Do I need it? Or do I just want it?
I really need those shoes. I really need that new video game. We all do it, we are in a store, on Amazon, or at a friend's house and see an item, and all of a sudden you MUST have it and you think you really NEED that item.
But do you? In order to have a more purposeful financial mindset it is important to learn the difference between NEEDS and WANTS.
A quick Google search of the definitions of ‘want’ & ‘need’ show the following: Need — require (something) because it is essential or imperative rather than desirable.
Want — desire to possess or do (something); wish for.
Let's really dive into the difference between needs and wants and then we will talk about why knowing the difference is important to building financial literacy and building your budget. What are financial needs and financial wants?
A financial need is a budget expense that is essential to live and work. Financial needs typically eat up the largest portion of your paycheck and include things like:
Clothing/tools for work
A financial want is a budget expense that will better your life but you can actually do without. Financial wants are those things that you buy for fun or leisure. You could live without them but you enjoy life more with them. 'Wants' can vary from person to person, some examples can include:
The newest cell phone
In the last post, we talked about tracking expenses, Now, look over all the items and places your money went toward. Take a piece of paper and draw a line down the middle, label one side NEEDS and the other side WANTS. Divide all your expenses into needs and wants.
Be truthful here. Placing things like housing, insurance, and basic internet under needs and Netflix, and deluxe cable and phone plans under wants. Ask yourself questions like:
Is this a basic need? Is this essential to living a healthy life?
Will not having this cause me any sort of harm?
Will this make me happier and/or healthier in the long run? Is it an in-the-moment expense or will it serve a purpose 2-5 years from now?
Will this move me closer to my goal of financial independence?
By acknowledging and learning to differentiate your needs, from your wants you will gain financial literacy and be more equipped to set up a budget to help you spend mindfully. This will also move you down the path closer to financial independence.
Needs and wants will differ from person to person. Let me know in the comments below what your needs and wants are.