Ever had to wonder where all your money went at the end of the month? Understanding the difference between needs and wants is something that many people struggle with. When preparing a monthly budget, it’s so important that both needs and wants are properly represented. Spending too much on either one will lead to financial issues that can be difficult to manage. Let’s discuss the difference between needs and wants and how to balance these for a more comfortable life.
Needs vs. Wants
What are the things in your life that you can’t live without? A roof over your head, gas and electricity in your home, transportation, and food to eat are all things that are essential for you to live and work. These are regular monthly expenses that we all have and typically take up the largest portion of your paycheck.
Wants, on the other hand, are the things that make your life more enjoyable and comfortable. Think of things like exotic vacations, designer clothes, entertainment, and luxury experiences; you don’t need them to survive, but you buy them for fun or leisure.
There is some overlap between what we need and what we want. For example, you need food to survive, but having dinner at a fancy restaurant a few nights a week is something you want. Another example would be that you might need a vehicle to commute to work, but a luxury SUV is likely a want and a more affordable vehicle could be just fine.
How to Budget for Both Needs and Wants
Your monthly budget isn’t just a way to break down your needs but should also include discretionary expenses as well. Before creating your budget, start by identifying what you spend your money on and separating your needs and wants.
One popular method of budgeting for your needs and wants is the 30 30 30 10 budget rule. This rule suggests that 30% of your income should go toward housing ( a need), 30% toward other needs, 30% towards savings or debt, and 10% towards your wants.
Spending too much on your needs means you aren’t giving yourself the chance to enjoy the money you’ve worked hard for. On the other hand, spending too much on wants puts you in a tough spot where you’re sacrificing your well-being for a lavish lifestyle that isn’t sustainable. If your current spending is leaning toward either side, you don’t have to worry because you can easily adjust your budget to make life more comfortable for you.
Are the things you consider needs actually needs? We often put a lot more importance on certain things in our lives than necessary. Take a closer look at what you’ve listed as your wants and needs to decide what can be moved around. What can you eliminate from your wants to make your life easier? By keeping track of your expenses, you can identify areas where you might be overspending and make adjustments accordingly.
Understanding the difference between your wants and needs and preparing a budget that considers both are the keys to achieving financial success.
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