Budgeting 101: How To Define ‘Needs’ vs. ‘Wants’
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If part of your goals for this year is to get in the best financial shape of your life, then you’ve probably started thinking about a budget. One of the most popular budget strategies is the 50/30/20 rule.
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The goal of the 50/30/20 rule is to spend 50% of your budget on needs, 30% on wants, and 20% on savings. But for some, it can be difficult to distinguish between needs and wants. It can also be difficult when your needs and wants don’t match everyone else’s. Needs can vary not only by geographic region and family size, but also by several other factors.
The most important thing is to set realistic expectations for yourself and give yourself some leeway. Here are a few tips for defining needs and wants so you can get your budget in shape.
What are needs?
Needs are usually viewed as your daily living expenses. Ideally, you’ll be spending about half your budget on these necessities each month. It gets difficult when you have needs that are atypical or more costly than the average person’s, such as: B. Medical expenses related to an unexpected illness or injury.
Needs often include, but are not limited to:
- rent or mortgage payments
- health insurance costs
- Transport costs (car payment, insurance, gas, etc.)
- Groceries and Grocery Bills
- Household contents or renters insurance
- work-related costs
- childcare costs
Additional necessities costs that may not apply to everyone include court costs (child support, overdue taxes, spousal support) and school-related costs. In some cases, paying these additional expenses can result in you going over your 50% budget on demand. The 50/30/20 rule is not hardline. It is designed as a guide.
If you are unable to meet your obligations from your current income, it may be worth meeting with a financial professional.
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what are wishes
Desires include anything else you spend money on. They are voluntary expenses or costs that are not necessary to meet your basic needs.
Typical requests are usually:
- Entertainment (concerts, amusement parks, leisure activities)
- Cable TV and streaming services
- to eat out
- Traveling expenses
- Most clothing (although a basic wardrobe is generally considered necessary)
- Gym memberships
- Subscriptions such as game apps, magazines and services
It’s important to remember that a successful budget generally doesn’t require you to completely eliminate all things that make you happy. Your budget should allow you to spend money on things you enjoy in moderation.
What is not considered a want or need?
In addition to wants and needs, the 50/30/20 rule calls for putting 20% into savings. However, many people carry significant debt. Many financial experts recommend using the 20% savings portion to pay down your debt before using it for a bad day or retirement fund.
How can I reduce my desired expenses?
One of the hardest things for people to do is reduce their “want” spending. However, there are some tips and tricks to reduce your discretionary spending.
First you need to write down your income and expenses. Seeing how much you’re spending can help you find savings. Many people don’t realize how much they spend on non-essential things each month. Subscription services that are deducted directly from your credit card or checking account are a common reason for unnecessary spending that is easily forgotten.
Next you can develop a reward system. Set spending targets with incentives when you reach them. Many people are reward-oriented. Assuming your goal is to spend less on dining out, you can decide to treat yourself to dinner after you’ve eaten at home for the week.
Finally, you can choose to leave your credit cards at home when you go to the mall or a retail store. Eliminating temptation can help you stay on track and on budget.
Final considerations on the budget
As you begin to define your needs and desires, remember that there is no one-size-fits-all budget. Your needs may be slightly different than those of your friends and family. Giving yourself the opportunity to spend money on the things you love can actually help you stay on budget over the long term.
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