Financial needs and financial wants are sometimes hard to discern. Knowing the difference between the two of them is important for you and your financial life.
We will go through what they mean and how you can manage them effectively. Your income, financial situation, and lifestyle greatly influence both.
Financial Needs
Financial needs are the essentials for living. To name a few – a house or apartment, groceries, transportation, healthcare, and utilities. This sounds obvious, but sometimes the line is blurry between needs and wants.
Financial Wants
On the other hand, financial wants are a little different. Sometimes they can be confused for needs. For instance financial wants are usually non-essential expenses that enhance quality of life, but are not necessary. Some examples include going to the latest fancy restaurant, over-the-top vacations, and other luxury items.
Many times peer pressure and lifestyle choices can blur the lines between wants and needs.
Guidance on Where the Money Goes
To help differentiate, many people use a budget and allocate a high percentage of income to needs and a much smaller number to wants. Creating a budget and tracking spending patterns is a wonderful way to understand your spending habits.
This is helpful, but it may be easier to ask yourself,
“Is this item or experience essential to my day to day living?”
Do you really need or do you really want that shiny new object? It’s not always an easy decision to make.
Balancing Between Wants and Needs
Keep in mind that financial wants are not bad. They could enhance your life if well managed. When they get out of control, that’s when you may get into financial trouble.
When you understand your current financial situation and differentiate between wants and needs, you’ll be in a better position today, tomorrow, and well into the future.
Financial wants and financial needs vary from person to person. If you’d like to chat about them and how they relate to your situation, we can set up a time to do so.