There’s a significant difference between needs and wants when you decide to spend or invest your money. Everybody’s needs and wants vary.
“Need” is something without which you can’t live. For example, food, clothes, house and such others.
“Want” is what you like or wish to do/possess, but possibly can do without it. For Example, you want an iPhone, even though your current phone works well. A want is something you can afford, but you don’t need it.
It is vital before you make a decision and start making a budget that you understand if your desire fits in the “Need” category or in the “Want” one. It is the simplistic approach and the core step to financial planning and budgeting. You must periodically evaluate your spending patterns fairly and critically.
Need Vs Wants- Understanding Concept is Important
Needs are vital things without which you can’t live such as food, shelter and conveyance. These are the pillars of daily life.
On the other hand, the wants are things that can improve your status in society and mostly are thus status symbols. One can do without them. Skipping them won’t cause any significant disruption in your life. Expensive holidays, dining, cars, houses, articles of clothing, phones and such others, the list is endless.
Every individual’s preferences and requirements can be different. For example, if a professional wears a suit every day, this formal wear is a need for him.
Your rents, debt payments, clothes, food and kitchen items, groceries, and utilities such as water and electricity, are necessary. Medical care or Health insurance, for example with heavy medical expenditure these days has become a need. By concept, if you had all those things, you could live peacefully without mental exertion.
Consider the following examples before classifying your requirements into wants and needs, it may smoothen your decision making.
- Although food is undoubtedly a requirement, a dinner at a sophisticated steakhouse will be a want.
- What about buying in a supermarket or preparing food with more expensive brands instead of getting the ingredients you need and making yourself?
- One would argue that transport – whether the Metro or any vehicle – will be sufficient to carry the children to school, so long as it can get to work.
- Purchasing a fancy luxury car definitely falls under the category of want, particularly when you have a perfectly good vehicle standing in your home.
- Perhaps to buy a new car because the old one has broken-down is a need. But what about taking cabs daily, can be a little quicker than the local train?
When you spend too much on mortgage or rent to stay in a larger house or at a more expensive location, even a need as necessary as the shelter will drift into the danger zone. You have to decide in which group your requirement falls.
Also, try breaking a given cost. For instance, if your city’s average house rent is Rs 15,000/-, but you’re paying Rs 20,000/- so that you can stay near the park, you could place the first Rs 15,000/- in the “need” column and find the remaining Rs 5,000/- to be the want.
It is prudent to avoid falling into the pit of overspending on your wants under the pretext of meeting essential needs. It’s damaging and wasting your hard-earned money if you fall victim to this pressure. While it’s ok to spoil yourself occasionally, doing so regularly could lead to futuristic financial difficulties.
Budget Planning- 50-30-20 Rule
Try and make your budgeting simpler by adopting the 50-30-20 rule. It perceives that 50% and 30% of your budget will be structured to suit your needs and save on the remaining 20%. Such self-imposed restrictions can help you refurbishing your budget if you invest too much on one of them.
The concept here is to decrease your expenditure on desires. The goal is that your spending patterns should strike a healthy balance. Once you plan your budget efficiently, you can fulfil your requirements adequately.
If you think your budget is a little uncomfortable, adjust things. So much is spent on frivolous things by many, and other needs are overlooked daily. Giving up your dreams is not the option, saving for them is prudent. Seek a cheaper break, or skip eating out, it can work well.
The possible way is to ensure that you can afford what you want. Be careful about your spending and, most importantly, be honest about your desires. We all want luxury in life, but the people who plan well are the people who get the most out of what they want.