Wants vs Needs: Keys to Your Wealth Building

In an effort to avoid overspending, you have to learn to differentiate between your needs and your wants.

But what exactly is a need, and how does it differ from a want?

The personal finance community is really big on this concept.  This is especially true when it comes to doing a Zero Based Budget or when you are using the 50/30/20 Rule.

In this article you will learn the difference between needs and wants, why it is important to distinguish between them for budgeting purposes, and how to change your spending mindset.  So read on.

Wants vs Needs

Needs are items or services that you must have in order to exist and survive in society. Think about things like food, shelter, transportation, clothing, education and healthcare. These are your necessities. 

These are the items and services that cater to your physiological, cultural and safety needs. Other names for needs are essentials or requirements.

Wants are things that are not necessary for your survival. They are desires that enhance your lifestyle. Wants fall in the “like to have” category. 

Wants increase your cost of living as well. It’s a double-edged sword. However you don’t have to look at wants as being evil. Wants can bring more enjoyment and happiness into your life. 

Lacking a need will impact your life in a way that lacking a want would not. If you lack a need it could be to your own detriment – either from a health, safety or physiological (food, drink) standpoint. As such, needs have a longer lasting effect on your happiness and well-being.  

A want provides a temporary “boost” in happiness and is likely part of a trend – like skinny jeans, fanny packs, quartz countertops etc. 

Needs and wants are not the same for every single person.  A regular person may not need the latest ultra-performance Nike shoe. That would be considered a want. 

However that same shoe to an Olympic track and field athlete would be classified as a need because he or she would earn a living with the shoes.

Examples of Needs

  • Mortgage or rent payments
  • Basic groceries and ingredients to prepare foods
  • Metro passes for commuting
  • Communication (phone/internet), gas, electricity (utilities)
  • Health-care – for medications, dentist, optometrist visits
  • Pants, shirts, socks and undergarments
  • Savings and insurance

Examples of Wants

  • A summer cottage
  • A 2,500 square foot primary house, a pool or hot tub, upgraded renovations with the latest decor (quartz countertops, stainless steel appliances etc.)
  • Electronics
  • Streaming and subscription services
  • Delivery services, fast food, restaurant dining
  • Boats, classic cars
  • Designer or luxury brand name shoes, jeans and shirts
  • Vacations
  • Tickets to sports games / concerts

The Grey Area – When is a “Need” Really a “Want”, and not a “Need”?

In order to budget and  build wealth you have to learn how to spend intentionally on the things and services that you value, whether they are needs or wants.

When it comes to budgeting you should focus on cutting down your wants first. Recall from above that wants are “nice to haves” but not necessary for your survival.

Yet there can be some instances where you feel like an item or service is both a need and a want. This is referred to as the “grey area.” 

For a lot of what we need there are limits to the amount we should spend. Housing is a need. You need a place to sleep, shower and study, right? 

However, you need to question whether you need a 3,000 square foot house for your family of three that also overlooks the escarpment. If you’re being honest with yourself, you might only need a 1,500 square foot house. Anything above that qualifies as a want.

Do you need the latest iPhone or Google Pixel, or would the previous year’s model for $300 off do the trick? Or could you get by with a mid-tier phone that costs half that price?

If you go to the supermarket you could rationalize your decision to buy expensive name brands for everything since food is a necessity, right?  

You could, but you shouldn’t.

You don’t have to buy Heinz ketchup, you could get a no-name or private brand ketchup bottle. Again you can still get some brand names – but do they really taste different than cheaper brands?  Getting a regular bottle of ketchup that tastes decent is your “need level”. Heinz is in your “want level”.

It’s not cut and dry but you need to be aware that although you could justify every brand name purchase you’re really just cheating yourself out of a better financial life. 

Budgeting Knowing Your Needs and Wants

While creating a budget here is what you should do, especially if you are using the 50/30/20 Rule as a guideline:

  • Determine your life goals, and from that, your financial goals. This should help uncover what your needs truly are. Then align your spending to meet those goals.
  •  Be more specific with your budget categories so you can separate your needs and wants out clearly.  You can list your groceries as a “need”. Items and services  like food delivery, fast food services and dining out can be labeled as “wants”.
  • Review your lists to make sure your needs are really essential and your wants are things you can live without.
  • Keep reviewing your budget and see if you need to make changes in the future.  After all, your lifestyle or personal situation  can change (you might move, experience a romantic break up, have a child etc.)
  • Prioritize your wants and make financial goals for the bigger items like vacations or a new car.

With the 50/30/20 Budget Rule, you are allocating 50% of your after-tax income towards your needs and 30% towards your wants. In other words, there is space for both within your budget. The goal isn’t to crush your wants totally, you need to enjoy your life too. 

How to Reduce Your Expenses with Wants

You can rarely cut the amount you spend on your needs, but you can reduce the amount you spend on your wants. If your budget needs some trimming, then the best place to start is with your discretionary expenses AKA your wants. 

You’re just hurting your future self by paying extra for things you don’t necessarily need.  Particularly if you already have food in the fridge.    

You have to watch out for lifestyle creep which means the chance that your wants increase along with your salary bumps.  This is typically seen when you buy a bigger house, or sports car etc.

