Do you need that new jacket, or do you just want it really badly? Sure, you could say outerwear is essential for keeping warm in cold climates, but it\u2019s much harder to argue that it needs to be a luxurious leather coat.<\/p>\n\n\n\n
Some things you need, and some you just want. But just because you don\u2019t need something doesn\u2019t mean you can\u2019t buy it \u2014 as long as you manage your budget prudently.<\/p>\n\n\n\n
Here\u2019s what you should know about balancing financial needs and wants.<\/p>\n\n\n\n
Financial needs are expenditures that are essential for you to be able to live and work. They\u2019re the recurring expenses that more likely than not eat up a large chunk of your paycheck \u2014 think mortgage payment, rent or car insurance.<\/p>\n\n\n\n
Here\u2019s a short list of some common expenses that fall under needs:<\/p>\n\n\n\n
\u00bb MORE:<\/strong> How to build a budget<\/a><\/p>\n\n\n\n Wants are expenses that help you live more comfortably. They\u2019re the things you buy for fun or leisure. You could live without them, but you enjoy your life more when you have them. For instance, food is a need, but mochas and lattes are likely more of a want.<\/p>\n\n\n\n Wants typically include things such as:<\/p>\n\n\n\n These categories are pretty standard, but wants and needs won\u2019t be the same for everyone, says Leslie H. Tayne, founder of Tayne Law Group, a debt relief law firm in New York. She counsels clients in personal finance and says the concept of wants and needs can be psychological as much as financial.<\/p>\n\n\n\n For example, you may need a car so you can get to work each day, but a $2,000-per-month car lease may not be realistic for your budget. Still, some would consider it a luxury they need to have. So how do you tell the two apart?<\/p>\n\n\n\n \u201cWe really try to look at it from a business perspective, even though it\u2019s a personal finance issue,\u201d Tayne says. \u201cCan that person live without that item? Is it absolutely necessary for the running of their household?\u201d<\/p>\n\n\n\n If it\u2019s not a necessity, it\u2019s a want.<\/p>\n\n\n\n \u00bb MORE:<\/strong> 5 steps for tracking your monthly expenses<\/a><\/p>\n\n\n\n So how do you start accounting for wants and needs in your budget? Begin by writing a list of all the things you buy, Tayne says. That means everything from toilet paper to life insurance. Then, group purchases into broad categories like toiletries, cable, phone and insurance.<\/p>\n\n\n\n Divide the categories into two buckets: wants and needs. We\u2019d place insurance and a basic phone plan under needs, but a Netflix subscription and deluxe cable package will more than likely fall under wants.<\/p>\n\n\n\n Tally the totals and align your priorities. At NerdWallet, we recommend the 50\/30\/20 budget. If you distribute your monthly income in this fashion, you would spend 50% on needs, 30% on wants and 20% on savings and paying off debt. Plug your monthly take-home income into this budget calculator<\/a> to determine how much you have available for each category.<\/p>\n\n\n\n If your current spending is disproportionate based on the list you made, there\u2019s good news: You can make adjustments. Here\u2019s a simple way to start:<\/p>\n\n\n\n Courtney Jespersen is a staff writer at NerdWallet, a personal finance website. Email: <\/em>courtney@nerdwallet.com<\/em><\/a>. Twitter: <\/em>@courtneynerd<\/em><\/a>.<\/em><\/p>\n\n\n\n The article Needs vs. Wants: How to Distinguish and Budget for Both<\/a> originally appeared on NerdWallet<\/a>.<\/p>\n\n\n\nHow to prioritize needs and wants<\/h3>\n\n\n\n
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