Balancing budgets is hard. A frequent challenge is the battle of “needs” versus “wants”. Needs are basic – food, shelter, clothing, etc. Wants are all the extra things we would like to have.
The lines become blurred when we see something we want and tell ourselves we need it… that’s how budgets are busted. Managing needs and wants is not about living a lean life. It is more about striking a balance so we can go the distance for the bigger things like education, a great vacation, and retirement. Here are some of best practices to consider:
- Making a list of all your wants and needs (see examples in image above).
- Ranking your wants in order of how much each will improve your quality of life.
- Assigning an “A” to those wants that will provide a big improvement, a “B” to a moderate improvement, and a “C” for small improvement. (Those “C” wants are usually accompanied with buyer’s remorse.)
- Taking your needs and your “A” wants and see if both can fit into your budget. If not, ask yourself what you are willing to give up.
- If you are tempted to buy a “B” or “C” want, only pay with cash!
This increases your awareness—for every expenditure, ask yourself whether it is a want or a need. Let your needs and wants duke it out – you may be surprised at who wins the round.