Needs versus wants: what’s the difference

An essential part of living on a budget is knowing how to separate your needs from your wants. The difference between needs and wants, however, is somewhat of a gray area because what can be a need for someone may be a want for another.

Before you set your budget for the new year, you need to create a clear distinction between your needs and wants.

Needs versus Wants

Some needs are universally agreed upon by many, such as food, housing, water, and clothing. It’s difficult to live without these. Education is also considered a need. While not directly linked to our daily survival and not necessarily the only key to success, having an education is important to land a job and earn. Some may argue that these are the only true needs we should have – everything else is a want. But with the changing times (especially with the new normal) and our different lifestyles, more needs can be added to this list. These include internet connection, medicine, and access to health care, to name a few.

Wants, on the other hand, are things you wish to have but are not essential to your survival. Your wants also change over time. They are created by corporations and entrepreneurs to add convenience and enjoyment to a person’s life. Wants can be tangible goods, services, or experiences.

Here are some common needs and wants:

Needs

• A place to live
• Utilities (electricity, water supply, internet connection, etc.)
• Health care and/or therapy
• Medication
• Food
• School/work materials (laptop, phone, etc.)
• Commuting costs

Wants

• Entertainment (movies, concerts, online subscription platforms)
• Dining out
• Home décor
• Travel
• Electronics
• Gym membership

The line between needs and wants isn’t always clear. For example, a fast WiFi connection may be considered another need for many, especially with the new work-from-home and online school set-ups in place. Private health care may also be another need for some, whereas others may choose to rely on government health care plans (i.e., PhilHealth).

The distinction can also be more subjective when it comes to which items are considered as basic necessities. While clothing is a need, how much should you really spend on it? Will generic, off-brand clothes be enough for you, or would you rather spend on high street or designer clothing? This can be affected by your job. What about food? Will you be cooking all your meals to keep costs low or go for meals that entail eating out at posh restaurants daily? And what about electronics? In the digital age (especially in a new normal world), electronics are essential for work, school, and can even bridge the distance between you and your friends and family. But what kind of electronics should you purchase, and how many? If we’re being practical , a basic laptop or mobile phone is enough to perform your digital tasks. Is regularly upgrading your smartphone or laptop really a necessity?

Despite being considered non-essentials, wants aren't always unreasonable.. Wants make life more colorful, and can help you stay in touch with loved ones, have fun, and even stay healthy. After all, you work hard on a daily basis, so you also deserve to treat yourself.

Why you need to distinguish your needs from your wants

Knowing what you consider a need and a want is essential in managing your finances. Categorizing your needs from your wants helps you track your expenses and invest your extra money wisely. It can also help you cut down on your spending.

How you can draw the line

Finding out what you personally consider a need vs. a want can be as simple as writing everything down.

A good place to start is by listing your needs and wants individually under four different categories. This helps you figure out how much you are currently spending and how much you would like to allocate for that certain category.

The four primary categories are as follow:

• High-priority needs
• High-priority wants
• Low-priority needs
• Low-priority wants

After listing down and categorizing your needs and wants, you can then rank them according to importance using the 50/30/20 budgeting system. You’ll want to spend 50% of your post-tax income on your needs, 30% on your wants, and 20% on your savings.

At the end of the day, you need an objective eye when classifying what falls under needs or wants. While many items on your needs list may feel like a need, you may actually just be justifying it to be one. Make sure you regularly go through your list of needs and wants, as well as your actual expenses, to see if you’ve been following it through, or if there are any changes that can be made.

To help you track your budget and manage your spending, you can open two separate accounts, one for your needs, and the other for your wants. Find the right Metrobank account for you here.