Needs Versus Wants

To begin pinching pennies out of your budget, you should consider all of your expenses and determine which are needs, which are wants, and which are some combination of the two.

Needs

Needs include clothing, shelter, food, and transportation to work. You may need medicine or education. If you have dependent children then you must provide for their needs as well. And we all need love.

Wants

Wants are just about everything else. They are the pie-in-the-sky dreams we believe we may never achieve, but they are also the frivolous things on which we waste our money because advertisers manipulate us into "needing" them. I do not mean all wants must be avoided, just that you should recognize them as optional.

The gray area

When saving money, you will make the most progress looking at those items that reside in the gray area. I think of these as needs dressed up in wants. You need protein, but you want a rib eye steak. You need shelter, but you want a loft in the city. Your children need exercise, but they want a trampoline. You get the idea.

Why are these distinctions important? Needs are not optional; you must make sure needs are met. You will go into debt if necessary to ensure your child gets food to eat or to fix your car if you use it to get to work. But as you consider all of your expenses in relation to these categories, you will begin to see places you can cut wants and better meet your needs. Perhaps you will decide that although you need a snack at your 10:00 am break, and you have wanted and purchased something from the office snack machine each day in the past, from now on you will bring a snack from home that saves you $.40/day.

You will also begin to weigh your wants. You may find that you want a newer, more reliable vehicle more than you want the latest video game or a night on the town. Or you may decide instead that you want the nights on the town enough to squeeze a few more months out of the car you have.

Getting clear about what you want will help you choose what you want most and help you pinch the pennies to pay for it.