man putting money in the piggybank

Distinguishing Between Wants and Needs: The First Step in Budgeting

When sorting out our budget, we tend to separate our expenses into different categories. Namely, needs or wants. Most variations of this are simply an extension of these primary two, and when it comes down to it, needs and wants are the two most essential factors in our budget. However, defining what is actually a need and what is want isn’t as simple as it may first seem. Below are some points to consider when determining what your needs and wants should be.

What Everyone Needs Versus What You Personally Need

When setting up your budget, you will need to define two things right away: your needs versus your wants. However, it’s not as cookie-cutter clean as just having two categories. When defining needs in general, everyone can agree that the three major types are housing, food, and health. But how you define the things that go under these categories can differ. For example, under housing would either be mortgage or rent fees which would fall under absolute need because everybody needs a place to stay. But if you are aiming to buy a house when you cannot afford a downpayment just yet, you may be making housing a want. Another example of a personal need would be things you cannot live without, given your current state, that isn’t necessarily a need for others. You could have a postpaid data plan because you have to constantly be online and available for work which makes it necessary.

Your Needs Will Change Over Time

You from five years ago have drastically different needs from you of today. As such, it’s simply unfair to brand the things you need today as luxuries. Take, for example, a high-powered computer. You might feel like it’s a petty luxury since you’ve always worked with a mid-ranged one but consider your job position then and now. Perhaps before, your workload could get away with a mid-range computer, and now, the amount of processing you have to do merits a powerful PC. Everybody’s situations and “context” change over time, and we have to adjust how we view our needs and wants accordingly.

Your Definition of Needs and Luxuries Can Differ From Others

For somebody who has a yard that’s constantly filled with dead leaves, a cordless leaf blower doesn’t seem like a luxury. But for someone who has a smaller yard and would do fine with a rake, it’s a luxury. The thing is, what defines our needs and wants is closely tied to our lifestyle. A luxury to someone might be a need to another person, and that’s fine. Professional athletes might need a personal sauna because their muscle soreness is so painful that they simply can’t function without soaking in a spa. Always contextualize your needs and wants and understand whether it truly wants or needs as it will make everything else more convenient.

Your Level of Means

Your spending ability can significantly impact how you view your wants and needs. You could want the latest smartphone when your current one gives out and not have a problem with the price, while someone else might have to put off getting a new phone altogether just to pay rent on time. On a medium scale, you could be weighing your options on what car to buy because of different factors that might affect your future budget. In this case, it’s essential to set a budget that’s neither too tight nor too lenient. A budget too strict might not give you enough breathing space and cause unnecessary stress, while a budget too loose might make you complacent and you might end up overlooking other expenditures.

Lastly, What About Savings?

Here’s a controversial take that many might disagree with: being able to save money is a luxury. It means you’re earning enough to cover your necessities and have loose or disposable cash on top of it. And if you’re in that position, congratulations! You can live comfortably and maybe enjoy luxuries. Of course, you can make the wise financial decision of saving your money. However, should you struggle to make ends meet, it’s best to forgo savings entirely and instead focus on paying off your necessities. Your necessities like food, mortgage, and utilities are significantly more important than saving money—these matters are current and need to be addressed immediately. Don’t feel bad when you’re not able to save money. Instead, work harder so that you’ll have enough disposable income after necessary expenses that you can decide to save money.

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