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As a financially oriented person seeking to achieve financial independence, it is imperative to learn how to prioritize your needs over your wants. However, the line between wants and needs could be sometimes blurry, and it can be difficult to distinguish which expenses belong in which category due to different reasons peculiar to each person. Whether an expense is a need or a want often depends on how and why you use it.
The things you need are the things you cannot do without, your necessities, which include; healthcare, food, shelter, clothing and other essential items. If you often purchase everything you feel like purchasing even when you don’t need them, it might definitely have a huge effect on your financial life.
According to Abraham Maslow’s hierarchy of needs. We see the Major needs of humans categorized into three, which includes;
- Self Fulfillment Needs
- Psychological Needs
- Basic Needs
Now, if your needs don’t fall into any of these categories, then they should be considered as wants.
Wants are things you choose to buy but could live without, such as:
- New clothing, shoes, gadgets
- Entertainment
- Travel
- Buying a Home
- Electronics
- Monthly subscriptions or memberships
- Cable TV or TV
- e.t.c
The key to budgeting your expenses is to become more aware of how you are spending money. This allows you to spend within your means and also makes sure that your spending aligns with your values and priorities.
For instance, the 50-30-20 budgeting rule of thumb allows you to spend 30% of your take-home pay on things you want.
If you use the 50/30/20 budget system, your expenses will break down to:
- 50% of your after-tax income goes on needs
- 30% on wants
- 20% on savings or debts
When you need to cut your spending to save money, eliminating wants is often the easiest and first place to make changes.
Needs often make up the biggest portion of your budget, especially if you are following the 50/30/20 rule. When you rethink how your needs look, you can often make the most effective change in your monthly spending.
Therefore, be more realistic in your budget and don’t list out the things you cannot afford. If some of your needs will make you spend more, you may want to consider looking at other alternatives.
