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What’s The Difference Between Needs And Wants?

wants and needs drawn in chalk

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We’ve all been there — you see a fancy new iPhone out in the market and you just need to have it at all costs. This is where many people seem to have a problem separating their needs from their wants. In these cases, a “back to basics” approach is the best thing you can do to re-evaluate where you stand financially. In this article, we’ll discuss the difference between needs and wants which will help you better reach your financial goals.

What is a Need?

When it comes to financial needs, you need to consider factors that make up the essential expenses for you to be able to work and live. These are recurring purchases that will likely take up a lot of your salary and as a result, won’t leave much in your pockets. If applicable to you, think about your mortgage, car insurance, or life insurance as needs since they make up the most fundamental parts of your financial plan.

Examples of Needs

As explained above, needs are composed of your most basic living expenses, things that are needed for your job, or anything necessary for your health, such as:

  • Mortgage or Rent: This is one of the most important areas in your personal finance goals. Meeting the due date for your rent means that you won’t have to pay late penalties while paying off your mortgage on time will allow you to keep your investment.
  • Food: Groceries and other supplementary foods required for your health are all examples of this expense.
  • Utility bills: Paying your bills on time will ensure that you will always have everything you need at home — from electricity, water, and gas.
  • Healthcare or Therapy: If you’re living with any kind of condition or illness, having money for your healthcare and medications is essential.
  • Work: Things like your work uniform as well as your transportation to and from work are also part of your important needs which should be prioritized.

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What is a Want?

Wants are part of the expenses that help you live comfortably and are defined as things beyond your needs. These will usually be items 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 thousands of things that you may want to buy but can live without, like the following:

  • Entertainment: Going out to the movies each week or subscribing to Netflix for the year aren’t absolute essentials for you to live and work. 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 the ingredients you bought from your groceries. 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.
  • Travel: Traveling is something that anyone can appreciate but it’s not something that we need to live and work smoothly. This is something that many people want but because of its high costs, not everyone can afford it.
  • Everyday Purchases: To live inside a home comfortably, we’ll want to buy a TV, refrigerator, HVAC system, and other pieces of furniture and appliances. However, we can still live and function without these items, which makes them a want, rather than a need.
  • Designer Clothing: In general, clothes can be considered as a need, because no one will be able to live and go to work without clothes. On the other hand, labeled clothes and other expensive accessories aren’t needed for everyday functions.

Wanting things isn’t bad — these are generally pleasant things to have and can even help you to accomplish your goals. Some of these may help you to have fun, stay in touch with loved ones, or even create a better home for you and your family. However, these aren’t crucial to our survival or well-being which is why they are classified as wants and not needs.

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What's the Difference Between Needs and Wants

The best way to determine the difference between your wants and needs is to take some time to reflect on the product or service before you make a purchase. Start by asking yourself the question: Do you need the product or service you’re after? While this may seem easy at first, it can get quite tricky when you want a particular item.

To truly get to the bottom of things, here are two more questions to ask yourself:

  • What could happen if I didn’t buy this item?
  • What might happen if I opted for a more affordable version?

It’s best to remember that your “needs” are simply the most essential things you need to live and work every day. Once you find out just how many non-essentials you can cut from your daily expenses, you’ll see just how easy it is to save money. This will require a lifestyle change but this isn’t necessarily a bad thing, because a simple life can be just as rewarding and fun as a more expensive one.

You can also try this trick: If you’re unsure whether you can live without something, in particular, get rid of it anyway and see what living without it is like. Try living without that item for a few weeks or even a month. If you find that you truly miss that item, then keep it and find something else that you can cut off.

Are Wants and Needs the Same for Everyone?

Naturally, your wants and needs will be different from others — for you, a car may be a need to get to and from work every day but the kind of car you use may be up to your wants. For example, if you’re simply driving to the office and back, then you probably only need an affordable car. But if you’re driving clients of utmost importance from point A to point B all day, you’ll probably need a luxury car.

The same principle can be applied for smaller-ticket items such as clothing — getting the latest shoewear isn’t an essential part of life, but it may be something you want. While outerwear is needed to protect you from the climate outside, a new jacket is most likely wanted if you already have three perfectly good coats in your closet.

