How to Budget Separately for Needs and Wants

There are some things which you do need, including having a roof over your head, having electricity to power up said home, having a car perhaps, and gas to power the said car. There are some things that you want such as movie tickets and gym memberships.

Here’s the good news! You can fit both of these into your monthly budget! All you need to do is to balance up your needs and wants.

And that is what we shall teach you to do in this article!
Find out what your Needs are

Let us start with what needs are, and how to differentiate them.

What are Needs?

These are the things that you absolutely need for survival. These are the bare minimum things which you require.

What does this include?

It includes things like home, food, clothing, rent, insurance, transportation, gas, electricity, power, utility, etc.

How to know if something is a Need?

Is it something you cannot do without? Think more on it. No, even if it is the latest movie, its ticket does not make it a Need, no matter how much you want it. Things that come from the emotion, as a rule of thumb, are Wants.
Find out what your Wants are

What are Wants?

Wants are like comfort food. These are expenses which allow you to have a life of comfort. These are also the things which you purchase for leisure. You can easily do without them, but these let you enjoy life more. For instance, you may not really NEED a cup of coffee at Barista, but if you WANT to have a good afternoon with your friends, it may be important for you.

A Need is having daily meals on the table at home. Bringing in takeout food or going out for dinner is a Want. You can do without the latter, but once in a while you may want to order takeout food or go out to eat at a restaurant.

What are some good examples of Wants?

Entertainment, taking vacations, gym memberships, designer clothes and coffeehouse drinks are some good examples of Wants.

By the way, did you notice something?

We included having a car in both Wants and in Needs?

Why?

 It differs from one person to another. What is a Need to you may be a Want for another, and vice versa. For instance, you may not be able to go to work without a car of your own, but another person may just want a car because he or she works from home or the office is very near. Here again, the type of car you may want differs too from one person to another. If you want to use it to ferry important clients to and from the airport, a luxury car is what you want. But if you just want to use it to go to the office yourself, a basic car may be what you want.

This holds true for small items too, such as basic articles of clothing, and luxury clothing.
Here’s how to budget for both your Needs and Wants

Well then, you have now learnt how to determine what are your Wants and what are your Needs. Now it is the time to figure out how to put them in your budget.

Start by writing all the things you spend money on per month. And yes, this is something you should do each and every month. And when we say write down, we mean note down everything from toilet paper to newspaper and everything in between. You can have as many categories you want, but keep it simple.

In the end, divide everything into two buckets: Needs and Wants. This means that while your home’s landline subscription shall come under Need, Netflix subscription is an expense which comes under Want. Most probably!

With this done, you add up everything and arrive at a total.

After this, it is time to budget the heck up. We recommend using the 50/30/20 budget. Under this budget model, you put 50% of your monthly income for meeting Needs, 30% for meeting Wants, and 20% of catering to Savings and Investments.
What if your budget is disproportionate?

In case you are facing this, there are a few tips you can use.

• Shake things up a bit: Look at your list again. You may have mixed Needs and Wants again!
• Trim your Needs down: For instance, choose the yearly subscription package instead of the monthly ones. That saves you quite a bit. Look for insurance which saves you money!
• Trim down on Wants: Mercilessly remove things you do not need, if these are taking a toll on your budget. For instance, really limit how many times you order takeout food.