category. Shelter, of course, is a need; nonetheless, it will be considered a want if you choose to spend too much on rent or mortgage which takes a big chunk out of your budget. 

In many instances, our wants are “so powerful that we can’t imagine living without that item.” Impulsive buying will make our lives miserable. If you want to buy something, sleep on it before deciding.

Budgeting Needs and Wants

Just because you are trying to save doesn’t mean you will deprive yourself of all your wants. Things should be balanced. Thus, Elizabeth Warren’s 50-30-20 rule is a big help to ensure that you are still spending within your budget. 

The 50-30-20 rule says that 50% of your after-tax income should be spent on “needs,” 30% should go to “wants,” and 20% should go to savings. Following this technique will help you ease the feeling of guilt from buying the things you like. At the same time, all your needs are well taken care of, plus you have sure savings to aid you in case of emergencies.