Needs vs. Wants: How to Budget for Both

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Written by Courtney Neidel
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Edited by Kirsten VerHaar
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Some things you need — a roof over your head, electricity in your home, gas in your car to get to work — and some things you just want, like tickets to a show or dinner and a movie. You can fit both into your budget and still set money aside for emergencies if you manage your spending with care.

Keep reading to learn how to balance financial needs and wants.


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Determining needs

Financial needs are expenditures that are essential for you to be able to live and work. They’re the recurring expenses that are likely to eat up a large chunk of your paycheck — think mortgage payment, rent or car insurance.

Here’s a short list of some common expenses that fall under needs:

  • Housing.

  • Transportation.

  • Insurance.

  • Gas and electricity.

  • Food.

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Identifying wants

Wants are expenses that help you live more comfortably. They’re the things you buy for fun or leisure. You could live without them, but you enjoy your life more when you have them. For instance, food is a need, but daily lunches out are likely more of a want.

Wants typically include things such as:

  • Travel.

  • Entertainment.

  • Designer clothing.

  • Gym memberships.

  • Coffeehouse drinks.

Wants and needs won’t be the same for everyone. You may need a car to get to and from work each day, for example, but the type of car you need can vary. If your job requires driving around high-powered clients, for example, a luxury car may be a need. If you're simply shuttling yourself to and from the office, it's likely a want and a more affordable car will suffice.

The same is true for smaller-ticket items, like that new coat you're eyeing. Outerwear is definitely essential to protect you from the elements, but if you have three other coats in your closet, that jacket is probably a want.

Budgeting for both needs and wants

So how do you start accounting for wants and needs in your budget? Begin by writing a list of all the things you buy. That means everything from toilet paper to life insurance. Then, group purchases into broad categories like toiletries, cable, phone and insurance.

Divide the categories into two buckets: wants and needs. We would place insurance and a basic phone plan under needs, but a Netflix subscription and deluxe cable package will more than likely fall under wants.

Tally the totals and align your priorities. At NerdWallet, we recommend the 50/30/20 budget. If you distribute your monthly income in this fashion, you would spend 50% on needs, 30% on wants and 20% on savings and paying off debt. Plug your monthly take-home income into this budget calculator to determine how much you have available for each category.

If your current spending is disproportionate based on the list you made, there’s good news: You can make adjustments. Here’s a simple way to start:

  • Move things around. Take a close look at your categories. Some of the items you’ve indicated as needs may actually be wants, or vice versa.

  • Trim spending on needs. The cost of your necessary spending isn’t always fixed. Shop around for a better rate on your phone plan, cable package or even your insurance to save money on your needs. Shopping around for car insurance could save you more than $400 per year, according to a NerdWallet analysis.

  • Trim spending on wants. Consider downsizing your wants if they’re taking over your budget. Limit how many days you dine out, for example, or opt for more affordable lodging the next time you travel.

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