When it comes to personal finance, it’s important to distinguish between our needs and wants. Needs are the things that are essential for survival, while wants are the things that we desire but aren’t necessary for survival. Understanding the difference between these two categories can help us prioritize our spending and save money in the long run.
Let’s take a closer look at some examples of needs and wants:
Needs:
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Food
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Shelter
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Clothing
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Healthcare
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Transportation
Wants:
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Luxury car
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Designer handbag
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High-end electronics
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Vacation home
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Fine dining experiences
While it’s easy to see the clear distinction between needs and wants, it’s important to note that our needs can change into wants and vice versa depending on our situation.
For example, let’s say you’re a college student living on a tight budget. Your basic needs might include ramen noodles for food, a shared apartment for shelter, thrift store clothing, a basic healthcare plan, and a bike or public transportation for transportation. These are all necessities for your survival as a student.
However, as you start your career and earn more income, your needs may change into wants. You might upgrade to healthier and more expensive food options, a larger and more luxurious apartment, designer clothing, a premium healthcare plan, and a brand new car for transportation. These items are not essential for your survival, but they can make your life more comfortable and enjoyable.
On the other hand, a change in situation can also turn our wants into needs. For instance, a medical emergency may require you to have access to expensive healthcare services that were once considered a luxury. Or, a job that requires you to travel frequently might make owning a car or having access to reliable transportation a necessity.
It’s important to note that needs and wants are subjective and can vary from person to person. What’s important is that we prioritize our spending based on our individual needs and financial situation. We should aim to meet our needs first before spending money on wants. By doing so, we can ensure that we have a solid foundation for our financial stability and avoid unnecessary debt and financial stress.
You can do this activity with a friend, a parent, or a child. Prepare a list of needs and wants and compare your before and after list with change in age, change in location, or change in income level.
In conclusion, understanding the difference between needs and wants is crucial for managing personal finances. While our needs and wants may change over time, we should always prioritize our basic needs and make sure that our spending aligns with our financial goals and situation.