Needs versus Wants
Whether you’re making a budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition, finding money to save or investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition, or deciding priorities during tight times, separating your spending “needs” from your “wants” can help.
A “need” is something you must spend money on in order to get by. For most people this would include rent or mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition payments, groceries, utilities, and medications.
“Wants” are more personal. These are things you might be spending money that aren’t essential to your day-to-day living. This might include things like movie tickets, the newest cell phone, or dinners out.
Reasons to think about needs versus wants
If you’re looking for ways to reduce your expenses, asking “do I need this or do I want it?” will help you prioritize.
This is an important part of budgeting. Needs should be included in your budget first. Then, you’ll have a sense of how much spending room you have for wants. You might also free up more money to put towards savings.
Your needs and wants can change over time. For example, if you change jobs and work closer to home, your spending needs on transit or gasoline may shrink. The next time you review your budget, reflect on whether your needs have stayed the same.
Wants are personal
Wants are important — they are often the things that bring us pleasure. They may allow us to participate in social events or enable us to have memorable personal experiences.
If you’re spending within your budget, it’s okay to keep some wants in your spending. However, if your budget truly is tight, then another step might be to brainstorm ways you can include wants while spending less. For example, browsing the online library catalog and selecting books or videos for hold might provide similar excitement as filling an online shopping cart.
Include the whole family
Involving your children in assessing needs and wants can help them learn about money management. It doesn’t require adding sums or doing complex calculations. For example, young family members can join “needs versus wants” conversations while shopping at the grocery store or when browsing online.
Write down the most important needs you must spend money on this month. Next, write down the wants that you can go without if money becomes tight, or you need to find money to save.