The Difference Between Wants and Needs

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One of the toughest aspects of budgeting is separating wants from needs. Many people mistakenly categorize certain items as "needs" because they can't imagine life without them. But when push comes to shove, many of our needs are actually wants.

Need Is in the Eye of the Beholder

Here is a brief story that illustrates the foggy nature between a need and a want: There’s a classic episode of the children’s television show Sesame Street in which Elmo, the red muppet, learns how to save money. Ron Lieber, a money writer for the New York Times, once interviewed Elmo about the difference between needs and wants.

Lieber asked: “If Cookie Monster is really hungry for a cookie, does that mean he needs it or he wants it?"
Elmo didn’t miss a beat.
"He wants it," Elmo replied, "but if you ask Cookie Monster, he (thinks he) needs it."

That says it all. Sometimes, our wants are so powerful that we can’t imagine living without that item. We’d feel like Cookie Monster without a cookie. But a cookie is a want, not a need, no matter how much you love it.

The "Needs" That Are Really "Wants"

In budgeting worksheets, some people object to separate categories for items in the “wants” category. Home Internet, for example, is classified as a want, not a need. Most people associate the Internet as a “need.” But unless you work from a home office (in which case, your home Internet might be a business expense), there’s a good chance home Internet is a want. (If you're using it primarily to check Facebook, watch YouTube videos, find recipes and upload photos, it's a want.)

The same is true for your cable television. Your Netflix subscription. Your iPhone. Your hair dye. These are all wants, not needs. If it came down to it, you could survive without these things. They're not necessary to live, as painful as it might be to lose them.

Cross-Category Needs and Wants

Of course, wants and needs don’t fit neatly into little categories. It’s too simplistic, for example, to say that your grocery store spending is a need. Your entire grocery bill is a combination of wants and needs. Bread, milk, eggs, and whole fruits and vegetables are a need.

Chips and cookies meanwhile are a want. Fruit juice is a want, especially if it’s the upscale variety. Those $10-per-pound cuts of meat are a want. Similarly, basic whole grain bread might be a need, but premium 12-grain organic honey-infused bread is a want. Milk is a need, but organic milk is a want.

What Lesson Can Apply to Your Life

The 50/30/20 budget says that 50% of your after-tax income should be spent on “needs,” 30% should go to “wants,” and 20% should go to savings and debt reduction. That means there’s nothing wrong with buying fancy bread and milk or subscribing to Netflix. The 50-30-20 budgeting rule of thumb allows you to spend 30% of your take-home pay on things you want. The key is to separate your wants from your needs so that you’re more self-aware of how you’re spending money.

Distinguishing “wants” from “needs” will help you realize how much power and control you have over your own budget. If you’re choosing to spend money on wants, you can easily choose not to buy those items, and re-direct your money elsewhere. After all, budgeting, at its very core, is not about crunching numbers. Budgeting is the art of aligning your spending with your values.