These days when money is scarce, it is of utmost importance that we all understand the difference between needs and wants.
The difference between a need and a want is not as straight forward as you would imagine. A need is generally accepted as something that is extremely necessary for a person to survive whereas a want is something that as a person you may desire but is not extremely necessary for you to survive all lead a normal life.
Getting to glimpse with this can mean the difference between living a debt and stress-free life and miserable debt-ridden life.
I know from personal experience what it means to be so steeped in debts that you are forced to run away from debt collectors calls and letters. It is something that we could all do well to avoid.
This post has therefore been created to help you avoid the mistakes that led me to be steeped in debt. I can at this moment hear some who are saying, I am in debt already can this help me too?.
Ofcourse it can help you too as proper classification of wants and needs can help you come out of a debt crisis.
As pointed out earlier knowing the difference between the two is the key to unlocking the treasures of stress and debt-free life.
Successful financial management is the result of a proper balance of your wants and needs. It will help you prepare good family budgets and help you reach your financial goals easily.
So how do you differentiate between between the two.
Difference Between A Need And A Want
1. Needs Are Must Haves While Needs Are Things You can Do Without
To put it in simple terms a need is something you cannot afford not to have if you are to survive in this world. Needs include things like food, rent, etc. No one can survive without food or have a healthy life without proper and nutritious food.
Food and accommodation are must-haves for anybody and should be on the list of needs in any classification. I should, however, add that the classification is more of a personal decision as someone’s needs are sometimes someone’s wants.
Most people in the western world may look at things such as electricity as needs while someone living in the poorest parts of the world with little to no electricity access will treat this as a need.
By now you might have noticed that needs can be grouped into two groups, namely, physical and subjective needs. Physical needs are those that involve tangible or measurable things such as food, vehicles, etc.
Subjective needs are the intangible ones that are more to do with our sense of wellbeing mentally.
2. Needs Are Limited While Wants Are Unlimited
There is a limit to the needs in your life. You can easily list or your needs on an A4 paper. It does not take much to survive in this world. There is a limit to the food, housing needs, etc that you may require.
It is something else when it comes to wants as you can easily hop from one to another. You can have a Toyota Camry today and tomorrow you may want a Mercedes Benz. Our wants can easily become unlimited.
3. Needs Are Necessities While Wants Are Desires
Another way to distinguish wants and needs is to look at needs as necessities of life and wants as desires. As already pointed out needs included food which every one will agree is a necessity. We may argue about other things but I think everyone agrees that food is a need.
Whereas wants are the desires of life. One may say I want a car etc or might even say I need a car but in reality, you can still survive without a car.
As already pointed out hinted in previous paragraphs, a want is something you can do without. At this moment I am thinking about public transport versus owning a vehicle.
Due to the fact that public transportation is readily available, I would classify owning a vehicle as a want and not a need. I am however aware of the fact that in some parts of America, owning a vehicle is almost a need due to the poor availability of public transportation.
The classification between wants and needs is not set in stone. It depends on the situation of each individual. For instance, a billionaire like Bill Gates may my wants as needs. He may for example look at owning a private jet as a necessity or need whereas it is only a dream for me.
Related Post: Why Should We Save Electricity?
Senator Elizabeth Warren’s 50/30/20 Budgeting Rule
As I have pointed out earlier it is not enough to differentiate between wants and needs if it does not benefit you in your personal financial planning.
This is where Senator Warren’s 50/30/20 budgeting rule comes in handy as it proposes another way of classifying wants and needs.
The 50/30/20 budgeting is found in the book, “All Your Worth: The Ultimate Lifetime Money Plan” that Senator Warren wrote with her daughter, Amelia Warren Tyagi in 2005.
The rule proposes that we all devote half (50%) our net income to our needs and then splitting the remainder between wants (30%) and savings (20%).
While I am not a fan of suggesting formulas to people I think this formula can help most people to budget their income responsibly.
Most of us do not save enough and as a result, we get exposed in an emergency. I am at the moment thinking of the coronavirus epidemic shutdowns that have led to millions losing their jobs.
For those that have little to no savings, this has been a very trying time. There are literally millions that are at the moment struggling even to pay for their house rent.
All of us need to seriously consider having some savings for such times. This is more so to us who are parents as we have kids to look after in these difficult times.
It is embarrassing for us parents to start visiting the food banks after having worked full time for decades.
To be really honest most of our expenditure goes to things that can be termed wants and not needs. We are all stretching our finances thin on the latest phones, Television sets, vehicles that we really do not need.
Marketers appear to have found new ways of making us feel we are nobodies until we buy the latest stuff.
I would urge you to take an inventory of your properties and determine if you really need them. Take a look at your latest phone and cars and compare it to the cheaper versions on the market.
You will be surprised that there are so many things about these latest gadgets that you really do not need.
For example, I rarely notice the difference between the latest phones’ photos and older versions’ ones. To be honest I rarely take photos anyway.
It is time to start being frugal in our expenses. Happiness does not come from material things. We can be happy without the “shiny” objects in life.
