Budgeting 101: Needs vs Wants

We get it. You are young, you need to impress, stand out from the crowd, leave your mark, be different. You need brands, tech, clothes, restaurants and entertainment to help you ‘level up’. Or do you?

One of the most important lessons you are going to learn as a young twenty-something, is how to know the difference between your needs and wants. It sounds really simple, except it isn’t.

That’s because as humans, we categorise our needs and wants based on a preselected group of priorities we believe are important to us. These selections are influenced by the way we were raised, our rational thinking and logic, and our emotional triggers and, often, dysfunction. All of these factors determine how we select and make decisions.

Depending on how well you preprogram your decision making, you will either be swayed towards that which is inherently good, or that which is inherently bad for you. The journey of your twenties should be to learn how to effectively distinguish between these differences, while learning how to make smart money choices in the process.

Needs

Needs are defined by everything a human being needs for basic survival, that is food, water and shelter. Without these three basic elements, everyone will struggle to survive and will then eventually die.

Let’s illustrate this even further to include rent, student accommodation or shared living costs, monthly groceries, food and transportation costs like taxi fare or train tickets, and of course data. We’ve included data as an essential item here because it is a fundamental building block for how we live and operate in the modern world. In order to finance your basic human needs, you will require money, and the exchange of money in turn will secure your needs.

Needs by definition, should therefore be very easy to identify. They are our priority payments each month. When it comes to how you divide your money, the majority of your monthly income should go towards settling your ‘needs’ expenses first in order to provide stability and a good life.

Wants

Wants are categorised by anything that you desire to own, possess, eat or wear that is not deemed essential to your survival.

Wants are things that are nice to have, but not crucial in order for you to live. Examples of wants include eating at restaurants, pedicures and manicures, a gym membership, a brand-new cellphone, new sneakers, a new gaming console, a designer handbag, or an impulsive buy.

The danger with wants is that they have been programmed and prioritised into our decision making through effective advertising. Advertising is designed to educate, promote and manipulate our emotions and facilitate changes in our behaviour so that our choices become skewed towards that which we want vs that which we need. As humans, we are then conditioned to prioritise wants over needs because the choice always ‘feels’ better and ‘satisfies’ immediately and provides you with an instant dopamine hit, a high which is short-lived and short-term.

The balancing act

Creating long-term wealth and financial stability fundamentally hinges on how well you understand and can handle the human battlefield of needs vs wants. Being able to master this conflict will enable you to budget and manage your finances better.

If you prioritise your needs and provide a smaller budget for your wants, you will be able to have control of your spending and save money. Understanding your emotional triggers, and taking control of your wants will help you stop irrational spending.

Creating a monthly budget will help you prioritise your needs and balance your wants while keeping you accountable as you make smarter decisions that will enable you to create the life you want.