Everyone is extraordinary and unique in their own ways. We all have diverse backgrounds that encompass a wide variety of knowledge, skills, and interests. Our differences lead us to have our own set of financial needs and wants.
Over time, these needs vs wants change. The things you view as necessary today are much different than 20 years ago, just as they’ll evolve over the next 20 years, too.
To achieve financial security, you must juggle living for today while preparing for your future. This balance gets achieved by becoming clear on the things you demand and the items you desire.
It’s important to know the difference between your needs vs wants. It allows you to reduce unnecessary spending to save more money. Both of these improve your financial position and help you achieve your long term goals faster!
These are the essentials. The things you must have.
Your necessities are best explained through the hierarchy of financial needs. The first stage is financial survival and it’s characterized by the items humans require to live.
Your financial needs consist of some of your largest expenses, like housing and food. But also include other necessities, like clothing for warmth.
Many of these expenditures are fixed, meaning they don’t fluctuate from month to month. They are easy to budget for and it’s possible to reduce the amount you spend on each.
For example, consider your housing expenses. You can lower them by moving into a smaller, less expensive space or renting out a bedroom. Some people choose to lease out extra space through apps like Neighbor, too. All which reduce your expenses and increase your savings!
Since our financial needs change over time, we must anticipate them by planning ahead. Prepare for these expenses by incorporating them into your monthly budget.
Forecasting your needs and saving for them in advance is less stressful than looking for money when you are under pressure to find it.
Once your financial needs get met, stop spending on these categories. More consumption leads to ‘The Turning Point,’ the moment when your needs turn into wants.
Financial wants aren’t vital for survival. These expenses are variable and change from month to month. They include your creature comforts, things like hobbies, entertainment, and travel.
Financial wants provide greater ease and more comfort in your life.
These luxuries are different for everyone. Yet, we all strive to have more of them as a way to increase our sense of life enjoyment.
Financial wants vary throughout life. They come, go, and sometimes, re-emerge.
As a teenager, I focused on enjoying life by being involved in many sports and leisure activities. After college, my attention turned towards my goals and reaching financial freedom. Now, my primary concentration is back on my hobbies and goofing off!
It’s normal to want things, we all do. Unfortunately, many people’s wants are out of control. They experience lifestyle creep and some spend money on things they don’t even use!
Most people have trouble determining what is enough and when to stop. They continually want more. But, more is not a destination that can be measured and therefore, ever reached.
The key to determining your own needs vs wants is prioritizing your money to maximize your happiness.
Your monthly budget is one of the most powerful personal finance tools. It allows you to stay organized and plan your spending according to both your needs and wants.
Start by listing out all your expenses. Then, separate them into two different categories, needs vs wants.
Review the things you deem are essential. How can you reduce each of these expenses?
Next, focus on your wants. Rank them in order from the most to least important. Next to each, list the monthly amount you allot for it.
Finally, review your actual spending and compare it to the amount you budgeted.
Many people discover they spend more on items that are of lesser importance. They adjust and decide that consuming more in the areas they ranked highest will result in greater happiness! Then, they trim expenses in less meaningful categories.
Also, review your budget regularly. It ensures you are spending according to your needs vs wants and working towards your financial goals!
Personal Capital is my favorite place to keep track of my money. You can sync your accounts and set up a budget in minutes. Sign up now and receive up to $20 in FREE money!
Consider each of the following before you buy:
Needs and wants depend on one thing – you. They are based on your consumption, your budget, and how you define your overall financial wellbeing.
Take the time to determine what your personal needs vs wants are. It’s the easiest way to reduce unnecessary spending, save money, and increase your happiness!
Which of your wants is most important to you? Comment below.
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