- Need: A necessity, something required, something essential for life
- Want: A desire, something wished for, something non-essential
Using these definitions, “a roof over my head” is a need. So are clothing, food, tools for work and medications. “A vacation” is a want, and so are meals in restaurants, video games, gym memberships and designer shoes.
Of course, one person’s want may be another person’s need. For Bob, who lives near a bus route, a car may be a luxury, while for Sue, who doesn’t have access to public transit and can’t cycle to work, a car may be a necessity.
Knowing the difference between needs and wants is the first step. The next step is setting priorities so you know where to spend your money.
One helpful way to set spending priorities is the 1-2-3 system:
- 1 = items that are essential for healthy living (e.g., basic food, shelter, clothing)
- 2 = items that are not essential but are important (e.g., a bicycle or transit pass, running shoes, cell phone)
- 3 = items that are not essential and not important (e.g., candy bars, spa treatments, music downloads)
Needs are things that are essential for life. Wants are non-essential items that we would like to have.
- It’s important to differentiate between needs and wants and to balance them in your life.
- Set spending priorities so you will have money for the things you really need and want.
- Many factors influence how you spend, including emotions, habits and peer pressure. Watch how these different factors affect your spending decisions so you can get control of them.