Identifying Needs Versus Wants (Plus Examples of Each)

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You’re surfing the internet, and you see that fancy handbag, new iPhone, or brand-new video game. You think to yourself, “I absolutely need to have this!”

But do you need this? Or do you want this? What is the difference between a need and a want?

Some things in life are truly a need, whereas many things are wants. When we understand the difference, we learn to spend less money.

In this article, we’ll go over the difference between needs and wants, as well as provide examples and strategies for budgeting for each.

Let’s jump right in.

What is a Need?

When it comes to financial needs, consider factors that make up the essential expenses for you to be able to work and live. 

These are recurring expenses like your mortgage or rent, car insurance, food, utilities, and other basic costs that keep you alive on a day-to-day basis.

These are things you cannot survive without – the bare essentials.

Examples of Needs

Needs are composed of your most basic living expenses, such as things that are needed for your health and to get to work, which includes:

• Mortgage or Rent: Paying your mortgage or rent is the most important need you have, as, without this payment, you’d have nowhere to live.
• Food: Groceries are an example of a need as you need to eat to survive.

• Utility bills: Paying your utility bills is a need as you need electricity, water, and heat to live in your home.
• Healthcare: Taking care of yourself is a need, and this includes physical and mental healthcare to ensure you’ve living as healthily as possible.
• Work expenses; Having things such as transportation to work and whatever you need for your job are needs as you need to earn income to pay your other expenses and to save for your future.

What is a Want?

Wants are expenses that help you live comfortably and are defined as things beyond your needs. These are things or services that you purchase for leisure or fun. 

This means that you can live without these things but can enjoy life more by purchasing them.

Examples of Wants

There are many things that you may want to buy to live a more lavish lifestyle:

• Entertainment: Going out to the movies each week or subscribing to Netflix for the year aren’t absolute essentials for you to live. However, life can be a lot more fun when you’re able to get entertainment on a daily or weekly basis.
• Dining Out: Eating out at nice restaurants every day is a want compared to preparing food using what you buy from the grocery store. While take-out food may be nice and quick, it’s still considered a want, as it’s quite possible to make your own food for a lot less.
• Travel: Traveling is something that most can appreciate, but it’s not something that we need to live. A vacation now and then could be considered a need for mental health, but a lavish vacation is a want.
• Everyday purchases: To live inside a home comfortably, you may want a fancy TV, luxury vehicle, gadgets for your home, designer clothes, video games, and more. But none of these are needs as you can easily live without them.

There’s nothing wrong with wanting things. 

Wants help you have fun, keep entertained, do things with friends and family, or even create a better home life for your loved ones.

However, it’s crucial to live below your means and ensure you’re not spending too much money on wants if you’re not saving or investing money first.

What's the Difference Between Needs and Wants

The difference between a need and a want is to that a need is something you would not be able to survive without, and a want is something that would enhance your life but that you could still live without.

Your “needs” are simply the most essential things you need to live and work every day. Another term for needs is non-discretionary expenses. 

Another term for wants is discretionary expenses. You can cut out discretionary expenses and save money by enacting lifestyle changes.

Here are some examples to promote living below your means by cutting out some wants.

• Buy a certified pre-owned car. A 1-year old car can cost around 20% less than a brand-new car.
• Prepare your own food instead of eating out.
• Buy store brand at the grocery store instead of name brand.
• Cancel cable TV and use a streaming service

You can read dozens of ways to lower your monthly expenses here.

Are Wants and Needs the Same for Everyone?

Wants and needs are different for different people. 

For you, a car may be needed to get to work, whereas someone else can take the bus.

If you’re in sales, you might need a fancy suit and watch to look the part when you take clients or potential clients out to lunch. But, if you’re a software developer, a fancy suit and watch might be considered a want.

If you’re a stay-at-home mom that works, you might consider a powerful laptop as a need, so that you can keep up with work tasks. But, if you’re someone who works at an office and are provided a computer to work with, then having your own personal, powerful laptop might be considered a want.