How to Budget for Needs

If you think that you’re not allocating your budget efficiently and healthily, be sure to move things around. Unfortunately, you could be spending too much on things that you don’t need and as a result, you may forget the more important, recurring monthly expenses. If this is the case, there’s no need to give up on your wants completely. Instead, you can do the following:

  • Only eat out during certain days of the week instead of every day
  • Try going on affordable trips instead of full-blown vacations

When the time comes that you need to cut on costs to save money, the easiest place to start is with your wants. Be sure to cut off a few of these to ensure that you have enough in your budget to support the things that truly matter. Here are just a few examples of cost-cutting solutions if you want to save for your needs:

  • Instead of going to the gym, you can quit your membership and start running around your neighborhood to exercise.
  • If you’re paying $1,500 a month for your rent, you’ll save so much money just by doing the following:
  • 1) Getting a roommate
  • 2) Moving back in with family temporarily
  • 3) Moving to a smaller house or apartment
  • If you need to commute to your workplace every day, there are plenty of things you can do to save on gas and parking, such as:
  • 1) Biking
  • 2) Walking
  • 3) Using public transportation
  • 4) Carpooling with neighbors or coworkers

If you follow the 50/30/20 rule, you’ll be able to simplify your budget, where 50% of your earnings goes towards your needs, while 30% of it goes towards your wants. Finally, the remaining 20% should be designated to go to your savings or to pay off any debt. While these limits aren’t going to be exact, consider redoing your budget if you still find yourself spending more than intended.

How To Budget for Wants

Budgeting for wants is tied to how you budget your needs. As discussed above, applying the 50-30-20 rule is an efficient and easy way of keeping track of your budget and once you work out how much money you need for your essentials and savings, you'll be able to set aside money for your wants.

You may initially think that the goal of this philosophy is to minimize spending on your wants when it only aims to help you reach a healthier balance in your spending habits. Just because you’ve categorized a particular expense as a want doesn’t mean that you have to cut it off completely. As long as you’re able to maintain your spending within budget, you will be able to meet your needs and enjoy your wants.

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How To Save Money by Focusing on Needs Instead of Wants

When you realize that you want to stay focused on saving up for needs rather than buying all your wants, it is a sign that you’re ready to make the change. Here, the next important question arises; How do I shift my focus from wants to needs? The first thing to do is to check if there’s anything that you can eliminate from your routine or list of wants. Ask yourself the following questions:

  • Are you able to pick out other options for your wants?
  • Will you need these things after a few months or even years?

For example, an emergency fund should always be a top priority to help you come out relatively ahead of unexpected events. A few examples of these could be getting a tooth repaired or needing to replace your car battery. As a financial freedom seeker, you will need to be prepared no matter the emergency.

Setting aside a designated savings account for emergencies can help to keep it out of sight and out of mind, so you won’t be tempted to spend this money. Be sure to do the same for your wants and ask yourself if your wants are more important to you today or a few weeks ago? Create a list of things that you can do without, and remember that these will have corresponding benefits, such as:

  • Quality over quantity: You’ll have less wants but have more money for nicer things you want
  • Saving for the future: You’ll be able to achieve your long-term goals such as buying your home

Again, keep in mind that before you purchase an item, always ask yourself if it’s an absolute need or just a want. If you can determine that it’s a want, make sure to assess its value along with your other wants which you’ve recently bought before you finalize your purchase. It’s also best to keep in mind that people’s needs and wants will vary depending on where they are in life.

An absolute need for you may not be the same for someone else, and what others may consider a need might just be a want for you. While you travel in your journey towards financial freedom, the basics have already been laid out above. Be sure to follow these recommendations to learn how to manage both categories easily while commanding control of your budget.

The 7 Day Rule for Wants

If you’ve never heard of the 7 Day Rule yet, now’s a good time to start practicing. This strategy can be used to stop you from making any impulse purchases and as a result, saves you from buyer’s remorse. All you need to do is to give yourself a “cool-off period” of 7 days before you decide on making a purchase that’s over your budget.

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 making purchases such as:

  • A new phone
  • A new watch
  • A new TV
  • Booking a vacation
  • High-end clothing for a special occasion
  • A new set of pots and pans

Moreover, you should research as you normally would and be sure to compare prices. When you do find a product you want, always try to negotiate and get the best price possible. 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 hard-earned 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 serve your intended purpose, then there should be nothing to stop you from making 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 ranging between $100 to $1,000.

Once you’ve mastered this, you can then increase the waiting time to 14 days for bigger purchases of over $1,000. If you’re panic buying or impulse buying because you’re worried about missing out on a great deal, there’s no need to worry because there will always be a new deal. Remember that holding on to your budget and your values are much more important compared to anything material.

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Wrapping It Up

Many people will try to get their hands on all things that sparkle, often forgetting to prioritize their needs over their wants. What’s worse is that there are times when the line between these two will often disappear, making it hard for everyone to discern which products and services belong to which category. Luckily, by following a few simple rules and some expert advice, you can be back on the road to financial freedom.

Remember, there are times when you can save to get both your wants and your needs — it just means that you’ll get less of your wants for more quality. Moreover, whenever you get the urge to buy something that’s not within your budget, always reflect on the product and wait 7 days before committing. This will help you sidestep any land mines that may stand between you and your goal towards financial freedom.

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