I have some budgeting quotes to inspire you on your personal finance journey.
Examples of Wants and Needs
Below are some examples of needs:-
Below are examples of wants:
- luxury cars
- state of the art phones
- designer clothes
Other Steps You Can Take To Take Advantage of the Distinction Between Needs and Wants To Reduce Your Spending
This is a personal finance blog, it there follows that we need to spell out some lessons we can learn from this distinction to help us manage our personal finances effectively.
1. Ensure that Your Needs Do Not End Up into Wants
There is always a risk that things that are genuine needs can easily turn into wants. I am thinking for example about automobiles for example.
One can happily be driving a small car but then sees that his neighbor is driving a top of the range car. And as it happens in this competitive world he may decide that it is time to buy a top of the range car too. Lets he decides to buy a Tesla Model S.
Depending on your income a Tesla Model S could be termed as a want. You are therefore moving from a need i.e. an affordable basic car to want in the form of a luxury fast car.
This can even apply to food too. Food is usually very affordable in the western world but going out to an expensive restaurant is a want.
I have heard of restaurants where you can easily spend hundreds of dollars for a family meal. While this is nothing to a millionaire it is definitely not a necessity for the average American who struggles to focus money for rent.
Another expense that can easily turn to a want is housing. You may, for instance, be living in an affordable part of a city but due to peer pressure, you can decide to move to an expensive part of the city. In this case, the need may turn out to be a want.
Clothes are a necessity for almost every one of us but when you decide to buy designer clothes then you are moving into the wants area. You do not need a designer shirt as cheaper options can serve the same purpose.
I should add however that someone else’s wants maybe someone else’s needs depending on our incomes.
2. Do an Audit of Your Current Expenses To Distinguish Your Needs From Your Wants
Sometimes it only takes one to sit down and analyze his current expenses to realize that some of his expenses that he used to consider as needs are not really that. I would therefore advise all of us to seriously consider reviewing our expenses.
I did mine a few months ago and discovered that I had all sorts of subscriptions that I really didn’t need. Actually, I had some online magazine subscriptions that I rarely used. I, therefore, decided to cancel most of those subscriptions.
During my audit, I also felt that I really did need my cable television subscription. I was paying around $100 a month on this. Due to my financial situation, I felt that this was no longer a need.
3. Determine In Your Head Before You Buy A Thing To see Whether Its A Need or Want
Sometimes it takes a couple of minutes of holding back and thinking before your purchase to see whether you really need it. Impulse buying is something that we should all seriously try to avoid as it can easily mess up our finances.
There are experts who advise that sometimes it may be necessary to go home first and not just buy something out of emotions. At home, you may discover for instance that you already have the item in question.
A little bit of thinking can also reveal to you that you have other needs that are more important than what you wanted to buy.
4. Be Satisfied With What You Already Have
If there is one thing that causes people to run into all sorts of financial problems is the fact that most of us are not satisfied with what we have. We look at our furniture and desire to have even better furniture.
It is alright if you have the resources and if your furniture is worn out but if you are stretching out yourself financially when you don’t have to then it is a big problem.
Advertisers know of this weakness in human nature and therefore will make you feel that you need to upgrade your furniture or car. It could also be a question of peer pressure where you want to have the things that your friends have.
We really need to seriously start to “close” our eyes to other people’s gadgets and wealth. Instead, we need to learn to be satisfied with what we have and not have to go into these unnecessary competitions.
5. Choose carefully the wants in your life
As I have already pointed out while needs should take priority it does not mean that one cannot have wants in life. You however need to be careful about the choice of wants you need in your life.
In deciding you need to take into account your current financial situation. It makes no sense to spend money on things you don’t need when you are deep in debt.
In the case of too much debt, it is only wise that you try to avoid spending money on things you don’t really need. This is a time when you need to actually start getting rid of or reducing some of the wants in your life.
Debt is something we should all endeavor to avoid. And in cases where you are in too much debt then the best course of action is to try to clear this debt.
If your financial situation is alright then there is no problem in giving yourself a treat sometimes. This could be like going on a dream vacation to the Maldives or the Bahamas.
As long as this doesn’t lead you to more debt then it should be alright. Life is short and therefore needs to be enjoyed.
I have you have learned all you need to learn about needs and wants. The effort to make the distinction between your needs and wants can help you save a lot of money. This is because you will be able to get rid of some wants that are not adding value to your life.
This is however a personal choice as we all have different interpretations of wants and needs. Someone’s wants can be someone else’s needs and vice versa.
The poor man in the jungle may see electricity as a luxury whereas it is a necessity for almost everyone in the western world.
A jungle person may look at clothes as a luxury as he has never used them while to most of us it is a necessity.
I have shared my side of the story on this topic of a difference between a need and a want and it is now up to you to analyze what I have said and decide. I hope you will decide to reduce your spending on wants.
In that way, you will be able to live within your means and not have to worry about debt collectors troubling you with their phone calls.
Please fill free to provide your take on this issue whether it is positive or negative. As long as there is no abuse we will all be fine.