October 9, 2020
The important difference between “need” vs “want” in your budget!
Just thinking the word “budget” can give you a knot in the stomach or worse yet, a headache. There were days when I would become nauseous just trying to figure out my monthly spending plan. I had to change my mindset and realize I was not being restricted and as I did the plan became easier. Now, give me 15 minutes and I’m done for the month!! What are the short and long-term goals you can start adding to your plan?
A vital portion of our spending is becoming clear on what is a need vs. a want. You control what you spend money on and how much.
The difference between “need” and “want”
Need: Spending that is essential to you being able to survive. It is not the most fun way to think about it, but it works especially during the current situation many of us are in. Necessary spending includes basic food, a place to live, transportation to work or school, insurance, internet, and essential clothing.
Want: Spending is based on a desire for something that is not essential to survival. This includes cable, gym memberships, eating out, entertainment, travel, and designer clothes.
It sounds easy, but it gets hard when we use this to purchase an essential item, then justify upgrading the purchase way above the amount needed to meet our basic needs. Below are a few examples.
Is a car a “need” or a “want”?
If your car breaks down due to normal “wear and tear” repairs in your owner’s manual, can you fix it instead of buying a new car? If public transportation is not an option, your vehicle is a need. The question then becomes, should you purchase a new vehicle with upgrades that use nearly half of your take-home pay, or buy a slightly used car with little to no upgrades? Research and compare your options. If you’re in the middle of a storm currently it is much less costly for an $800 repair than a $500 monthly payment for 60 months.
Is my house or apartment a “need” or a “want”?
Generally, I would consider your house or apartment to be a “need.” After all, we need shelter to live. But you may classify it as a “want” if you are:
- Buying a home when you can barely pay your bills and don’t have savings
- Renting an apartment with extra space, even though you rarely have guests over
- Paying more in rent so you can live in the trendiest area that’s close to everything, instead of choosing a safe but less expensive apartment
What food is a “need” versus a “want”?
Food is also certainly a “need.” But that doesn’t mean that all food is a “need”! Except for perhaps chips and salsa! Here are a few examples that come to mind for me:
- Not having a meal ready when you are hungry or busy does not turn eating out into an essential expense
- If you are on a tight food budget, the more convenient the food item (pre-cut veggies, pre-bagged, pre-cut chicken, etc.), the more expensive the cost. It shifts the food from a need to want because you can buy a cheaper option. The cost of a whole chicken versus pre-cut chicken is almost twice. Vegetables are outrageously more expensive when pre-cut and bagged.
Are my clothing and travel a “need” or a “want”?
Needing a bag for your laptop does not justify buying that new Kate Spade or Coach bag, even though it’s really cute! Likewise, we certainly want to take a break from work, but not if it means going into debt and having a monthly bill for months after. Try a “staycation” in your area!
The last thing any of us want to do is feel like we’re not allowed to have fun or enjoy life. Separating your needs from your wants allows you to create a spending plan based on the most important things to you. Maybe by driving a cheaper car, the dream vacation happens in 3 years instead of 10.
Every money decision you make, no matter how small, will either get you closer to your goals or become a barrier to reaching your goals. Understanding needs and wants can help you prioritize how you spend so that you can reach your financial goals.
As my gift, I’m available for 1-hour consultations to answer questions, learn about your goals, and explain how coaching can bring you security and confidence with your money every month. Would you like help with understanding and creating your spending plan? Click HERE for my online calendar. Choose a day and time convenient for you.
