How to Identify Needs vs Wants In Your Budget

Identifying needs vs wants in your budget helps determine if budget items are essential or non-essential. Doing this allows the possibility of improving a budget for lower costs and greater savings. When distinguishing between needs and wants, determining if you can survive without significant to change to your life can be helpful.

On the other hand, adjustments to budgets based on identification of needs and wants can also affect quality of life and standard of living which are within the realm of needs, hence identification of needs can be a little more involved than basic survival.

Becoming adept at convincing oneself that wants are actually needs can cause budgets to suffer. You may need transportation but what kind of transportation do you need? You may require food to live, but does that mean eating at a restaurant is a need? Are potato chips an essential vegetable? What kind of entertainment is essential to meet a need for joy and how important a need is joy?

Needs are generally more important than wants, however, needs can be classified in different ways. Maslow's hierarchy of needs include things like 'Self-Actualization' as the highest order of needs. Most people can live fairly comfortable lives without self-actualization, therefore, the type of needs and the method by which needs are identified can affect how a budget is defined in terms of needs and wants.

Classification and identification of needs vs wants

Identifying needs vs wants in your budget involves a standard or criteria by which needs are distinguished from wants. For example, a new vehicle may be a want if a vehicle is already owned, but the type of vehicle one already owns may also be a want in the sense that not all car types are required to fulfill a need assuming a vehicle is needed.

A system in which budget items are identified by needs priority can help identify which needs are more important than others and which needs are actually wants in disguise. The following dualities can be used to distinguish needs by type.

1. Needs identification by type

• Physical needs vs Psychological needs
• Essential needs vs Non-essential needs
• Empowering needs vs Non-empowering needs

To identify needs vs wants in your budget also involves determining which needs are also wants. For example, some wants may be misidentified as psychological needs; psychological needs such as sense of self-worth may be influenced by certain wants that affect standard of living or status.

If self-worth can be affected by something that is free, that item can be considered the need in relation to the want. To illustrate further, self-esteem may be a need that is not determined by objects of value at all; in such case a healthy attitude about the self may be all that is needed instead of a Rolex.

Needs and wants identification by affect

The affect items of value have on standard of living and quality of life can also be used to identify needs vs wants in a budget. For example, the type of food we eat may affect both standard of living and quality of life, however, only the most basic of foods are essential needs making everything else either a higher order need or a want. To determine if a budget includes unnecessary needs or wants, hypothetically eliminate those things from your budget to see if the affects meet the following criteria:

• Your acquisition of needs will not be impacted
• The items are redundant
• Quality of life will not be negatively influenced
• Reasonable goals and aspirations are unhampered

To further illustrate the above criteria consider point 1. Mr. Bacchus enjoys a special type of lettuce grown in Costa Rica but this lettuce costs $2.50 extra per head. This lettuce is merely a preference and not a need. Furthermore, the removal of this item from Mr. Bacchus' budget meets the above criteria because 1) the acquisition of needs are not adversely affected, 2) the item is not essential and is replaceable, 3) the affect the lettuce has on Mr. Bacchus' quality of life is negligible i.e. it is a want not a need. And 4) Mr. Bacchus' goal of eating only the best lettuce is unhampered because more cost effective lettuce of high quality is obtainable elsewhere.

Summary

How to identify needs vs wants in your budget is a partially subjective matter determined by one's existing life. That is to say, changes to a budget for person A may not have the same affect on life for person B due to the needs currently met in person B's life. The means by which needs are distinguished from wants can also affect identification of such.

In other words, two different models of needs vs wants identification may classify needs and wants differently and may even determine some wants to be needs when in fact items only meet needs and are not the needs themselves. In any case, needs and wants are separate things that can adversely affect a budget, hence the need to distinguish them.

Source: http://www.deptorg.knox.edu (Maslow's hierarchy of needs)