Psychologists, writers and financial experts frequently explore the topic of needs vs. wants, but it takes both theory and practice to produce and stick to a budget that puts messy family finances on the road to recovery. Get buy-in from family members when designing your needs vs. wants budget so you can rely on each other for support if you find yourself reverting to the spending habits that got you into trouble in the first place.
Acknowledge the Difference
Wants and needs can vary depending on your financial and lifestyle circumstances. Typically, needs include basics like food, shelter and clothing. Wants, on the other hand, are material items you can live without, but desire to own. You need food to avoid hunger, a roof over your head and warm clothing, but those needs can morph into wants when they become a banquet, six-bedroom estate and designer wardrobe. Take some time to consider your true needs in these budget areas, and then make a list of what you really need, and another list of what you would like to have. “Understanding the difference between your needs and wants is a vital part of saving money,” writes personal finance expert Carmen Wong Ulrich.
The Second Tier of Needs
Secondary monthly expenses—or needs—can include the credit card, medical and child care bills arriving in your mailbox each month, as well as insurance, utilities and transportation. Consider them your second tier, and schedule payments following the aforementioned basic needs. The money remaining in your budget is the surplus or discretionary cash left over to cover items on your wants list. Keep a running subtotal of expenditures. As discretionary funds become available, winnow down your wants list.
Decrease Your Debt
Reduce your liabilities faster by using funds from your wants budget to pay down interest-bearing account balances. Paying just the minimum amounts adds debt in the form of interest. Accelerating the pace at which you pay off debts can allow you to set aside cash in a savings or investment plan. Should you discover that you are juggling more debt than your needs budget can handle, the savings account can cover items on your needs budget.
Keep Tabs on Your Budget
Remain vigilant once you become adroit at prioritizing your budgetary needs vs. your wants. It’s human nature to return to old habits or grow complacent even after making positive lifestyle changes. If you feel yourself slipping back into your old way of thinking and spending, call on one of your family members to help you get back on track.
- JA/American Express Personal Finance Center; Budgeting: Needs vs. Wants
- USAA; Financial Advisor Blog/Managing Your Money; Budgeting Basics: Needs vs. Wants
- Nickelodeon Parents Connect; Family Budget: Financial Needs vs. Wants
- My Credit My Future; Worksheets & Letters; Creating a Household Budget: Wants vs. Needs
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