Wants versus Needs: Learn to Prioritize

There are two basic categories of things we spend our money on: needs and wants. Needs are things we must have to survive, such as food, water, shelter and clothing. Wants are things that we would like to have, but we would not be worse off without them.

In theory, this is an easy concept to understand. But in practice, it's rarely that cut and dried. When we see something we really want, we often rationalize getting it by calling it a need. While there's no harm in buying things we want if our needs are taken care of, it's this type of thinking that often spells trouble in the long run.

The Gray Area

Separating wants from needs is complicated by the fact that some of the things we want are quite similar to the things we need. Consider food for a moment. We need calories from it to sustain ourselves. We also need nutrients, vitamins and minerals found in a variety of foods to support our body's functions and stay healthy. But do we need expensive gourmet ice cream to survive, or dinner at a fancy restaurant once a week?

Transportation is another area where wants and needs may be blurred. If we live within walking distance of our jobs and stores where we can buy necessities, no transportation except our two feet is necessary. If not, public transportation might be what we need to get us where we need to go. For those who live in rural areas or work many miles from home, however, a car might be a need. But while a $60,000 sports car would meet our transportation needs, a less expensive model would meet them just as well.

Today's society has placed a great deal of importance on having the latest and greatest in everything. But in order to prioritize effectively, it's important to put that notion aside. In reality, we do not need nearly as many things as we think we do.

Telling the Difference

Sometimes a conscious effort is required to separate wants from needs. This is especially true if you've gotten into a habit of buying impulsively without giving much thought to whether or not you need something. But if you make it a point to analyze each purchase, it will become second nature.

When you are about to put something in your shopping cart, stop and think about it for a moment. If you consider the item a need, what aspect of your survival do you need it for? Is there something else that would suit that purpose just as well or better? If so, why do you need the item you chose? In many cases, you'll find that you really didn't need it at all.

Learning the difference between wants and needs is essential to gaining control of our finances. By putting true needs first, we can reduce spending and have more money to put into savings. We don't have to completely give up our wants, either. As long as there's room in the budget, indulging every now and then is perfectly fine.