How to Budget for Needs

There are many ways to budget for needs, and some people follow the 50/30/20 rule, which states that 50% of your money should go to needs, 30% should go to wants, and 20% should go to savings.

If you follow this system, you could consider dividing up your paycheck into three buckets; the 50% bucket is the money that goes towards your needs.

If you find that more than 50% of your income is going towards needs, then you may be living beyond your means.

In this case, your options could include lowering your living expenses by moving somewhere less expensive or by looking for ways to increase your income.

You can increase your income by getting a better job, asking for a raise, working more hours, or taking on a side hustle, as some examples.

How To Budget for Wants

As mentioned, the 50/30/20 rule is one way to budget for needs and wants. Following this system, you can consider 30% of your income for wants.

Of course, the numbers aren’t exact, but if you spend more than 30% of your income on wants, your discretionary spending may be too high.

Consider saving and investing more money in this case.

It should be noted that if you do make a lot of money from your job or a business you run, and your needs budget is very low, and you are already saving 20+% of your income, then spending more on wants is likely safe.

For example, if you make $50,000 per month from a lucrative business, and your needs run you $10,000 per month, and you invest $20,000 per month, that would leave you with $20,000 per month for wants. 

While some may find it hard to spend $20,000 per month on wants, others may not.

Focusing on Needs Instead of Wants Leads to Healthy Savings

It’s a good sign in your money life when you’re ready to focus on needs and not wants, especiallly if you struggle with overspending and not saving enough.

You can cut back on wants by reminding yourself that you don’t truly need what it is that you want. 

Ask yourself questions like:

• Will I want this item in 6 months from now?
• How will my life be changed in 6 months if I purchase this today?
• How will my finances be impacted if I buy this right now?

If you can’t think of positive things for the first two questions and if your finances would be negatively impacted by your purchase, that could be a sign that the purchase is a poor decision.

When you focus on needs, you instead can do things such as:

• Save money for an emergency, like missing work due to illness or if your car breaks down.
• Pay off credit card debt faster, saving potentially hundreds to thousands in interest payments.
• Invest for your future so you can retire more comfortably and sooner.
• Make a major purchase like a dream house.
• Help your kids with college money.

The 7 Day Rule for Wants

If you haven’t heard of the 7 Day Rule, it’s a strategy that can be used to help stop you from making impulse purchases and, as a result, save you from buyer’s remorse. 

You wait 7 days from when you decide you want to buy something before you actually buy it. 

In those 7 days, your impulse will likely fade, and you’ll decide you no longer want to make the purchase. This helps you save countless amounts of money if you struggle with impulse spending.

The idea behind it is that by delaying things before making a big purchase, you can avoid getting caught in the excitement of owning something new. 

This is a great principle to remember when you’re thinking about buying things such as:

• A new phone
• A new watch
• A new TV
• Booking a vacation
• High-end clothing for a special occasion

Moreover, you should research as you normally would and be sure to compare prices. 

There are various tools online that will let you compare prices, so be sure to do as much research as you can before making a purchase.

Once you’ve finalized your selection, it’s time to wait for at least 7 days before you spend your money. Once you reach the end of the waiting period, ask yourself these questions:

• Do you still feel the same about the product or service?
• Will it serve its purpose better than the other choices?

If it’s still in line with your budget and you are confident that it will be a good purchase, then continue and make the purchase. 

To help you along even further, you can add to this principle, where you need to implement the 7-day rule on all purchases above a certain price point.

Wrapping It Up

Many struggle to live within their means and focus more on needs rather than wants. It’s normal to want things and to buy things you want.

It’s only when you buy too many things that you want that it becomes an issue.

A final strategy is to pay yourself first before any wants are purchased. Transfer money from your checking account to your savings account or investing account when you get paid. 

From there, then pay your bills and spend money on your needs, and finally, spend money on wants.

How are you working on balancing needs and wants?