Differentiating needs vs. wants in your budget

Whether you’re just getting into budgeting or you’ve been doing it for ages, one thing will always be true: Every budget has things we need and things we want, and knowing the difference between the two can make all the difference to your budget. Read on for a breakdown of needs vs. wants and how you can account for both in your monthly budget.

Needs

A need has to do with survival: food, shelter, transportation, and utilities. These four expenditures are things we cannot do without.

Our food budget that is classified as a “need” means food at the grocery store. Eating out is usually a want, because while it’s necessary to eat, it’s not necessary to eat at restaurants.

Shelter can mean different things, but we’re going to use it to refer to anything that keeps you safe at night — so for this purpose, a place to sleep is considered shelter. Whether you’re paying rent or a mortgage, it’s necessary to be able to rest easy, cook a meal, and sleep well. You also need to budget for utilities as a need, including electricity, gas, phone, and water.

Transportation comes in many forms: a car payment, bus tickets, parking downtown for your job, ride-shares, or even a bicycle. Whatever it takes to get you to and from work is a part of your transportation budget, and that includes any maintenance costs associated with getting you from point A to point B.

Relatedly, insurance for many of us is a need, so you’ll want to put that is the needs category if you pay for your own.

Wants

Budgetary wants include everything else outside of the four needs outlined above. Entertainment, (new) pets, eating out, movies, sporting events, and shopping are all things that would fall into the want category. If it doesn’t involve survival needs, then the budget can be decreased for your benefit.

There are things that may be a need on a temporary basis. For example, you may start a job and you need to wear a uniform or specific clothes. So, you might need to add a few dollars to your clothing budget, but do so on a temporary basis. Renting equipment or borrowing from family or neighbors can also be helpful for the things you may need on a temporary basis, like for repairs or unexpected travel (think of things like tools, seasonal items, books, household appliances like steam cleaners, or luggage). Just remember that it’s OK to move some wants into your needs budget as needed, but when the funds are not available, that is when it’s time to adjust the budget.

There is nothing wrong with adding your wants into your monthly budget. It’s just important to remember that if things must be cut, it’s your wants that go first. As your income grows and more funds become available, move your wants into your budget because you can afford it. You can budget for entertainment or eating out, but when money gets tight, you can immediately cut those extra wants and save a little cash.

After you’ve made your budget, go down the list and make a note beside each one indicating whether it’s a want or a need. Prioritizing your budget items will make it easier to know where you need to trim or omit expenses in the event you need to.

This might be a new way of looking at your expenses, and it can be tough to adjust to. 

Finally, if you’re trying to move some items from your wants list to your budget, ask yourself a couple of these questions:

• Do I have money in my budget for it?
• Can I buy it cheaper somewhere else?
• If I wait, will it become less expensive?
• Can I live without it?

It’s important to remember that there is no right or wrong answer to how you spend your money, only educated decisions. Your budget can be a living, breathing document that you adjust and update as your circumstances change; the important thing is that you’re budgeting — and that you’re accounting for those non-negotiable expenses to ensure you have a safe place to stay, enough food to eat, and a way to get around.