In these days when money is scarce, it is of utmost importance that we all understand the difference between a need and a want.
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 a 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 a proper classification of needs and wants can help you come out of a debt crisis.
As pointed out earlier knowing the difference between needs and wants is the key to unlocking the treasures of a stress and debt free life. Successful financial management is the result of a proper balancing of your needs and wants. 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
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 person you may desire but is not extremely necessary for you to survive all lead a normal life.
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. Noone 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 untangable ones that are more to do with our sense of wellbeing mentally.
How about a want?
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 poor availability of public transportation.
The classification between a need and a want is not set in stone. It depends on 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.
Senator Elizabeth Warren’s 50/30/20 Budgeting Rule.
As I have pointed out earlier it is not enough to know the difference between a need and a want unless 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 strugggling 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. 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.
Examples of Needs and Wants
Below are some examples of needs:-
Below are examples of wants:
- luxury cars
- state of the art phones
- designer clothes