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Jul 10, 2024

Needs vs. wants: how to budget for both

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When deciding how to spend their income each month, most people have to make some trade-offs between what they need and what they want. But the difference isn’t always clear, and what counts as a need vs. a want varies for each person. When you’re making your budget, you’ll need to distinguish between necessities and discretionary expenses so you can make informed choices about how you spend your money.

Whether you’re looking for ways to save money, trying to break the cycle of living paycheck to paycheck, building an emergency fund, or creating a long-term financial plan, it helps to know where you really need to spend money and where you can reduce expenses on nice-to-haves. 

Here’s what we’ll cover:

Defining your needs vs. wants

Every time you spend money, you’re either satisfying a need or fulfilling a desire; sometimes, it’s both. By developing a clear understanding of what needs vs. wants mean to you, you’ll be better equipped to make intentional decisions about your spending, saving, and investing. 

Needs: essential expenses for survival and functioning

Needs are the essential items and services required for basic functioning. They form the foundation of our daily lives; without them, we’re unable to live and work effectively. Everyone has different needs depending on their lifestyle and circumstances. As you think through your expenses, keep in mind that what counts as a need is very personal. Consider the things you really require to stay healthy, happy, and functioning. 

Common examples of needs include:

  • Food: Enough food and nutrition to sustain your health and energy
  • Shelter: A safe and secure place to live, whether it’s rented or owned
  • Utilities: Basic services like electricity, water, and heating
  • Transportation: Reliable means to commute to work, school, or essential activities
  • Healthcare: Access to doctors, prescriptions, and emergency care
  • Childcare: Safe care for children so you can work or go to school 

Wants: discretionary expenses that enhance quality of life

Wants are the non-essential things that add comfort, enjoyment, or luxury to our lives. They’re not necessary for survival, but can significantly improve your quality of life. Sometimes wants are obvious, like luxury items or little treats that you know you’d enjoy but won’t be pained by going without. Other times, however, something that seems like a want to other people might be a need for you to maintain your health, ability to work, or emotional well-being. 

Common examples of wants include:

  • Dining out: Enjoying meals at restaurants or ordering takeout
  • Entertainment: Movies, concerts, hobbies, and streaming services
  • Luxury goods: High-end gadgets, designer clothing, and premium products
  • Vacations: Travel and accommodation for leisure and exploration
  • Shopping: Feel-good treats like clothes, decor, cosmetics, and collectibles
  • Services: Amenities like spa treatments, house cleaning, and car detailing 

Examples of needs vs. wants in different categories

To better understand the distinction between needs and wants, let’s explore some specific examples across various budget categories.

Housing: basic house or apartment (need) vs. luxury dwelling (want)

Paying for a basic roof over your head is a need, but choosing a luxury house or apartment with high-end amenities is more likely to be a want. While the former ensures shelter, the latter enhances comfort and prestige. Your actual needs for housing depend on your lifestyle, so you’ll need to consider what features of a home are really must-haves versus added luxuries. 

Food: groceries (need) vs. dining out (want)

Purchasing food to prepare meals at home satisfies the need to get basic nourishment. On the other hand, dining at restaurants or ordering takeout is often a want. As long as you have the time and ability to cook at home, dining out is usually a discretionary expense that offers convenience and extra enjoyment.

Transportation: public transport or basic car (need) vs. luxury vehicle (want)

Using public transportation or owning a basic, reliable vehicle ensures you can get to work and other necessary destinations, which is a need. Opting for a luxury car, with advanced features and aesthetics, is a want that adds status and comfort. Your actual transportation needs vs. wants depend on factors like how much time you have to travel, your level of mobility, and the size of your household. 

Clothing: basic wardrobe (need) vs. designer clothes (want)

Having appropriate clothing for work, weather, and important occasions is a need. Buying designer clothes or adding extras to your wardrobe is often a want that caters to your personal style and social status. That’s not to say that more expensive clothing can’t be a need; depending on your job and social/family obligations, you may require high-end clothes. 

Healthcare: doctors and medication (need) vs. elective procedures (want)

Access to healthcare is a fundamental need, whether it’s visiting a doctor, getting prescriptions, or going to the hospital. Elective procedures, like cosmetic surgeries or non-essential treatments, are wants that enhance appearance or comfort. Distinguishing between needs vs. wants in healthcare can be tricky for people with chronic conditions or disabilities; what’s important is identifying the things that you need for the highest quality of life. 

Creating a budget with needs and wants in mind

When you start building your budget, you’ll face the challenge of deciding how to allocate your money for expenses as well as saving and investing. By breaking down your expenses into needs vs. wants, you can decide how much of your income you want to devote to wants and whether you’d like to cut back on some discretionary spending in order to fund your savings goals, get out of debt, or build your retirement fund.

List your income and expenses

Start by tallying up all your monthly income. Be sure to include any money that comes in from things like side hustles, child support, or government benefits. 

Next, list out all your expenses and group them into budget categories. You might want to review your bank and credit card statements from the last several months to be sure you’ve captured everything you spend money on. Now go through your list and identify which expenses are needs vs. wants. 

Finally, compare your income to your expenses. If you’re spending more than you earn or if you want to put more money toward savings or debt repayment, you’ll likely need to reduce your spending on wants. 

Allocate funds for needs first

As you plan your monthly spending, ensure all your needs are fully covered before allocating any funds to wants. Within each budget category, determine how much money you need to cover your necessities. And if there are entire categories that fall into the wants bucket, don’t plan funding for them at all until you’ve allocated money for every need. 

Plan spending and limits for wants

It’s important to make room for discretionary spending in your budget. Without satisfying some of your wants, you’re likely to feel deprived, which can lead to impulse spending that derails your financial plans. As you go through your wants, consider which of those expenses most improve your quality of life; you may want to prioritize them to get the most bang for your buck. Set realistic limits on discretionary spending so that you’re indulging your wants enough to be gratifying without sacrificing other priorities like saving or paying off debt.   

Balancing needs vs. wants in your budget

Not many people can afford to just buy whatever they want, whenever they want. That’s why it’s so important to understand your personal needs vs. wants when budgeting. It enables you to ensure your necessities are covered and empowers you to make thoughtful decisions about discretionary spending. 

Remember that there’s no hard and fast rule about what counts as a need vs. a want. Your circumstances determine which expenses are necessary for your daily functioning and which you could reasonably go without. By balancing needs vs. wants, you’ll be able to create a budget that supports your priorities for spending money now and saving for the future.  

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Written by

Tara Blaine

Tara Blaine draws on over 20 years of experience as a writer to translate seemingly complex financial ideas into insights readers can put to work in their everyday lives. She’s written personal finance education materials for numerous institutions, helping customers learn smart techniques for budgeting, overcoming debt, saving money, and planning for their long-term financial health.


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