Identifying Needs vs. Wants

To save money and live on a budget, it helps to really understand the difference between needs and wants. And you probably do understand that, say, food is a need and a latte is a want. But some mornings, after working late, a latte is sure to feel like a need. Maybe coffee is a need but gourmet coffee drinks are a want. Maybe a cell phone is a need for personal safety but custom ringtones are almost assuredly a want. When creating a budget and trying to live with limited funds, it's helpful to really consider what is a need and what is a want.

Use the Needs vs. Wants Worksheet to write down some of your needs and wants. Be honest with yourself, but not indulgent. Don't underestimate your needs, because you must know what they are to determine how much money you'll need to pay for them. On the other hand, if you confuse wants with needs and think you need more than you actually do, you'll become frustrated that your paycheck can't stretch that far.

Look carefully at what you've written down Are the needs really needs, or can they be moved to the wants category? Here are some questions that can help:

• Why do I want it?
• How would things be different if I had it?
• What other things would change, for better or worse, if I had it?
• What is truly important to me?
• Is this really what I value/care about?

Now, review your list and think about what's really important to you and what 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 really wants? Cross off the least important wants.
• Decide if each item makes sense. If not, cross it off, or change it to something that is more reasonable.

Don’t rush to buy all the expensive toys and trappings of adult life. You are finally earning a real salary. After a meager life as a struggling student, it’s intoxicating to have a big check regularly deposited in your account. Your first reaction is to spend it. After all those years of deprivation, it’s time for a nice car, fancy clothes and of course the HD TV, right? Be patient. You have your whole life to get the good stuff.

Research has repeatedly shown that people who have the basic necessities of life - shelter, food, clean water, breathable air, and adequate clothing - are happier than those who don't. Once those needs have been met, however, people with more aren't necessarily any happier than those with less.

Looking for ideas on how to save on both your needs and wants? Visit our list of Niceties or Necessities.