Needs vs. Wants

The dictionary defines a "need" as a requirement, necessary duty, or obligation, and a "want" as to feel a need or a desire for; wish for. Those two words “to feel” make a big difference when you're setting up a budget.

Almost everyone knows the difference between a need and a want. They just don’t use this distinction to help them make financial decisions, which is why most people are living beyond their means.

You actually need very little to survive. Food, Clothing, Shelter, and maybe Companionship just about cover the basics. People get in trouble when they start augmenting these needs with unrealistic wants.

Let’s use Food as an example. You need to eat healthy and nutritious food to live. You want to eat steak or sushi or a nice pasta dish. When, in fact, peanut butter and jelly sandwiches will get you by for lunch, and a turkey sandwich provides just as much nourishment as an order of Unagi or California Rolls. The PB&J and the turkey sandwich cost less than a dollar if you buy everything you need and make them at home. Whereas, sushi and steak may cost you a large portion of your paycheck.

The bottom line is that you need to evaluate each purchase you make and decide if it is a need or a want. Try to take care of all of your needs first, and if you have any money left over (after a regular savings deposit), then treat yourself by indulging a want.

CAUTION: Watch out for impulse buying. It eats your cash fast and fails to satisfy both your needs and wants.