See the results of our 2022 Personal Finance Study!
Wants vs. Needs
At first glance, the difference between wants and needs might seem obvious: “wants” are things you want to have; “needs” are things you need to have.
But it’s more complicated than that.
Think about going to the grocery store. Food is a need, so anything you buy there is a need too, right? Nope. Soda, name-brand products, prime cuts of meat — all of these things can be done without.
When your budget screams for a tuneup, reducing “want” purchases is the best way to lower expenses without cutting the important stuff. The first step? Knowing the difference between wants and needs and identifying which is which in your budget.
Here’s how to do it.
What are ‘need’ expenses?
At their core, “needs” are the things that we have to have in order to live a healthy, happy life. However, if we’re honest with ourselves, often we can get by on a lot less than we do. In fact, there’s a whole movement of people who embrace extreme frugality and reduce their expenses to the bare essentials. They use the money they save to retire early. Nice!
For some examples of needs, we can turn to the renowned 20th century psychologist Abraham Maslow and his theory of the hierarchy of needs. According to Maslow, human needs can be grouped into five categories, with some more essential than others. The most basic of these are “physiological” needs — food, clothing, shelter, and health, for instance — and these are the ones that qualify as “needs” in a budget.
What are ‘want’ expenses?
Some clear-cut examples of “wants” are things like designer clothing, upscale dining, and sports cars. Without a doubt they’re luxury items, not necessities. However, many other purchases count as “wants” too: new clothing when old clothes are still in good shape, eating out instead of preparing meals at home, and paying for entertainment when free options (like checking out a book from the library) are available, for instance.
Of course, some would argue that “want” purchases are worth the cost, and this might be true, as long as those purchases fit into a balanced budget. The trouble comes when unnecessary expenses have you spending more than you can afford. Then it’s time to trim the fat — focus on the essentials and buy “wants” as funds become available.
How to tell the difference between wants and needs
The best way to tell the difference between wants and needs is to pause and reflect before making a purchase. Begin by asking yourself this question: Do I really, actually, truly need this?
But the trick is that you have to answer honestly, because sometimes you think you need things when actually you don’t. To get closer to the truth, ask yourself these two follow-up questions:
- What would happen if I didn’t buy this?
- What would happen if I bought a cheaper version instead?
Again, “needs” are essentials — pure and simple — and it can be incredible how many non-essentials you can cut from your expenses if you just try. Doing so might require a lifestyle change, but that’s not be a bad thing. (A more frugal life can be just as fun and rewarding as a more expensive one.) Also, you might be surprised by how little you miss something once you cut it out (and by how much you enjoy the thing that you find to take its place).
Another trick is this: If you’re not sure whether you can get rid of something, do it anyway, just to see what it’s like. Give it a couple weeks or maybe a month. If you find that you really do miss it, bring it back into your life and look for something else to cut.
Personal finance expert Josh Hastings
To shed more light on the subject of wants and needs, we spoke to personal finance expert Josh Hastings about his tips to help distinguish between the two.
“In 2019 needs have changed and can include things like access to transportation, internet and even cell phones,” Hastings said.
He raised an important question, however: “is the newest iPhone a want, or is it a need?”
The latest anything probably isn’t a need. Be discerning in how you choose to define yours.
According to Hastings, the first rule in determining if something is a need or a want is to consider the present value of an item versus its future value.
“A $10 gadget from the store could be worth $80 in 30 years invested,” he said.
Does your purchase pass Hastings’ litmus test? He added three additional criteria:
- Does it meet a basic need like food or safety?
- Will it be something you need in five years or would you rather save the money?
- Does the item make you happy and will it continue to do so?
If you’re unsure whether a purchase is a need or a want, go home and ask yourself these three questions. Sit on it for a few days. This will give you time to approach the purchase with a cool head.
Understanding the difference between wants and needs is a core component of financial literacy. It’s the basis for a healthy budget and offers an efficient, relatively painless way to reducing spending. Give it a try!
Josh Hastings is a former high school athletic director at the secondary level who shifted his focus in 2016 to focus more effort on his entrepreneur endeavors. In 2017 he founded MoneyLifeWax.com, a personal finance site dedicated to helping millennials with student loans. With an emphasis on money and finance behavior, Josh started Money Life Wax to help millennials realize there are other ways to make money and be happy in the 21st century. You can find him on Facebook at @moneylifewax.