How to Understand the Difference Between Needs and Wants
Tips to help you prioritize your expenses
When creating a budget, it’s critical to think of needs vs wants. Needs are things that are necessary for survival — think food and shelter. Wants are things you decide to buy, but don’t actually need — think subscription services and new clothes. Here’s a helpful guide for understanding the difference between needs and wants.
Examples of Needs
Needs are expenses that are necessary for everyday life, like:
- Rent or mortgage
- Health insurance
- Car insurance and payments
- Utility bills
- Savings
- Groceries
Examples of Wants
Wants are expenses that aren’t vital to living, such as:
- Streaming services
- Vacations
- New clothes
- Entertainment
- Electronics
- Dining out
Now that you have some examples of needs and wants, go through your budget and separate your expenses into those two categories. This will help you see just how much of your spending is going to each. If you see that you’re spending too much on wants, try using the 50/30/20 rule.
What is the 50/30/20 Rule?
The 50/30/20 rule is simple: You break your budget into 50 percent for needs, 30 percent for wants, and 20 percent for savings. Using this rule will help you get your budget in order, and keep your wanted spending below your needed spending.
Do One Thing: Go through your budget and make sure your wants spending isn’t outweighing your needs spending. If it is, try the 50/30/20 rule to get things right.
Source: SavvyMoney.com