We often don’t know the difference between what we need and what we want. This makes making smart financial decisions difficult. To make a budget that helps you save money and to stick to that budget, we need to know what we need to make our life comfortable but what we want to make it lavish.
Knowing the difference between want and need is essential for labeling your purchases. When you know what you truly need and what you can do without, it makes it easier to reduce spending on things that you don’t actually need and also helps you stay on budget.
There are things that are truly essential needs for you to survive, for instance, all the basic necessities like water, air, food, shelter, clothing (sometimes). Then comes the basics of living in a society like community, basic hygiene, transportation, and health insurance. And that’s the basic need induced expense you have to make as an adult responsible for your own wellbeing.
Everything else can be categorized as “want” or “want that we think we need”. Many people fool themselves with subconsciously trying to cove up the “want” as “need.” All this does is stops you from feeling guilty. When you don’t feel guilty for overspending, you won’t take measures to reduce your expenses.
Labeling your purchases as such help remove emotions and endorphins at the moment of impulse buys which is really helpful for people who resort to retail therapy. It also starts to usher you in the direction of rational thinking.
Determining if the purchase is a want or a need can help you to prioritize it in your budget. Even after becoming more aware of classifying your purchases, you still need to use discretion on the needs.
For example, you may need to buy a car, since yours is in need of frequent repairs, but that does not mean you need to buy a BMW. A car is a need but a luxury car is a want.
Being mindful of your needs also doesn’t mean going for the cheapest option available. You have to find a balance between price and value. Most times when you go for the cheapest, chances are the side effects will include a big expense in the future because of it.
For example, when you are on a tight budget, fast food and processed food is something you often find cheap compared to organic. Now, this might be the cheapest now but will cause health issues in the future. This affects your financial and physical health negatively over time. So, buying healthy unprocessed food that you can buy from your local supermarket is a need. But, again dining out at a 5-star restaurant is not.
If your purchase is essential, then it will most likely not put a strain on your pocket but if it isn’t then you will have to make some adjustments in your budgeting. This is why it is important to determine if your purchase is essential.