Needs vs. Wants: Difference, Examples, and Budgeting Tips was originally published on The Muse, a great place to research companies and careers. Click here to search for great jobs and companies near you.
One of the first steps in making a budget is understanding the difference between wants and needs. It might seem obvious for some—“just look at the words,” right? But it’s not that simple. What is a need and what is a want can differ from person to person.
Not only that, you might misinterpret what is a want and a need because you’re so used to having certain things that you’ve forgotten they aren’t necessities. (You know that fancy gym membership? It’s not a need. Really.)
Learning to differentiate needs from wants helps you make smarter money decisions, use your resources wisely, and avoid unnecessary spending. It’s all about creating a balanced budget that covers the essentials but still leaves room for some of life’s greatest pleasures. So, let’s figure out needs vs wants.
Needs vs wants: what’s the difference?
Needs are essential for survival and basic well-being. They form the foundation of our lives, ensuring we have a safe place to live, nourishing food to eat, access to medical care, and reliable transportation for work, errands, and appointments.
Examples of needs:
- Housing
- Food
- Healthcare
- Utilities
- Transportation
- Clothing
Wants are non-essential items that enhance lifestyle and comfort. While they can make life more enjoyable, they aren’t necessary for daily living.
Examples of wants:
- Dining out
- Taking vacations
- Streaming services
- Gym memberships
- Luxury items
“To distinguish between the two, individuals should evaluate whether the item in question is necessary for their daily living or if it serves as an enhancement,” says Financial Specialist and budgeting expert Rose Jimenez.
A Netflix or Max subscription, for example, is a nice way to entertain yourself on a Sunday evening, but it’s not essential for your well-being. The same goes for an expensive jacket or dinner with friends. On the other hand, a healthcare plan, grocery shopping, and money for a bus or train ticket to work are essential for daily life.
Knowing the difference, Jimenez says, “will help you maintain a balanced budget that prioritizes essentials.”
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Needs masquerading as wants
Sometimes, what we see as needs are actually wants in disguise. “To spot wants in disguise, think about if they offer quick satisfaction or real long-term value,” says Michael Schmied, Senior Financial Analyst at Kredite Schweiz.
“I remember considering a fancy new coffee maker—even though my old one worked fine,” Schmied says. “It was more about the excitement of something new than an actual need. Always ask yourself, ‘Does this really improve my life, or just my mood for a moment?’”
Understanding the difference between wants and needs becomes clearer when applied to everyday scenarios. Take housing, for instance. Renting a modest apartment can be a need, while purchasing a luxurious house might be a want, offering more space and comfort than actually necessary.
Similarly, with transportation, getting to work or running errands is a need. You can choose between a public transportation pass, a fuel-efficient car, or even a bike. All can fulfill your need for transportation but with varying costs and convenience factors. On the other hand, owning a high-end model car can be seen as a want.
“Overcoming this mental block requires heightened self-awareness, discipline, and a clear understanding of your short and long-term goals,” Schmied says.
Ultimately, aligning your spending with your values and priorities is key to effective financial management. Regularly reviewing and updating your list of expenses and categorizing them as wants or needs help your financial decisions reflect what truly matters to you. This habit helps in budgeting and promoting a more fulfilling and purpose-driven approach to managing your personal finances.
Is saving a need or a want?
Saving money might seem like a want—something extra you do if you have leftover cash. But if you look closer, many financial experts say that saving is closer to a need.
“I see [saving] as essential for long-term security and peace of mind,” Schmied says. “Having that safety net just makes life a whole lot easier—especially when unexpected costs pop up.”
An emergency fund is an example. It helps shield you from unexpected costs like medical bills or car repairs, preventing you from falling into debt. Additionally, saving for retirement, education, or a down payment on a house are all future needs.
But while saving is crucial, it’s still important to find a balance. You don’t want to deprive yourself completely of the things you enjoy (your wants!). The key is to prioritize your needs (including saving) and then allocate leftover funds toward your wants.
Building a budget for success
Conquering your finances starts with building a solid budget. One of the tools at your disposal is the 50/30/20 rule. This budgeting framework recommends allocating 50% of your income to non-negotiables like housing, food, and healthcare.
Next comes the fun stuff! Allocate 30% of your income to flexible spending, your wants. This is where your entertainment, dining out, and those desired extras come into play. The key here is to be realistic. Don’t blow your entire 30% on the first weekend!
The final 20% is crucial for long-term security. This is your financial future fund, so use it to build your emergency savings, pay down debt, or invest for retirement. With this approach, you can meticulously track your spending and make financial adjustments.
Exploring alternative budgeting methods
The 50/30/20 rule is a fantastic starting point, but there’s a whole world of budgeting techniques out there!
1. Zero-based budgeting
Zero-based budgeting is all about intentional allocation. With this method, you assign every single dollar of your income a specific purpose each month. Since there’s no “leftover” category, everything gets designated toward needs, wants, or savings goals. This forces you to be hyper-aware of your spending and can be very effective for those seeking complete control over their finances.
2. Envelope system
The envelope system is a classic, hands-on approach that starts with cash. Organize your dollars into labeled envelopes, assigning specific amounts to different spending categories (wants or needs). Once the cash in an envelope runs out, your spending in that category stops for the month. This method provides a tangible reminder of your budget limitations and can be helpful for visual learners or those who struggle with impulse spending.
While traditionally done with physical cash, some budgeting apps allow you to create virtual envelopes. This can be a great alternative if you prefer not to deal with paper money. Check with your bank’s app or explore budgeting tools to see if they offer this feature.
3. Priority-based budgeting
Priority-based budgeting is all about aligning your spending with your values. Start by identifying your most important financial goals—paying off debt, saving for a vacation, or building an emergency fund. Then, allocate your income to those priorities first, with needs taking the lead. This way, your financial decisions are driven by your core values and long-term goals.
The importance of flexibility
As you move through different life stages, your definition of want vs. need will likely evolve. What was once a necessity may become a luxury, and vice versa. It’s important to re-evaluate your budget from time to time to ensure it aligns with your current goals, values, and responsibilities. By maintaining flexibility and regularly updating your budget, you can adapt to life’s changes and make sure your financial plan remains relevant and effective.