My 8 year old recently brought home homework with the topic of “the difference between needs and wants”. My first thought was directed to her teacher ‘good luck on that lady, I’ve been trying to teach her that myself only for the last 8 years’. Yes, I constantly correct her when she says “I NEED those jeans” and I say “no….you WANT those jeans”. How is it that we can clearly see when someone else makes this mistake yet we ourselves think we NEED the same things?
One of the keys to financial success is distinguishing between needs and wants. We live in a society that rarely makes a distinction between the two.
Take phone service for example, we NEED a phone yes, but do we need a phone with all the fancy gadgets or call waiting or caller ID for example. We NEED clothes but do we need the most current brands with their hefty price tags.
Budgeting with NEEDS first
There have been numerous articles written regarding the “B” word. I’m talking about the infamous BUDGET. There is a whole software industry out there related to the topic so I don’t want to reinvent the wheel for any of you but I wanted to direct our attention to NEEDS and WANTS and how to create a simple budget with the difference between the two in mind.
I like to think of a budget as a list of priorities from top to bottom. If you list your priorities and start allocating your income to each one accordingly, you may be able to find out where the line is that your NEEDS stop and your WANTS begin.
Here is a sample prioritized list of budget items.
1. Shelter (mortgage or rent)
2. Food (cooking at home only)
3. Utilities (electricity, water, gas, basic phone) NOT Cable or phone extras such as call waiting, caller ID, etc.
4. Transportation (car payments and gasoline)
5. Insurance (home, car, health)
6. Charitable Giving
7. Debt payments (student loans, credit card, etc.)
8. Savings (Emergency Fund)
9. Utility Extras (cable, phone extras, etc.)
12. Eating Out
Do you know where your NEEDS stop and your WANTS begin? I challenge you to draw that line.