There are things that we all need in life, like housing, food, and transportation. But, conversely, we also want things in life, like new shoes, Starbucks, and subscription boxes. Determining our wants and needs will help you understand your priorities regarding your budget and overall financial health.
Determine what your wants are in life and your needs. Then, distinguish your spending between those categories. Knowing the difference will give you a look into your spending habits and priorities. This will allow you to create your budget and set financial goals.
Think about the essential things in life that you need to survive.
What should come to mind are shelter, food, transportation, clothes, and utilities. There may be some other things that come to mind too.
Everyone’s essentials will be different. These are your “needs” and should be seen as just the basics to live your life. There are no frills in this area of your life.
You may think there are other things you need in your life, like new clothes, makeup, or your weekly brunch. These are not actual needs. They are things that make up your lifestyle and can be hobbies or passions.
They probably even make you happy and bring you an immense amount of joy. But they are not actual needs; they are wants.
Think about your hobbies, passions, and entertainment that you pay for. These are the wants you have in life.
Wants are also things that make your life easier, like takeout, subscription boxes, streaming services, and Ride Share services. All of these wants in your life are just as important as your needs.
Your needs and wants in life make up your entire lifestyle.
You have to be able to fund both areas. However, you need to distinguish between these two things to ensure your basic needs are covered before anything else.
You should budget so your needs are completely taken care of before any other budget line. Then, after your needs, or Cost of Living, are accounted for, you can look at your wants and determine what you can afford.
Our wants in our lives are much more exciting than our needs which can something cause us to prioritize those over the truly important things in life. So many people budget for their wants before their needs and struggle to pay their monthly bills because they are paying for other things.
It is just as essential to be able to afford the things that make you happy in life as it is to be able to pay our monthly bills.
Personal finance is all connected.
What you do with your spending will impact your budget, savings, emergency fund, and more. The same thing applies to what you do with your financial information.
Tracking your spending, creating a cost of living number, and starting a budget all relate to our wants and needs. When you track your spending, you begin to see your complete financial picture and spending habits. With this financial information, you then have to analyze it.
Breaking down your spending into wants and needs is a way to analyze your spending.
This analysis will help you determine how much you need monthly for your basic survival and where else you want to spend your money. Once you’ve decided that, make a budget to follow through with this decision.
Our spending in life is not all equal. Some things we have to spend our money on, like our mortgage or rent.
Other things we can choose to spend our money on to bring us joy or entertainment. While this is all spending money, it’s still important to distinguish that spending goes towards specific needs and wants in our lives.
To successfully understand your budget, you have to start with knowing what your wants and needs are in life. Then you can use this information to set aside an emergency fund, come up with a savings strategy, or adjust your budget to be able to afford your wants and needs in your life.
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