Deciding Between Wants and Needs

One of the hardest things to do, by far, is realizing when a want is not a need.

Budgeting can be a balancing act. The secret to the possibility of sustaining yourself from day to day while also reaching financial goals is building a budget that balances your needs with your wants. Pinpointing the difference between the two is a subjective proposition.

The “needs” that are really “wants”

In budgeting worksheets, some people object to separate categories for items in the “wants” category. Home internet, for example, is classified as a want and not as a need. But if you do not work from a home office (in which case your home internet is a business expense), there’s a good chance that home internet is a want (because let’s face it, you’re probably using it primarily to watch Netflix).

And the same is true for your cable television — your Netflix subscription and your iPhone as well. It also goes for your hair dye. These are all wants and not needs. You totally can do without these things, if you were forced to. They may not be necessary to live, as painful as it might be to lose them.

Cross-category needs and wants

Of course, wants and needs, sometimes, don’t fit into neat, distinctive categories. It’s too simplistic, for instance, to say that your grocery store spending is a need. Your entire grocery bill is most likely a combination of wants and needs. Bread, milk, eggs, and whole fruits and vegetables can be classified as a need.

But, on the other hand, chips and cookies are most likely not a need. Fruit juice can be a want, especially if it is of that upscale variety. Milk is probably a need, but organic milk is most likely a want. And so is the whole grain, organic honey-infused bread.

A lesson that can apply to your life

The 50-30-20 budget says that 50 percent of your after-tax income should be spent on “needs,” 30 percent should go to “wants,” and 20 percent should go to savings and debt reduction. That means there’s nothing wrong with buying fancy bread and milk or subscribing to Netflix. The 50-30-20 budgeting rule of thumb allows you to spend 30 percent of your take-home pay on things you want. The key is to separate your wants from your needs so that you’re more self-aware of how you’re spending money.

Takeaway

Distinguishing “wants” from “needs” may truly help you realize how much power and control is possible to have over your budget. If you’re choosing to spend money on wants, you easily can choose those items and re-direct your money elsewhere. After all, budgeting, at its very core, is not always about crunching numbers. Budgeting can be the art of aligning your spending with your values.

Contact us if you would like help with your budget or know someone who can benefit by talking with us.