Here are some quick ways to minimize your spending on wants. 

1. Practice Delayed Gratification

When it comes to purchasing something that may be a want, walk out of the store or close your browser. Then revisit it in 48 to 72 hours. That short cool off period should be enough time to get you out of the heightened emotional state you were in when you first saw the item. With your emotions in check, you can make a rational decision.

Then ask yourself :

Can I survive without this?

Will I be happier in a year from now with this? How much happier?

Can I purchase an alternative item or service for less?

You will likely realize that you’re living just fine without the item in your hands.

The third question is about reminding yourself that there are alternatives. You can now do research and look at reviews and ratings online for different products that you hadn’t considered when you were browsing online or in the store initially. Either way you will find yourself saving money or becoming more informed.

Even if you still go ahead with your purchase, utilizing this technique will allow you to become a savvy shopper.

You will find that if it really is a need, your craving will increase as time goes by. If you have no home today because your lease is up and you need to find a new accommodation, waiting 72 hours or 72 days isn’t going to diminish your need to have a roof over your head.

With a want – you’ll find your lust for the item or service trickles down as time passes by. 

2. Think of the “Out of the Box” Costs

This is more of a money mindset shift and there are three ways you can think of your costs that should help you refrain from spending on wants. They are: 

  1. Thinking About Opportunity Costs

    Once you spend more than you need to on something, there is an opportunity cost to that money. If you could have bought some quality, decent looking jeans for $40 and you spent $200 on the designer jeans, the $160 difference is the opportunity cost. 

    Rather than spend it on jeans for aesthetic reasons, you could have put that money towards your retirement or your child’s RESP.  Or you could have used it to do a few cool local adventures with your family. Remember you want to align your spending with your financial goals.
  1. Thinking About Ongoing Maintenance Costs

    Sure you buy your home, pool or car for a fixed cost, but there are ongoing maintenance costs that drive that purchase cost far higher.  The more fancy your car or house – the greater the outlay. 

    A larger house may cost you $1,000 more per year in property taxes than a modest house that would fit your needs. Believe it or not $1,000 per year invested and earning 7% over 30 years would grow to $98,000. Pretty incredible, right?

    Start factoring any ongoing maintenance costs to your purchases and you might just find better ways to utilize your funds.
  1. Calculate the Cost in Terms of Hours Worked

    We only have a finite amount of hours to live our life. Since we trade our time (“life hours” ) for money at work, we’re actually spending our “life hours” for anything we buy.  

    If you start framing your purchases in this manner you may reconsider some of your desired, discretionary purchases.  A $500 suit, becomes 20 hours of time wiped out, if you earn $25 per hour after taxes for instance.  I’m not saying show up at your friend’s wedding in a t-shirt and cargo pants, but you could opt for a $300 suit as a trade off, and save yourself 8 hours of time worked.

3. Limit Social Media Usage

Social media is meant to be aspirational and motivating. But it can also create jealousy and envy. You see everyone living a “baller”, glitzy lifestyle and you wonder why you aren’t. 

The truth is, most of what you see could be financed by debt. You don’t even know if your friends are having money troubles. So while they post their rockstar vacations on IG Stories, you don’t know if they have a mountain of debt behind it.  So don’t stress and try not to compare.

Also social media is filled with influencers whose job is to make certain lifestyles more appealing. This in turn causes your social circle to copy them, which creates a strong FOMO feeling from you, because you don’t want to miss out.

You rarely see people getting hyped up on buying some lettuce or a bed frame – the necessities. It’s almost always focused on wants that you don’t need. Once you recognize what’s going on, you can make better spending decisions. 

4. Unsubscribe from E-Mail Lists

Sure you signed up for your favourite retailer’s email lists to save 10% or 20% when you spend $50 or more. Your intentions were good,  but the real trick is that the retailer can keep advertising to you personally as often as they like until you unsubscribe to them. For them it’s better than advertising on radio, television or even the web. 

They get prime space in your inbox. Of course you can filter the messages out, but if you ever go looking through the emails when you’re bored….watch out. You could end up spending money on something you don’t need. 

Especially if you’re a spender, avoid all temptation and unsubscribe. You already have enough advertisements being thrown at you throughout the day, don’t allow retailers get into your inbox too.

Wants vs Needs Conclusion

The main point here is that needs help you achieve a minimum standard of living and it focuses on the necessities – like food, shelter and garments. An inability to have these things is detrimental to your well-being and can have long-lasting effects.

Needs on the other hand are there to provide entertainment and enjoyment – but they aren’t necessary to your existence and any effects from these purchases are short-term.

There is room for both needs and wants but if you need to save money then cut back on your wants first.

Wants vs Needs FAQs

What are the examples of wants?

Some big-time “wants” are expensive restaurant meals, designer garments and luxury cars. These are the types of expenses that you should first look to reduce or eliminate when creating a budget.

What are some important needs?

Needs are things like housing, utilities (water, electricity), transportation, food and clothes. Just because an item falls under one of these categories though it doesn’t mean that it should be considered a need. You need a place to live, so a condo would qualify as a “need”. A mansion would be a “want”. Don’t lie to yourself here, because you are only going to end up cheating your future self.

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