Have you ever seen a new jacket in a store window and thought to yourself, I need that jacket? Did you stop to ask yourself why you think you need it? Do you not have a jacket? Would this jacket protect you in a way your others currently don’t? If the answer is no, then it turns out you want the jacket, not need it.
Sometimes, it’s difficult to decipher between wants and needs, especially when there are sales or limited-time offers on something you see and like. Read on to learn more about their differences so that the next time you see something you like you would like to buy, you can make an informed decision.
Defining needs and wants
A need is something necessary to live and function.
A want is something that can improve your quality of life.
Using this criteria, a need includes food, clothing, shelter and medical care, while wants include everything else. However, these terms are more fluid than they appear to be at first glance, and some items can seem to fit into both categories. If something could be a need or a want, try letting some time pass before fulfilling your desire for the item. A need’s desire often grows stronger while a want may weaken. Purchasing things without determining if it’s a want or need first can become costly…quickly. To avoid going over budget, practice the 50/30/20 rule.
The 50/30/20 rule
Everyone’s wants and needs are different based on their income and lifestyle. The 50/30/20 model makes it easy to ensure you meet your needs and still have money left to spend on wants. To follow the rule, look at your income and break it up so that:
50% goes toward needs
30% goes toward wants
20% is allotted for savings and debt repayment
To put it into real-life context, if you have a salary of $50,000 a year, your take-home amount after taxes is approximately $39,000. Breaking that down further, your monthly income is $3,250. That means $1,625 is for needs, $975 can be for wants, and you should save $650.
Pro tip: With an MSGCU You-Name-It Savings Account, you can open separate accounts for your needs, wants, and savings and name them accordingly for easy managing.
For more information about wants and needs from real educators, sign up for our free Getting Real with Saving and Spending workshop.
Listing your needs and wants
Now that you understand their differences, you can begin to list your needs vs. your wants.
Start with needs, including basics like food, rent or mortgage, as well as other fixed expenditures that are necessary for you to live and function, such as transportation costs, insurance coverage, and utilities.
If you get stuck on a particular item and don’t know where to place it, ask yourself 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, repeat this exercise with your 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?
Do the same for your list of wants, paring down your list until you’re only left with the wants that truly add value to your life.
Now that you have your lists, you can use the 50/30/20 rule to assign dollar amounts to your categories. If a want or a need exceeds your monthly amount, revisit your list(s) and cut down where you can.
For easy dollar assignments for your wants and needs, download our budget worksheet.
Here to help
If you would like more assistance breaking down wants vs. needs, we’ve got you covered. From one-on-one guidance with a certified financial counselor, to interactive education, to workshops and blogs, we provide education that works for you.
Category: Finance
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