BudgetingManage Money Articles

The Difference Between Needs and Wants: How to Tell Them Apart

Knowing the difference will help you prioritize spending to achieve your goals.

Learning how to differentiate between needs and wants is important for achieving financial success. Because it influences how you budget, prioritize goals, and make decisions.

How can you determine if something is a need or a want?

Needs vs. Wants: The Differences

Needs encompass the essentials required for survival, well-being, and basic functioning. These are the fundamental elements necessary to sustain life and maintain a reasonable standard of living.

Examples of needs include:

  1. Shelter: A safe and comfortable place to live.
  2. Food and Water: Nutritious sustenance to fuel the body.
  3. Clothing: Appropriate attire for protection and modesty.
  4. Healthcare: Access to medical services and medications.
  5. Education: Basic literacy and numeracy skills for personal development.
  6. Transportation: Means to travel for work, education, or essential errands.

Wants, on the other hand, are desires or luxuries that enhance the quality of life but are not indispensable for survival. These items or experiences often provide comfort, convenience, or enjoyment but can be foregone without jeopardizing basic needs.

Examples of wants include:

  1. High-End Electronics: The latest smartphone or gaming console.
  2. Luxury Vacations: Exotic getaways to dream destinations.
  3. Designer Clothing: Fashionable apparel from prestigious brands.
  4. Gourmet Dining: Fine dining experiences at upscale restaurants.
  5. Entertainment Subscriptions: Premium streaming services or club memberships.
  6. Extravagant Vehicles: Luxury cars or recreational vehicles.

Tips for Distinguishing Between Needs and Wants

  1. Assess Necessity: Evaluate whether an item or expense is essential for survival or enhances quality of life.
  2. Consider Long-Term Impact: Reflect on a purchase’s lasting benefits versus temporary gratification.
  3. Budget Mindfully: Allocate resources first to meet needs before indulging in wants.
  4. Practice Delayed Gratification: Pause before making non-essential purchases to discern true desire versus impulsive urges.
  5. Prioritize Financial Goals: Focus on achieving long-term objectives such as savings, debt repayment, and investments over fleeting desires.

The Mindset Behind Needs versus Wants

Our minds begin to blur the line between needs and wants. It’s easy to choose between needing food to eat and wanting the latest electronic gadget. It gets a bit more difficult when you compare the need for a car to the want for a luxury vehicle.

The major difference between needs and wants is simple.

  • Needs are things you have to have.
  • Wants are things you would like to have.

Knowing the difference between needs and wants will help you prioritize purchases that make financial sense. If you’re struggling financially or have other goals, it may be good to meet the need and postpone the want later.

Steps to Affording Your Needs and Wants

Step 1: Create a Budget

Develop a comprehensive budget that allocates funds for needs, wants, savings, and debt repayment.

A budget is a useful tool to determine and prioritize your needs and plan for your wants. If you’ve budgeted for your preferred brands, then, by all means, go for it. If you are still working on reducing debt or saving money, find the fiscally responsible alternatives to the things you need and hold off on the wants.

Step 2: Establish Emergency Savings

Build an emergency fund to cover unforeseen expenses and prevent financial strain. Often, buying wants keeps us from saving in an emergency fund. You’ll need these savings to cover expenses that aren’t planned but are likely to occur.

Step 3: Differentiate Between Short-Term and Long-Term Goals

Prioritize needs and allocate resources accordingly while saving for wants as part of discretionary spending. The best rule of thumb is to make sure that your needs are covered and your preferences are only met if it’s affordable.

Be specific about your financial goals, so you reach them.

Step 4: Shop Smart

Seek value and quality in purchases, opting for cost-effective alternatives without sacrificing utility or satisfaction.

Paying more for something is not a wealthy mindset. Get the best product for the lowest price possible. Shop around and use shopping discount portals like Rakuten and rebate apps like Ibotta to save more. Then, use the savings to fund your goals.

Step 5: Monitor Spending Habits

Regularly review expenses to identify areas where spending can be optimized or reduced.

Small purchases can go unnoticed, and monthly expenses can creep up. Stay on track by monitoring your expenses. Use expense tracking provided by your financial institution or download one of the best budgeting apps to do it all for you.

Pause Before Making a Purchase: Ask These 3 Questions

In my book, You Only Live Once: The Roadmap to Financial Wellness, I introduced a series of questions to help you spend better. Here are three questions to distinguish between needs and wants.

  1. Ask yourself, “Do I need it?”
  2. Ask yourself again, “Do I need it now?”
  3. Then ask yourself, “What will happen if I don’t have it?”

Replace “it” with the item you want/need to purchase.

Asking yourself these three questions will help you determine what’s needed versus what’s wanted. Simply asking the question, “Can I afford it?” may lead to purchasing regardless of the desire.

The “Can I afford it?” question may sway your mind to find ways to “afford” it regardless of your current financial situation. Keep the focus on your long-term financial well-being.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *