One of the most important parts of setting up a monthly budget is separating needs from wants. Before assigning dollar amounts to any categories, it’s important to know which parts of your monthly expenditures are an absolute need, and which items would be nice to include, but are not a necessity. Many people find this particularly challenging, and many even give up on budgeting when they can’t move past this step.
Fortunately, it doesn’t have to be this way. Below, we’ve outlined how to tell the difference between wants and needs, as well as how to separate these two categories on a monthly budget plan.
Defining needs and wants
Aneedis something that is necessary to live and function.
Awantis something that can improve your quality of life.
Using these criteria, a need includes food, clothing, shelter and medical care, while wants include everything else. However, as you’ll find when creating a budget, these terms are more fluid than they appear to be at first glance. While working through your lists, you may find that some items can fit into both categories, making the process confusing.
A good trick for dividing wants from needs is to let some time pass before fulfilling your desire for the item, either theoretically or practically. The desire to obtain a need only grows stronger as time passes, while the desire to fulfill a want will weaken with passing time.
Listing your needs and wants
Now that we’ve defined each of these budget categories, you can begin listing your own needs and wants.
Start with your needs, including the basics, like food, rent or mortgage, as well as other fixed expenditures that are necessary for you to live and function. Those things may include transportation costs, health insurance coverage and any clothing or tools you need for work.
It’s important to note that needs will vary from one person to another, and even for one person at different stages of life. For example, a family with two working parents who live in a community where there is no reliable public transportation may require two vehicles. Conversely, a family living in a city with several dependable transportation systems may list a second car as a want. Similarly, a four-bedroom home may be a need for a family while they’re raising several young children, but turn into a want later when the kids go off to college.
If you get stuck on a particular item and don’t know where to place it, hold it up to the following questions:
- Do I really need this item to live and function?
- Is it possible to fill this need in a less expensive way?
- How would my life be different if this item were not a part of it? When you’ve completed your list of needs, you can list all remaining expenses in your category of wants.
Reviewing and tweaking your lists
After completing this exercise, review your list of needs to see if anything can be removed. Will you still need these items a few years from now, or even a few months from now? Can any of your needs be swapped for a cheaper option? For example, you may need clothing, but do you need eight pairs of designer jeans?
Do the same for your list of wants. Which of them are only there because of pressure to keep up with others or look good? Which of your wants were more important to you in the past than they are today? Which are status symbols? Pare down your list until you’re only left with the wants that truly add value to your life.
Now that you know how to tell the difference between needs and wants, creating a monthly budget is simple. Assign dollar amounts to your fixed and non-fixed needs, set aside money for savings and use the rest to pay for your wants.
Going forward, you’ll likely also have an easier time keeping your impulse buys under control. Before purchasing an item, ask yourself if it’s a need or a want. If the item is a want, consider its importance and other wants you’ve recently bought before going ahead with the purchase.
Separating wants and needs can be one of the most challenging parts of creating a monthly budget. Follow the steps outlined above to learn how to make the distinction between these two spending categories with ease.
FAQs
Needs are anything required for human survival. Food, water, and shelter and basic human needs. Wants are anything people would like to have, or desire. A bicycle or a cell phone are examples of wants.
What are the list of wants and needs? ›
Food, water, clothing, and shelter are all needs. If a human body does not have those things, the body cannot function and will die. Wants are things that a person would like to have but are not needed for survival. A want may include a toy, expensive shoes, or the most recent electronics.
What is an example of a need and want? ›
Here some examples of things that most people would likely consider to be needs and wants: Needs: food, water, shelter, sleep, clothing, medicine. Wants: fancy cars, expensive clothes, big houses, luxurious vacations.
What are the characteristics of needs and wants? ›
A need is something that is necessary to live and function. A want is something that can improve your quality of life. Using these criteria, a need includes food, clothing, shelter and medical care, while wants include everything else.
What is the difference between a want and a need of money? ›
Effective money management is based on a realistic evaluation of individual and family needs, wants, values, goals and resources. A need is something that is necessary, such as food, clothing or shelter. A want is something you would like to have, such as a new phone, video game or bike.
What is the difference between customer needs and wants? ›
Want – A want is a future experience that people desire. Need – A need is an experience that people don't want. Something they need help to change or avoid. In simple terms, a 'want' refers to a desire or preference that is not necessarily vital for survival or basic functioning.
How to identify your needs and wants? ›
If you're finding it difficult to identify your needs, try making a habit of checking-in with yourself several times in the day. Ask yourself, “what do I need, right now?” Normalise tuning into you and your needs. When you're trying to connect with your needs, it can help to tap into Wise Mind.
How do you determine wants and needs? ›
Some needs to consider are food, rent or mortgage, utilities, and other expenses. Transportation costs, insurance coverage, and any clothing and tools you need for work are included in this part of your budget. A want includes expenses that you can comfortably live without and is not essential for survival.
What is the needs and wants rule? ›
The 50/30/20 budget rule states that you should use the following percentages of your income to allocate your spending: 50% on needs. 30% on wants. 20% on savings and debt1.
What are 10 examples of wants? ›
Examples of wants that people would like to have is financial monitoring, saving time, higher paying job, more comfort, healthier diet, physical fitness, spirituality, friendship, companionship and safety.
Designer clothes, expensive vacations, and luxury vehicles are examples of wants. These goods are not essential for living, but people want them to better their lives.
What are examples of basic needs? ›
Basic needs typically refer to the fundamental support and resources people need to survive. Examples of basic needs include food, shelter, transportation, clothes, clean water, education, mental and physical health, and access to quality health care.
How do you differentiate between needs and wants? ›
Difference Between Needs and Wants
| Needs | Wants |
|---|
| Satisfy basic physiological and safety needs | Satisfy higher-level psychological and social desires |
| Examples: food, water, shelter, clothing | Examples: luxury items, entertainment, travel |
| Non-fulfillment leads to distress or harm | Non-fulfillment leads to dissatisfaction |
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This category will vary from person to person, but common wants include getting drive-through coffee, streaming services, and travel. A need is something that is necessary to live and function. (Think: food, clothing, shelter, pet expenses, and medical care.)
How do you classify your needs and wants? ›
Needs are commonly separated into two categories: physical needs and psychological needs. Wants are commonly material goods, but can also fall into the physical and psychological categories. Physical needs are those things that are necessary for survival, such as food, water, clothing, and shelter.
What's the difference between I want you and I need you? ›
"I want you" can be easily said because it is for you to serve the pleasure of the person who wants you; "I need you" is not easily said because it is selfless and an acceptance of someone else's importance and value beyond you. I need you carries weight and responsibility.
What's the difference between wanting and needing someone? ›
Wanting a relationship, he said, is saying that's our preference. Needing one, in contrast, is like saying we can't live without it. We need food to survive.
What is the difference between a want a desire and a need? ›
To summarise, needs are those things that are essential for our survival and well-being; wants enhance the quality of life but are not essential; and desires are things we crave but may not be able to afford.
What is the difference between want and require? ›
It can be driven by an individual's wants, emotional or physical well-being, or personal goals. 'Require', on the other hand, is more commonly associated with external factors, such as rules, regulations, prerequisites, or conditions set by others or by specific situations.
