Needs

Needs summary:

• Our needs include the basic essentials required for everyday life, such as food, shelter, and utilities.

• A good budget can help you separate needs from wants and keep track of both.

• Needs should always be prioritized over wants in a budget.

Needs Definition and Meaning

Needs are things you require to live and function. If you're in need, you lack the basic resources for day-to-day survival. 

In financial terms, your needs are those expenses that you have to pay to stay alive and healthy, such as housing and food bills. It can also include expenses that are required to keep your finances healthy, like savings and debt repayment.

Needs vs. Wants

One big part of building a working budget is defining your needs as opposed to your wants. We can also think of this in terms of must-haves versus nice-to-haves.

Some examples of needs or must-have expenses:

• Housing (rent or mortgage payment)

• Utility bills (electricity, water, trash)

• Food 

• Transportation

• Basic clothing

• Medicine and healthcare

• Insurance

• Debt repayment

These expenses are examples of wants or nice-to-haves:

• Vacations and travel

• Cable and streaming services

• Restaurants and dining out

• Designer or luxury items

Some expenses may look like needs but are actually wants. You need clothing to stay warm and socially acceptable, but you don't need designer clothing or brand new outfits every month. 

Some expenses can be labeled as both needs and wants. Essential groceries, like produce, are a need, while nonessential groceries, like snacks and desserts, fall firmly into the want category.

How to Identify Your Needs vs. Wants

Here are some questions you can ask yourself if you're having trouble categorizing an expense as a need or a want:

• What need does this expense fulfill? If the expense doesn't fulfill a basic need for a healthy life, then it's probably a want.

• Are you already meeting a need? Upgrades and replacements can be needs, but buying something new when it's not necessary makes it a want.

• Do you require this expense to do your job? A steady income is definitely a basic requirement for survival for most people, and many jobs require at least some expenses like transportation or specific clothing.

• Will this expense directly lead to a healthier or more fulfilled life? Expenses that better your life, such as paying for a degree or certification, can be needs when they're key to improving your long-term health and stability.

• What will happen if you don't buy this? If the other questions don't help, think about how your life would change without that expense over the next few months or years. Would it cause you long-term harm? If the answer is no, then it may be a want.

You don't need to remove all the wants from your budget. However, you should prioritize your needs over your wants and keep the wants to a reasonable portion of the budget.