Needs Vs Wants
It is one of the toughest aspects to understand about budgeting. Many people mistakenly categorize certain items as "needs" because they cannot imagine life without it. But when push comes to shove, many of your needs are actually wants.
Understanding Needs and Wants
Needs are things that you truly cannot live without. A person has very few true Needs. Needs can be broken down into two broad categories: Absolute Needs and Near Needs.
Absolute Needs are things that are critical for your basic survival and they are:
- Clothing (and I don't mean with a designer tag)
Near Needs include things like:
- Reliable transportation
- Personal care expenses
Once you understood what a true need is, understanding a want is easy. Virtually everything else falls into the category of a want and could be cut out if necessary.
Additional wants can even be found in my previously identified list of needs. So within each of the needs categories, there is almost always room to cut back.
Example: Internet at home is classified as a want, not a need. Most people associate internet as a need. But unless you work from a home office (in which case, your home internet might be a business expense), there is a good chance home internet is a want. (If you're using it primarily to check Facebook, watch YouTube videos, find recipes, and upload photos-it's a want)
The same is true for your cable television. Your Netflix subscription. Your iPhone. Your hair dye. These are all wants, not needs.
The key is to separate your wants from your needs so that you are more self-aware of how you are spending money. You can do this by creating your very own spending plan.
Distinguishing wants from needs will help you realize how much power and control you have over your own budget. If you are choosing to spend money on wants, you can easily choose not to buy those items and redirect your money elsewhere.