To achieve financial success, it’s important to learn how to differentiate between needs and wants. So, how can you determine if it’s something you need versus something you want?
Needs are expenses that are required and necessary such as shelter, food, and clothing. A car may also be a need for work purposes, however, be mindful between necessity and luxury. You may need a car to get to work but want a more expensive SUV. Is the more expensive option necessary to accomplish the actual goal of transportation?
How to Differentiate Between Needs and Wants
Our mind begins to blur the line between needs and wants. It’s easy to choose between needing food to eat versus wanting the latest electronic gadget. It gets a bit more difficult when you’re comparing the need for a car and a 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 in mind, it may be good to meet the need and postpone the luxury want later.
Understanding Your Money Mindset With Needs and Wants
For example, if you need a watch and your finances are in order, then buying a Movado instead of a Fossil may be okay.
The best rule of thumb is to make sure that your needs are covered and your preferences are only met if it’s affordable. A budget is a useful tool to determine and prioritize your needs and plan the future purchase of your wants. If you’ve budgeted for your preferred brands,
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.
It’s ok to buy things you want but make sure you can afford it without placing your financial future at risk.
3 Questions to Determine Needs vs. Wants
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 that may be helpful in distinguishing between needs and wants.
- Ask yourself, “Do I need it?”
- Ask yourself again, “Do I need it now?”
- Then ask yourself, “What will happen if I don’t have it?”
Replace “it” with the item you want/need to purchase. By asking yourself these three questions, it 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 tend to 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.