Distinguishing between needs and wants seems like an easy task. Needs are food, water, shelter, and clothing, while everything else, especially items of luxury, can be categorized as wants. But if we’re asked what our needs and wants are, the line between the two tends to blur. Hence, many of us struggle to budget and save money.
But are needs and wants a black and white subject? Excluding the apparent needs of every human to survive, how should we determine the rest of our needs and wants? Let’s find out.
Identifying Needs
Financial needs are essential expenses that enable us to live and work. They usually consume the most considerable portion of our income.
Below is a breakdown of the essential expenses we typically incur every month:
- Food
- Housing
- Transportation
- Utilities
- Insurance
While insurance is considered a necessity, it can be controversial, as low-income individuals tend to regard them as a luxury. Premiums are just way beyond their budget ranges, so they may not strive to invest in them anymore, as they’d instead prioritize other indispensable expenses.
On the other hand, food, housing, and transportation can be interpreted differently, depending on one’s income level. For example, if you receive a high paycheck every month, is it vital to eat at fine dining restaurants every month? How about the sports car you’ve been eyeing for a while now? And do you need another vacation home?
Where Needs and Wants Meet
Before we identify what wants are, let’s first analyze where the line between needs and wants meets. Prateek Vasisht, the editor of TotalFootball and the Business Design Rover, recommends drawing a matrix that separates the following four categories:
- High-priority needs
- High-priority wants
- Low-priority needs
- Low-priority wants
You can also make a list of “Must-Haves,” “Could-Haves,” “Should-Haves,” and “Won’t-Haves.” By sorting your needs and wants using any of those two methods, you can find where the line between your essentials and luxuries meet, and you can finally budget for those expenses based on how important to you each of them are.
Here’s an example if you’re still a bit confused. If you’re choosing between renting an expensive apartment in an upscale city and buying a home in a well-developed, suburban area, compute how much you’ll spend for a monthly rent vs. the payments for a highly favorable reverse mortgage loan. In this scenario, a house is a high-priority need, but the glamorous neighborhood in an upscale city could be a high-priority want. However, is it worth it to pay thousands of dollars for a home you don’t own, just because you love its location? That’s how you can figure that your income is better off spent in a place you can call your own.
Identifying Wants
If needs are the things we need to survive, wants are the things that make us enjoy life. We can live without them, but it would be hard to feel alive.
Sadly, though, many of our wants just destroy our budgets. Your $100 cable connection is one — if you’re only watching on Netflix, then why are you still paying for your cable? The same can be said about a gym membership when you can always buy equipment and work out at home.
Other wants are the following:
- Travel
- Entertainment
- Designer Clothing
- Takeouts (coffee shop drinks, delivery meals)
- Vices (booze and cigarettes)
- Pricey cellphone plans
Often, we reason out that these things are part of Maslow’s Hierarchy of Needs, and therefore cannot be given up. While it may be impossible to let go of most of these wants, at least reduce your spending for those. Our material possessions shouldn’t define happiness; it’s by how we find contentment in the things we already have.
