How do I know what is a “need” and what is a “want”?

Just seeing the word “budget” can give some people a headache. Instead of reaching for a bottle of aspirin, I suggest changing the way you think of a budget.

A budget is a tool that helps you use money so that you reach your goals. You control what you spend money on and how much money you spend. A vital part of a budget is getting clear on what is a need vs. what is a want.

The difference between a “need” and a “want”

Need: Spending that is essential to you being able to survive. Necessary spending includes basic food, a place to live, transportation to take you to work, insurance, and essential clothing.

Want: Spending based on a desire for something that is not essential to survival. This includes cable, gym memberships, eating out, entertainment, travel, and designer clothes.

It sounds easy, but it gets hard when we use this to purchase an essential item, then justify upgrading the purchase way above the amount needed to meet our basic needs. Below are a few examples.

Is a car a “need” or a “want”?

Should you purchase a new vehicle with upgrades that use nearly half of your take-home income, or should you buy a slightly used car with no upgrades? Also, some areas have excellent public transit. Having a car may be a “want” if you can get to work, school, and buy essential items like groceries without a car. In this case, the car is a convenience that is a want, not a need. If your car breaks down due to normal “wear and tear” repairs in your owner’s manual, can you fix it instead of buying a new car?

Is my house or apartment a “need” or a “want”?

Generally I would consider your house or apartment to be a “need.” After all, we need shelter to live. But you may classify it as a “want” if you are:

  • Buying a home when you can barely pay your bills and don’t have savings
  • Renting an apartment with extra space for, even though you rarely have guests over
  • Paying more in rent so you can live in the trendiest area that’s close to everything, instead of choosing a safe but cheaper apartment

What food is a “need” versus a “want”?

Food is also certainly a “need.” But that doesn’t mean that all food is a “need”! Here are a few examples that come to mine for me:

  • Not having a meal ready when you are hungry or busy does not turn eating out into an essential expense
  • If you are on a tight food budget, the more convenient the food item (pre-cut veggies, pre-bagged, pre-cut chicken, etc.), the more expensive the cost. It shifts the food from a need to want because you can buy a cheaper option.

Are my clothing and travel a “need” or a “want”?

Needing a bag for your laptop does not justify buying a Coach bag. Likewise, I certainly want you to take a break from work, but not if it means going into debt. You can do a “staycation” in your area!


Separating your needs from your wants allows you to create a spending plan based on the most important things to you. Maybe if you drove a cheaper car, you may be able to afford your dream vacation.

Every financial decision you make, no matter how small, will either get you closer to your goals or become a barrier to reaching your goals. Understanding needs and wants can help you prioritize how you spend so that you can reach your financial goals.

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