A couple of years ago I taught a lesson at Reagan Elementary to some 1st graders about the difference between needs and wants. I made a bunch of cards with images on them. Each card had things like food, water, a job, or a house while others had things like a bike, ice cream, toys and various other items. I passed all the cards out to the students and then one by one they had to come up and tell the class what card they had and if they thought it was a need or a want. For the most part they did really well. But as we get older sometimes the line blurs between our needs and our wants. I need a car to get to and from work and pick my kids up and do all the mom/wife things I have to do. When making the decision to get a 2022 decked out Honda Pilot would that fall under the need category or want? Both really. Yes, it would fulfill my need for a vehicle but I could get something way less expensive and still meet that need. So in this case it would be more of a want and I would need to really evaluate my budget and what I was willing to pay every month.
Have you ever struggled with separating needs from wants? Read on to learn how to tell the difference between these two spending categories.
Defining needs and wants
A need is something necessary to live and function.
A want is something that can improve your quality of life.
Using these criteria, a need includes food, clothing, shelter and medical care, while wants include everything else. However, these terms are more fluid than they appear to be at first glance, and some items can seem to fit into both categories. A good trick for dividing wants and needs is to let some time pass before fulfilling your desire for the item. The desire for a need grows stronger with time, while the desire for a want will weaken with passing time.
Listing your needs and wants
Now you can begin listing your own needs and wants.
Start with needs, including basics like food, rent or mortgage, as well as other fixed expenditures that are necessary for you to live and function, such as transportation costs and insurance coverage.
If you get stuck on a particular item and don’t know where to place it, hold it up to the following questions:
Do I really need this item to live and function?
Is it possible to fill this need in a less expensive way?
How would my life be different if this item were not a part of it? When you’ve completed your list of needs, you can list all remaining expenses in your category of wants.
Reviewing and tweaking your lists
After completing this exercise, review your list of needs to see if anything can be removed. Will you still need these items a few years from now, or even a few months from now? Can any of your needs be swapped for a cheaper option? For example, you may need clothing, but do you need eight pairs of designer jeans? Or, I may need a new vehicle but do I need the newest, most decked out SUV on the market?
Do the same for your list of wants. Which of them are only there because of pressure to keep up with others or look good? Which of your wants were more important to you in the past than they are today? Which are status symbols? Pare down your list until you’re only left with the wants that truly add value to your life.
Now that you know how to tell the difference between needs and wants, creating a monthly budget is simple. Assign dollar amounts to your fixed and non-fixed needs, set aside money for savings, and use the rest to pay for your wants.
Going forward, you’ll likely also have an easier time keeping your impulse buys under control. Before purchasing an item, ask yourself if it’s a need or a want. If the item is a want, consider its importance and other wants you’ve recently bought before going ahead with the purchase.
Separating wants and needs can be one of the most challenging parts of creating a monthly budget. Follow the steps outlined above to learn how to make the distinction between these two spending categories with ease.