Needs vs. Wants: The Key to Effective Budgeting

When did we become such a microwave society, craving instant gratification? Groceries can now be delivered to our front door within hours of placing an order. DoorDash allows us to enjoy the meals we want, whenever we want, without ever leaving our homes! In a world driven by instant gratification, personal debt levels in our country have reached unprecedented heights. But why is this happening? The importance of distinguishing between needs and wants in your budget and spending is more critical than ever. Even though you can have an item delivered to your door in two days for $6 less than a competitor, it doesn't make the purchase worthwhile if you can't afford it. Let's discuss your financial goals and how clearly defining an absolute need versus a want, or a nice-to-have, can save your family budget! So how can we work on defining what is a NEED in your budget? A need is any purchase essential for survival, such as shelter, food, and water. In today's world, since most people need to work to survive, we can also categorize anything that enables us to work as a need. This includes budget items like transportation, childcare if you have children, and internet access. (Any other work-from-home people?!? I'm talking to you!) Examples of needs in your budget:

·        Food and water from the grocery store

·        Gas

·        Mortgage or rent

·        Cell phone

·        Internet

·        Daycare

·        Insurance- (this isn't work provided that comes directly from your paycheck)

How do you define a WANT in your budget? Wants are anything beyond what's absolutely necessary for living and surviving. They include any items, purchases, or payments that wouldn't typically be part of a bare-bones budget. If it doesn't fall under the categories of work, sleep, eat, or water, it's considered a want. And claiming you "need" that boat for your mental health definitely doesn't qualify as an absolute need. Nice try, but no dice! Here are some examples of a want:

·       New clothes or shoes

·        Home décor

·        Small kitchen appliances

·        Eating out at a restaurant

·        TV including all the subscriptions (OUCH right?!?)

So let's chat about when a need actually becomes a want. Your house and car are prime examples of how needs can easily become wants. There's a significant difference between purchasing a used, older $10,000 vehicle and a brand new $50,000 Lexus for commuting to work. Often, we justify these expensive purchases by highlighting features the new car may have that you just NEEEDDD (hello heated seats!) and what we think is a "reliable" car, leading us to pay $500 a month on a car loan. Repeatedly making such decisions can result in substantial debt. Regardless, if you can't afford it, it's a want, not a need. The necessity is the vehicle, not the luxury vehicle. If you can afford it and have a thorough understanding of your budget, feel free to go for it, but it still categorizes the purchase as a want. The same logic applies to a luxury house. Ask yourself, "Do I really need this, or can I manage with less?" Let's maybe take it down to a smaller level. What about groceries? They are for sure a need we have in our lives; we literally cannot live without food. And we do know that groceries are another significant monthly expense, especially with the inflation we are seeing, and our growing kids, right? This category of purchases usually gets instantly justified. But in all reality, groceries can quickly become a financial burden. Let's break it down a little further. A family trying to eat at home to save money might justify the $10 pre-made dinner bag from the grocery store. The frozen aisle is packed with these meals, and the to-go section is full of delicious heat-and-go options. Sam's Club premade meals get me every time!!!! While you might save money per meal, per person, you're not really winning the "eat at home, save more money" game. Instead, buy fresh green beans, make homemade mac and cheese, and grill some chicken to save a few bucks.

Let's take it to the other side of the spectrum. When do our wants actually become a need? Let's say you have a truck that reliably gets you to and from work. Over time, your tire tread wears down. Or maybe your kid is coming home from a road trip vacation and his tire LITERALLY falls off his car... At this point, replacing your tires for safety reasons becomes a necessity. You might need to budget for this purchase, but if you're aware of the wear and tear in advance, you could set aside money over a month or two. This approach helps you avoid going into debt to cover the expense. What about new clothes? If you're browsing at the mall on a Saturday afternoon and spot a pretty blouse on sale, it's unlikely this purchase qualifies as a necessity, despite how much you might feel like saying "I NEEEED it!" However, if the last time you bought socks was six years ago and your toes are poking through the front of them... it's probably time for new socks. Seriously, just go and treat yourself to some socks! I think we can totally categorize that purchase as an absolute necessity. Giving yourself time in between seeing something and purchasing the item is the best way to fend off any purchases you will regret later. I like to say it like this... If I walk away, will I kick myself for it later? With this blog, I have attached a FREE downloadable PDF Needs vs Wants worksheet. This is going worksheet is going to help you keep track of all the items you have your eye on, the ones you think you just HAVE TO HAVE.... You know exactly what I am talking about right now don't you? Let's chat about how to use it. 7 Days –> 7 days is the magic number. Waiting for 7 days is a useful strategy when considering a purchase. If you feel the same urge after this period, consider if the item is a necessity or just a desire. Reflect on whether spending money on it will bring you joy and if the item itself will make you happy. Also, question if your interest is driven by a temporary discount offer. If any of these points resonate with you, it might be wise to wait a few more weeks before deciding.

30 Days –> At 30 days, assess your emotions and budget regarding the purchase. Are you still considering it? Dreaming about it? Worried you might regret the purchase or simply lack the funds at the moment? Can you wait another 60 days? This period not only allows you more time to contemplate the purchase but also to save up for it if you decide to proceed. You're investing both your time and money in this item, thereby assigning value to it.

90 Days –> At 90 days after first spotting the item, ask yourself: is it a need or a want? Have you saved enough for it? Can your budget accommodate this expense? If you still desire the item and have responsibly budgeted and saved for it, then you should feel confident in making the purchase. It's evident that you're committed to this item and will cherish it, ensuring there's no regret. Congratulations on exercising patience and staying dedicated to your financial objectives! Steps For Budgeting Wants and Needs

1.     Create a budget for each month or paycheck. (Click the link below to get 1:1 budgeting help)

Budgeting Help

2.     Save the wants vs. needs budget worksheet and stick in a prime location so you can see it often.

3.     Fill in the worksheet with items you would like to purchase as they come up. Categorize them as needs or wants.

4.     Wait at least 7 days before making the purchase.

5.     Wait 7, 30, or 90 days- evaluate the purchase at each stage of the game to see if you have changed your mind.

6.     If you still feel strongly about the purchase, budget for it in your budget spreadsheet to make sure you aren’t going into debt if you buy it.

7.     Total up all the items you ended up not purchasing over the course of your Needs vs. Wants spreadsheet.

8.     Celebrate your budgeting wins!!!