“More important than making money, is figuring out what you want to do with that money” (Patrick Schulte). In life, everybody knows that they want to make money to afford their desires in life. In most cases though, people’s desires are vague and a plan is not created to fulfill those desires in the short and long term. One important concept of financial wellness is knowing the difference between a “need” and a “want,” then using that knowledge to find a balance within your income.
Needs
A “need” is a financial expense that you will have to pay in order to sustain yourself in life (basic necessities). Common financial expenses that usually “fall” in this category would be food/water, housing, transportation, gas and electricity, and insurance. Each person has a different financial situation but generally your “needs” will represent a large amount of your overall expenses. These expenses are oftentimes recurring as well, which makes it easier for a person to keep track of how much they are spending for a period of time.
Wants
A “want” is a financial expense that you could live without, but you pay to make your life more enjoyable. Examples of expenses that would be considered a “want” are travel, entertainment, expensive clothing, and other luxury items. It is important for a person to really know the difference between a “need” and “want.” For example, a basic car like a Volkswagen Jetta would be considered a “need,” in terms of transportation, while a Lamborghini would be considered a “want.” The Volkswagen would provide all the basic necessities but the Lamborghini would make life more enjoyable for the individual because the car is faster and looks more appealing.
How does an individual balance both?
The first action you should take to balance both would be figuring out your after-tax income (usually per month). Your income will then dictate how much money you can allocate to your needs, wants, and savings or investments. A commonly used method for budgeting is the 50/30/20 rule (50% of income for needs, 30% for wants, and 20% for savings/investing). Each person will have to develop a budget that is compatible with their financial situation and personality. Spending for your needs are usually not that flexible, so oftentimes people find themselves reducing their spending on wants. Once your spending needs are met, prioritizing your different wants can help balance your financial wellness and overall happiness. For example, I know that I want to travel, so that will take up a decent amount of my discretionary spending. I will then have less money to spend on other wants like expensive clothing, entertainment, or eating out. I am fine with this outcome though because I believe the experiences gained from traveling will bring more happiness compared to other wants.
Balancing wants and needs will always be a constant challenge for individuals because it is easy to spend money (at least for me 🙂 ). People can overcome this challenge though with consistent planning, discipline, and hard-work.
Disclaimer: Thegrownwave.com is a personal finance blog, not a professional investment advisor. The content produced from the blog is provided for free and only for informational purposes. Thegrownwave.com does not and cannot promise the accuracy and reliability of any content in comparison to your individual circumstances.
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