Some things we need: the air we breathe, the food we eat, a roof over our heads. And some things we just want: new shoes, Netflix or eating steak once in a while.
When it comes to our money, the best way to manage it is to fit both needs and wants into our finances - after all, we’re only human! Here’s how you learn to balance both your financial needs and wants.
What are ‘needs’?
Financial needs are expenses that are essential for you to live and work. These expenses usually will take up a big portion of your income.
Some expenses that fall under needs:
- Housing: rent or mortgage payments
- Transportation: car loans, LRT, fuel
- Utilities: gas, electricity and phone bills
What are ‘wants’?
Expenses for fun or leisure. They’re not necessary for your survival, but your life is more comfortable and enjoyable when you have them. For example, you NEED to eat food, but ordering food delivery every day is probably a WANT*.
Things that usually fall under wants:
- Subscriptions (e.g. gym membership, Netflix, PlayStation Plus, etc.)
- Branded wear
*Note that what you categorise as a need or want can be different for another person. Maybe for someone else, ordering food delivery is a NEED: they could have no other means of getting food due to time constraints or some other limitation. However, for the majority of us, a little bit of effort and some creativity could help us to transform what we consider a NEED into a DON’T NEED.
Remember that personal finance is meant to be PERSONAL. Do what feels right for you.
How To Balance Your Wants And Needs
The first step is to list down everything you buy and pay for – from things like toiletries to big items like your house mortgage. Then decide which category each item goes into: wants or needs.
Once you determine what your wants and needs are, you’ll be able to prioritise your spending a lot easier.
If you find yourself struggling with finances every month, here are 3 steps you can take:
- Move things around: take a closer look at the items you’ve put under those 2 categories. Some needs may actually be wants.
- Cut down on wants: you can downgrade your wants – from a high-end sports shoe brand, move it down to an equally good but more reasonably priced brand
- Cut down on needs: sometimes with a little bit of effort you can reduce the costs of your needs. Look around for a better phone plan or even insurance.
Is Saving A Need Or A Want?
If you’re a gig worker or living paycheck to paycheck, budgeting can be tough when the income is inconsistent. So it can be tempting to stop saving for long-term goals like:
- Emergency savings
- Paying off debts
- Saving for retirement
But saving should be looked at as a need. If you have trouble saving a percentage of your income, try starting with a lower amount - remember, RM5 is still better than no savings! And when you have any amounts left over from your spending, channeling it to your savings can help you to reach your long-term goals faster.
💡 Tip: In most cases it’s recommended to save and pay off debts first even before spending on needs like rent and food. This is so you’ll make it a habit to save consistently. This is known as “paying yourself first”.