Is it a "Need" or a "Want"? Here's How to Tell

If you want to be able to save money and live on a budget, it helps to clearly understand the difference between your needs and your wants.

Defining Can Be Difficult

You probably understand that, for example, groceries are a need and dining out is a want. But some nights, after cramming for a test or working late, takeout is sure to feel like a need. Maybe food is a need in that instance, but ordering takeout surely is a want.

And think about all the technology that you like to use. A phone is a need for personal safety and communication, but buying a new smartphone every two years could be a want. When you have a laptop, do you need a tablet, too?

When creating a spending plan and trying to live on limited funds, it's helpful to carefully consider what is a need and what is a want. And your definitions can change over time.

Putting Definitions on Paper

Use the Needs vs. Wants Worksheet to write down some of your needs and wants, and then look carefully at what you've listed. Are the needs really needs, or can you move them to the wants category?

Now, review your list and think about what's really important to you and has lasting value:

• Do you really need or want everything on your list? Put stars next to the items that are particularly important to you.
• Are some needs closer to being wants? Cross off the least important wants.
• Decide if each item makes sense. If not, cross it off or change it to the category that is more reasonable.

Being able to distinguish between needs and wants is an important step to achieving financial goals and attaining financial independence. Limit your spending to the things that matter most and use the rest of your money to power your financial future.