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 wants.
Defining Can Be Difficult
You probably understand that, say, food is a need and a latte is a want. But some mornings, after cramming all night for a test or working late, a latte is sure to feel like a need. Maybe coffee is a need in that instance, but gourmet coffee drinks surely are a want.
And think about all the technology that you like to use. A cellphone is a need for personal safety, but a smartphone loaded with all the latest gaming is almost assuredly a want. When you have a laptop, do you really 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 don't have to remain static.
For example, having an iPod could generally be defined as a want. But maybe you find that you’re distracted by roommates or by noise in the library when you’re trying to study. In that case, it might be helpful to use background music to block out the other sounds. But the solution could be to listen to music on a device you already have—say, your phone or computer—which means an iPod isn’t something you truly need.
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.