In any personal finance journey, you will run into the distinction between wants vs. needs. If you are able to distinguish between the two, then your financial journey will be infinitely easier. If you cannot determine the difference, you might struggle to save for the things that really matter to you.
Housing is obviously a need. But using the house hacking strategy to reduce your housing costs will open up more opportunities to fund your wants. In fact, house hacking could reduce your cost of living by more than 40%! Grab a copy of our free House Hacking Quick Start Guide to slash your housing costs.
Today we will examine the difference between wants and needs. Plus, how understanding this difference can affect your lifestyle.
What is the difference between wants and needs?
Let’s dive right into the characteristics of wants vs. needs.
Needs are a requirement for your physical and mental wellness in this world. The needs you have will vary slightly based on your situation. But they will boil down to the essentials of food, shelter, healthcare expenses, clothing, and transportation.
Anything that is essential to your survival is considered a need. If you couldn’t live without an item, then you’ll need to find a way to keep it in your budget.
Wants are purchases that are not required to survive, but you’d like to have in your life. Basically, anything that isn’t a need can be considered a want.
Of course, your mind might first jump to luxuries such as fancy trips or dinners at lavish restaurants. But many wants are hidden on a smaller scale, such as streaming services or an upgraded grocery shopping list. After all, you could find free entertainment at the library instead of paying for thousands of movies at your fingertips. And you could get by with rice and beans instead of enjoying a prime cut of steak.
Anything that you could get by without is considered a want. If money is tight, then consider your wants as the first option to slash costs. With this strategy, you’ll be able to keep spending money on what is absolutely essential.
What are some examples of wants and needs?
The basics of wants vs needs can be cut and dry. But there are always some grey areas where wants and needs are concerned. Let’s walk through some examples to gain a better understanding of wants vs needs.
Let’s get started with examples of wants.
- Cable. You don’t need access to thousands of entertainment options through your TV.
- Vacations. Vacations are some of the most obvious examples of a want. Of course, we all want to escape to an exotic destination for the week. But we can survive without these getaways.
- Luxury cars. Although transportation might qualify as an essential expense, a luxury vehicle will not. When a more affordable car would get the job done, anything more luxurious is a want.
- Personal boat. Unless you are using your boat to earn a living, then a boat is another luxurious want. Although it could be a lot of fun to own a boat, that doesn’t make it a need.
- Home upgrades. Although some home upgrades can be essential, like a new roof, many renovations are a choice. For example, upgrading an outdated but serviceable kitchen is a luxurious want and not a need.
Here’s a closer look at some of the needs you might find in your life.
- Food. Without food, you simply couldn’t survive. However, that doesn’t mean that all food is an essential item. For example, dining out is considered a want but buying basic groceries is a necessity.
- Shelter. Everyone needs a roof over their heads. With that, your housing costs are an essential part of life. But that doesn’t mean that you are stuck paying thousands of dollars a year to keep a roof over your head. If you want to slash your essential housing costs, then give house hacking a try. You might be able to reduce your cost of living and have extra money left over to fund your wants.
- Utilities. A home without water and electricity is unlivable. With that, these monthly bills are needs.
- Transportation. You need to be able to get to and from work. Although that doesn’t mean you need a luxury car, you might need a set of wheels to get around. But don’t forget about other options to get to work, such as biking and public transportation that can be much more affordable than a used car.
- Clothing. Yes, you do need clothing to survive. But replacing clothes that are perfectly serviceable is a luxury. Although styles change, your basic need to be clothed remains the same.
It is possible to save more on your essential costs – especially when it comes to housing. Want someone else to pay your mortgage next month? Our FREE House Hacking Guide reveals how to jump-start your house hacking journey so you can live for free.
Is the internet a need or want?
In today’s world, the internet could be considered a need in some situations. However, it depends on why you are using the internet.
As a versatile tool, you can use the internet to run your home business or simply to stream TV. Plus, thousands of other options ranging from productive to extreme examples of time-wasting. For example, most of us love watching videos of cute cats, but that hardly justifies a need for internet service in my home.
To determine if the internet is a want or need in your life, consider why you would like to have internet service at your home. Are you looking to start your own remote side hustle, maintain your full-time job in a work-from-home setting, or researching real estate deals in your area? Or are you looking for a way to stream your favorite series on repeat? Your answer will determine whether or not it a want or need for your lifestyle.
If you don’t feel that you can justify having internet service in your home as a need, that’s okay! You are free to spend your hard-earned dollars on things that you want. But be aware of the financial consequences. If you’d like internet access without paying for a monthly service, then consider the abundant free options such as the library or a coffee shop.
How wants and needs can impact your financial future
It is easy to see how wants can add up quickly. Although it can be difficult to cut back on your wants, it can be the fastest way to meet your financial goals. The best part is that you won’t have to give up anything required for survival, just things that you could physically live without.
However, it can be difficult to give up on your wants. All too often, we allow ourselves to think of our wants as essential to our life. Our habits that have engrained our wants deeply into our lifestyle can be difficult to break.
But with some effort, you can break free from the trap of constantly giving in to your wants without considering your long-term goals. Robert Kiyosaki, author of Rich Dad, Poor Dad: What the Rich Teach Their Children About Money That the Poor and Middle Class Don’t, says, “The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant.”
Make the time to train your mind to think in terms of long-term opportunities instead of short-term desires. You can stretch your money farther when you aren’t weighed down by the wants of your present situation. With the extra wiggle room in your budget, you can expand your economic horizons beyond the traditional 9 to 5. As Kiyosaki advocates, you should seek out new opportunities in whatever form you can.
Consider what you could do by saving a few hundred dollars each month that would normally be spent satisfying your wants. You might be able to start your own business or invest in your first real estate property. Whatever creative solution you choose to spend this newfound money on, make sure that it is helping you work towards a long-term goal instead of funding a short-term want.
The bottom line
Unfortunately, allowing too many wants into your budget can derail your financial plans. Getting back to your basic needs can help you reach financial goals more quickly.
If you aren’t sure whether or not something is a need or a want in your life, then answer the question of what would happen if you cut out this purchase? In many cases, nothing bad will happen if you don’t make a purchase for your lifestyle. With that, most items will turn out to be a want. But if something were a need, you’d know because it would be impossible to actually cut it out of your budget.
Not sure where to start building your financial foundation? Get started with our Personal Finance 101 guide. You’ll learn how to build a bright financial future with a solid footing. Get started today!