Keeping on top of budgeting your money and how you spend it can become a difficult task for any age. Whether you are in college trying to keep track of the way you spend, or you have a family you need to save for, budgeting is a great tool to use when determining the difference between needs and wants.
What are needs in terms of financials?
Needs are items that are necessary to live, and like it or not, they normally take up the majority of income. These things could include rent or a mortgage, utility bills, groceries, insurance, a vehicle and gas, healthcare expenses, etc. Some might consider these the “no fun” items that are a part of most everyone’s budget.
What are wants in terms of financials?
Now here is where the fun comes in, and where people struggle most: wants. Wants are items that you choose to buy but could live without. These are the expenses you balance to fit within the little portion of your income remaining after your needs are fulfilled. This wants list varies widely by person, some common things could be going out to eat, entertainment, traveling, electronics, new clothing, memberships, and so on. Wants often come faster than the cash to afford them, which is why you must prioritize and budget to plan for them. Wants are much more fun to spend your money on – which also means it’s usually easier to hold yourself to a budget for them.
What about savings?
Hopefully somewhere in your budget is savings or investments. While using a portion of your income as part of your financial plan won’t feel like an immediate benefit to you, it’s necessary to provide you the funds necessary to sustain both your needs and wants long into the future. The more you save now, the more fun items you can have later!
How can I budget for needs, wants, and savings?
Many people know to use the 50/30/20 rule, and it could help you too. The math is simple, the actions necessary to accomplish it may be more challenging! You put 50% of your income into the needs section of the budget, 30% into the wants section, and 20% into your savings account. Although many financial advisors recommend this a basis to try to follow, any rule you use needs to be somewhat flexible as situations may require you need to move money around. The 50/30/20 rule is a good place to get you started on budgeting, and working with a financial advisor will help you customize a plan to your goals.
Budgeting is something that many people struggle to do. Having a plan in place can help you save money and even give you a little more wiggle room when you need it. All three – needs, wants, and savings – are very important.
It’s even a good rule to help your children embrace as they start to earn cash, even if it’s money from raking leaves or as they start their first job – although you may need to revise the ratios to more heavily supplement their savings.
Take the time now to budget and create a strong financial strategy for yourself and your family!
Sources:
Needs vs. Wants: How to Budget for Both - NerdWallet
Wants vs. Needs: Understanding the Difference (thebalance.com)
To view the article in the online 2021 Fall Partners Magazine, click here.
