Some things are important to have in life, and other things are nice to have. When it comes to finances, it’s important to make a distinction between the two of them.
And while it may seem like there’s a simple distinction between our needs and wants, our emotions can sometimes cloud our judgment on finances. Continue reading to find out how to set a reasonable budget that takes into account both your needs and preferences and how to treat them as separate entities.
How to determine your needs
When you establish a budget, your essentials are the things that you need. Needs vary by individual, but some of the basic necessities can include food, housing, health insurance, and transportation. It’s pretty much everything you need to survive and function in modern society.
For example, if you need to wear a special uniform or clothes at work, those items would be considered to be necessary. Likewise, you would need a car to drive to work. But if you live in the city and take the subway to work, then a metro pass would be considered essential. Housing necessities such as gas and utilities, and the internet, are also needs.
How to determine your wants
Everything else is a want. That cute sweater you saw in the store? Those new headphones for sale on Amazon? Those are wants. They started as things that made life easier and have since become everyday items for many people. Such things as magazine subscriptions, travel and entertainment, trips to the nail salon, and even gym memberships are some examples. Wants aren’t always frivolous spending- but they can be things that you cannot do without.
Keep in mind that wants and needs are not the same for everyone. In customer service positions, you may be required to wear the company’s logo or wear a suit to work every day. In that case, you could choose those types instead. Nevertheless, if you work from home and don’t meet clients in person often, you may not need a formal suit, but it may be nice to have one.
Don’t confuse your needs vs wants
Although we have a strong emotional side, budgets and numbers are can be somewhat dry and boring. Though we may sometimes be slightly emotional about them, we can still be compassionate and considerate. This is especially true if we become muddled between what we want and what we really need.
It is common to want something or to really feel attached to something. If you want to get your finances under control, it is essential to identify those feelings and not let them take over your life. I am not saying that just because you want something, you cannot have it. On the contrary, you can have it!
Having things in our lives that make our lives more enjoyable gives us pleasure. Rather, I urge you to be realistic with your spending. Getting an accurate idea of what you can afford will help you manage your personal finances more effectively. Don’t let your emotions influence your want into a need!
Wondering how to match your needs with your desires? Here are some examples.
Examples of needs
Examples of wants
How to budget for both your needs and wants
Now that you understand what you need vs what you want, it is time to learn how to budget for both types of expenses. It’s important to make sure your needs are met.
Nevertheless, you should also budget your finances to make sure that you can afford both or at least some, depending on your needs.
1. Identify your wants and needs
The first step in managing your needs is to identify them. Refer to previous examples in this article to see what your needs are.
Write them down in two columns; one for your wishes and one for your needs. Take your time to do this activity to make sure you are not getting your wishes and needs mixed up!
2. Categorize the most important needs
Now determine which needs are most important. Arrange your priorities list to arrange the most significant items first.
These are the ones you should always prioritize in your budget. These are the requirements you should always be able to accommodate in your budget.
3. Determine which wants take priority
Do the same procedure as in Step 2 and choose what’s important to you. Choose which desires are most important to you. If you can’t afford to buy everything you want now, determine which items to buy first.
It is acceptable to designate rewards over time for the needs you might have that will take some time for you to afford.
4. Create a budget
Once you know your requirements and preferences, you can set a budget! There are a number of different budget styles available, so choose one that works for you.
Get clear on your needs vs wants!
Mixing your needs and desires is very human. However, emotional buying is not beneficial for your budget. If you want to reduce your expenses, you must fully evaluate your needs vs. wants. But be sure to be patient with yourself!
We all make errors. Budgets can always be revisited and improved. So if you find you are spending more than you earn, you should cut back on your wants to correct the next month’s budget shortfall.