Need Vs Want: Personal Finance Basics

Human life is full of desires. Each new day brings new aspirations in our life. We try hard to fulfill those throughout our life.

But have we ever hold back and thought about our constant endeavor to achieve everything we desire? Running behind every desire of life can take a toll not only on one’s peace of mind but also on financial wellbeing. We must understand what are the things which we require for living a peaceful life. We should also analyze what are those things for which we stressed out so much and that are not actually needed.

Our desires or aspirations can broadly be classified into two terms:

Needs and Wants

These terms are the stepping stone in understanding the process of Financial Planning. Before making your yearly budget, fixing of investment product and before setting effective and reachable financial goals one should understand the difference between the terms Needs and Wants.

Let’s understand these concepts in detail.

What is Need? :

Needs are those items which we are essential for our survival. Food, clothing, and shelter are three basic needs. In the old days, they were the essentials. But in the modern world, many more things are added in the ‘Need’ category i.e. education, healthcare expenses, transportation, entertainment, etc. The money we spend on our needs is considered as essential spending.

What is a Want?

Wants are those items which we feel happy to possess. They are the things that help us to live comfortably such as electrical and kitchen appliances, high variant cars, a big house with all modern amenities, etc. They make our life easier and happier. There is a very thin line between Need and Want. It’s a subjective term. One’s want maybe someone’s need. Definitions may change person to person.

But for a healthy financial life, one must understand how to segregate needs and wants. Having a roof on the head is a need. But spacious flat in a lush locality with all modern amenities is a want. Having a mobile phone is a need but desiring an iPhone 7 is a want. Possessing a car in the modern world is a need but running behind luxury cars will be a want. The examples are many. It is up to the person to categorize his/her desire to need and want.

Does it mean dreaming for luxuries is not good? Not at all. Life is meant to be lived and not survived. Treat yourself with those wants along the way but only when you can afford it and enjoy those wants only as of the extras.

How to balance between need and want?

Once you understand the difference between need and want you will learn to prioritize them. If you strike a balance between need and want your finances will be sorted out. How to balance them?

1. Appreciate what you have :

Take time to reflect on all the ways that we have been blessed. The list will make you more confident about yourself. Then decide what is more important for you and then go after it.

2. Make your monthly budget. Once you have an idea of what you spend in a month, you can begin to organized your recorded expenses into a workable budget. The budget will help you to plan your spending and limit overspending.

3. Apply the 50/30/20 rule :

One can apply the 50/30/20 budgeting thumb rule in the spending pattern. According to this rule, 50% of your spending should be on your needs, 30% on our wants and 20% on your savings and debt reduction.

In the first place, you may find 50/30/20 rule difficult to apply. But after practicing this rule you will get used to it. According to some financial experts, you should save at least 30% of your disposable income. This is an ideal situation. Initially one can start with a 20% saving target. As you receive your monthly income keep aside 20% of it. Now you have 80% of your income left, now pay for your necessities first then spend the rest amount on wants.

If we keep this rule in mind and allocate the given proportion of monthly salary to our Needs, Wants, and savings segments we can save from our income. The allotment of monthly income in given heads will make sure that we control our spending. Our Needs are taken care of properly, and we don’t spend much on Wants.

This way you can have control on your finances as well as fulfill your desires. So if you have self-control on spending pattern, managing finances would be a lot easier. Learning and understanding the difference between Need and Want makes things simple. We can easily come to know where we spend unnecessarily. This exercise helps us to alter our spending pattern and ultimately increases our saving.

Wealth creation does not depend only on the income you earn but it mainly depends upon Your Attitude. Your sincerity, patience, and perseverance towards achieving Financial Freedom make a difference.