Needs vs. Wants - What’s the Difference?
May 30, 2022
In coaching I encourage clients, as they review their income and expenses, to differentiate financial needs from financial wants. On the surface, it sounds rather simple but there’s so much overlap it’s hard to separate them.
In the most basic form, needs are things vital to our survival like food, shelter, water, utilities, and the like. Aside from food, these expenses don’t vary much so they are called “fixed.” Years ago, having a landline was a need; today a cell phone has replaced that need. Along with the cell phone need comes a need for internet, cable, streaming and other apps, headphones, earbuds, and the list goes on and on and on. So, now a basic need has blossomed into many more needs, or are they wants? You see where I’m going with this?
Here’s an example regarding owning a car versus leasing: many people buy/lease a new car every 3-4 years like clockwork. Would it make more sense to keep that car longer and have no car payment so you can redirect those funds toward savings or another financial goal? Think about this: if you continually lease you will always have a car payment.
It’s important to differentiate and rank needs versus wants. Wants are also known as discretionary or variable expenses. They are certainly nice to have, not necessarily vital, but that depends on your view. Is a weekly golf game or a massage a need or a want? Are multiple streaming services a need or a want? The reality is there are only so many dollars of income coming into your bank account each month.
The point here is to take time to assess your values and align them with a goal that you’re working towards. If they don’t make the cut, you’ll know what to do as difficult as that may be! Being flexible over time is important too because our lives are never static.