Needs and wants, what is the difference? Understanding the difference, between needs and wants, is crucial to good financial decision making.
What is a Need?
A need is a requirement, or essential item that is considered to be necessary for living. Examples include shelter, food and water, and clothing. These are essential for a person’s health and safety. If needs are not met in a timely manner, they can lead to illness and inability to function properly. Needs are essential for survival.
While the three most basic needs are food, shelter, and clothing, in modern society, education and healthcare have also become important. All these things are essential for everyone.
What is a Want?
Something you desire, but don’t need is a want. It typically improves your quality of life. You can think of a vacation, jewelry, entertainment, and maybe that new designer handbag. A person’s wants are anything you would like to have, now or later. Individual wants can vary and may change from time to time. Our desires can be infinite, and unfortunately there are only limited means, so we need to find alternatives.
How do you Understand the Difference between Needs and Wants?
Certain needs are easy to identify. These are essential elements that you must have to survive. You might then say that everything else is a want, and not a need. But it is not that simple. For example, some people view owning a car as a necessity. Others consider it a luxury, since they could walk, ride a bike, or take public transportation. It really depends upon you own particular situation.
Other purchases can technically be classified as a need, even though if they really are more of a want. For example, what about clothes and shoes? You can spend a lot on expensive new name brand sneakers or save money and get the generic ones? Shoes are a need, but how about the name brand ones? It all comes down to your perspective and how you manage your money.
Although most people would not consider it a need, is it a need or a want to own that designer handbag? What if you need a handbag for your daily use? Should a regular handbag be considered a need and an expensive designer one considered a want?
How do you Decide your Needs and Wants?
To help, write down everything on paper and figure out how to split your income or prioritize your expenses. What you need to do is list your needs and wants, and set a priority for each item. This will allow you to clearly see where your expenses are, and will help you to categorize your priorities. First, list your needs in one column, and your wants in the other. Then, put the highest priority items at the top, and the low priority items at the bottom, separately, for both needs and wants. That will help you make your budgeting decisions.
You’ll soon realize that you can fulfill more of your wishes over time if you are able to distinguish between, and prioritize your needs and wants. It really is a balance. Once you have clarity about your needs and wants, you can plan your budget to help you make spending decisions, to realize your financial goals. Financial decisions will be influenced by what someone defines as a need or want. For example, a person who considers a new designer handbag a necessity will spend more than someone who uses a more basic one.
Needs and wants can be distinguished according to their importance. The above discussion on economics revealed that wants and needs are distinct forces that require actions to satisfy them. The distinction is made between what is needed and what is desirable. Take a look at your own needs and wants so you can help realize your own personal financial goals.