Money: An Explainer on Needs and Wants

Every human has both needs and wants and money will always be required to ultimately respond to both. When critically examined, however, needs and wants are clearly different, but still interconnected. A need, for example, is a necessity - something we cannot do without, like our basic food; while a want is a mere desire to have something, for example, a luxury car or house. Wise spending in this case is when you consider your needs first, before considering your wants.

However, it is also possible that some individuals may miscategorize their wants as their needs and that is exactly the misconception that this article seeks to address.

Money as a Need

Needs are the living expenses that we require to be healthy - those expenses that are important in our daily life. Money as a need, therefore, includes money that is spent on:

·       Rent

·       Utility bills

·       Healthcare needs

·       Medication

·       Food

·       Commuting

·       Work Expenses etc.

These are the basics and absolute needs that every individual requires in order to function, and money is needed to safeguard these necessities.

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Money as a Want

Money ‘wants’ are those expenses we choose to buy even though we can live without them. These are expenses that are avoidable or unnecessary. For instance, money spent on:

·       Vacations

·       Memberships

·       Home purchases

·       Entertainment

·       Partying

·       Streaming accounts etc.

Glaringly, these are not part of the requirements for everyday living and with or without them, one can still live well.
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Needs that are really Wants

Categorizing our needs and wants can sometimes be confusing and you may end up listing a want as a need. But below is a formula that should correctly guide our categorization of expenses.

Lifestyle Factors: Whether an expense is a need or a want is directly dependent on how the product is used. For instance, if you need to buy clothes for work, it is in the need category, but if it is just because you like a particular top, then it can be categorized as a want.

Split Expenses: Your grocery bills, can be considered a need as eating is obviously essential. But if your bill consists of things like chocolate, chips, or soda, these things are considered as wants and not needs.

Choice Variation: As previously mentioned, needs and wants differ from person to person. Even specific expenses may seem like want to one person, but they may be a need for someone else. For example, buying an upgraded smartphone for communication. In this case, choosing the type of product also plays a key role in differentiating a need from a want.
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Saving - Need or Want?

For someone who earns less, saving for long-term financial goals like settling debt, retirement plans, and emergency reasons might be difficult. Since these expenses are not immediate, they are not always considered as a need. But at the same time, getting out of debt can be considered a need to ease the financial burden. Also, an emergency can occur at any time and during that time an emergency fund would become a need. Hence, it is important to understand that although earnings may be meagre, the habit of saving is a helpful attribute.

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Ways to Distribute Money for Needs and Wants

Below are the best rules to adopt:

1. Follow a Budget:  By following a budget, you can set a margin as to how much you have available to spend on needs, wants, and savings. This can help you to easily manage your expenses, as well as avoiding any financial problems. A popular method is the 50:30:20 system. Here 50% of your income will be channelled to needs, 30% will be set aside for wants, and the remaining 20% will go into savings.

2. Adjust the Spending on Wants: This is another effective method that can help to reduce expenses. Lowering your standards of wants can help in saving some money, which can then be put into retirement savings or emergency funds. Also changing your spending habits by using public transport or getting a roommate can reduce your expenses.

Conclusion

Wise spending is, without a doubt, what makes your income go further. However, the principles are centred on saving more, spending reasonably on your needs, and less on your wants. Paying more attention to wants could lead to problems and stunt financial growth.

A quick suggestion, and perhaps the best advice you can get from anywhere, is to invest your money into beneficial platforms like Astralis, which provide up to 8% returns on modern savings accounts. Therefore, get a clear idea of your needs and wants, and then try to moderate your standard of living by focusing on your needs, without ignoring the essence of saving.

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