Difference between Needs and Wants

One of the important aspects of Financial planning is spending money wisely. Now, what does it mean when I say “Spending money Wisely”? All the expenses & spending activity we do can be classified under two sub heads ‘Needs’ & ‘Wants’. Improper handling of money happens when you spend too much on your Wants and too less on your Needs.

The aim should be to spend/save money for your needs and then take care of your wants. Once you prioritize all your expenses/goals in these categories, planning your finances becomes easy!

What is the Difference between Need and Want?

Needs: A need is something which is essential for you irrespective of the financial situation/conditions. These are the things you have to take care first and only then comes other things which you can do without.

Needs Example

- House Expenses
– Child Education
Saving money for Retirement
– Medical Expenses
– School/College fees and expenses
– Family Vacations and outings (in limit)

Wants: These are things which you wish to have but they are not above your Needs. For example a Car is a Want when compared to your Child Fees or Education saving. You can live your life without car but Child Education is Vital and cannot be compromised.

Some people’s Wants can be a Need for others and vice versa. It all depends on personal life style and attitude. But the main point here is that you have to differentiate between your Needs and Wants at short to medium term time frame and Long term view.

Wants Example

- Extra Vacation
– Expensive clothes above your normal requirement
– Expensive Car or any vehicle above your budget

Note: Understand the point that Wants are not something which you should avoid but your Needs can/should not be compromised because of your Wants.

Why is it Important these days?

These days almost everyone live their life in a unplanned manner especially their finances are Unplanned in a Big Way. People spend first and think later/late about it. But money spent once will not come back.

Once you prioritize things well and have a proper road map on your spending pattern you can take care of your Needs first and then move towards fulfilling your Wants.

Let us take a case Study

One of my friend spends his money in a pathetic manner. He earns around 30,000 per month and is already in job from last 2 yrs. He spends a lot with his friends on parties on weekend. He buys branded shoes which he is very fond off. Great …!! He does not understand the value of what small savings can do.

Just before the year end he asked me how can he save the tax and wants to invest some money.

On further inquiry I come to know that his Parents are dependent on him (though he is not sending any money at this moment to his home). So he needs good amount of Insurance, he has no savings till now! Finally he is not left with any money to even pay insurance premium this year (2009), not invest any money in some mutual fund.

What is the point?

This person has spent his money on all the things he wants and nothing on his needs- which are essential. He has violated fundamental rule of Financial planning which will affect him very badly.

Once all your needs are taken care of and if you are left with surplus, I, myself would encourage you to spend your money on satisfying your Wants like no tomorrow!! But first comes important things- you can live without your Wants, but not without Needs.

Imagine you are going for Golf Games and you are not left with money that is enough to take your Family out sometime on vacations.

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By Manish Chauhan on May 26, 2009 · Posted in Psychology & Wisdom

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20 Comments | Post Comment

Anonymous says:

manish,..

i think you u r using ‘there’ instead of ‘their’….it will only add beauty to ur blog..

Posted on May 26th, 2009

Manish Chauhan says:

@Anonymous

thanks, I have made the correction .

Manish

Posted on May 26th, 2009

Sandeep says:

Dear Sir,
I am CA Sandeep Kanoi from Mumbai. I am the web-Admin of http://www.taxguru.in . Leading website for Chartered Accountants, Company Secretaries and other accounts professionals.

Currently, I’m in the process of promoting more sites in several fields and am looking for quality partners to exchange links with. I believe that your website will be an impressive addition to the list of sites I currently exchange links with and that’s why I would be interested to know if it is possible to place a link to my website http://www.taxguru.in from your homepage?

Please send me your site details so I can link to yours in exchange.

If any question might arise, feel free to contact me at – kanoisandeep@yahoo.co.in or at info@taxghuru.in .
With Regards,
CA Sandeep Kanoi
http://www.taxguru.in

Posted on May 28th, 2009

Manish Chauhan says:

Sandeep

Your site looks good to me . I am sure it will provide value addition to my readers in area of tax . Sending you a mail .

Manish

Posted on May 28th, 2009

khalid says:

Impresed, very intresting article on savings and spendin, keep it up.

Posted on May 31st, 2009

Manish Chauhan says:

Thanks Khalid

I feel happy that you find the articles insightful .

Keep visiting .

Manish

Posted on May 31st, 2009

Neha Bagoria says:

Manish that's a very micro look at the investment scenario. Yes at times we learn the lessons only after tastin' rough waters.

Posted on June 4th, 2009

Manish Chauhan says:

@Neha

yeah … most of the people learn by making mistakes and that a good way of learning , but better we learn from reading and sharing knowledge :)

Manish

Posted on June 4th, 2009

Bank account says:

I totally agree with you and it is true that differentiating needs from wants is the first step in financial planning. Here is my story.

I did not write all my wants and needs in the sheet of paper right away. When it comes to money, I base my decision on figures. So what I did was, I looked at my previous bills. From the expenses I incurred last month, I separated needs from wants.

At the end of each month, I sit down with my expenses record book and compare the previous bills from the new one to see if I made progress.

For three months now, I was able to cut half of my want's expenses and added a considerable amount of money in my savings account. Now, I am looking forward to invest in stocks soon.

Posted on September 8th, 2009

Manish Chauhan says:

@Bank Account

Excellent .. thats an inspirational story .. If every one starts doing this , I am sure everyone will be able to save a good part of their unneccessary expenses .

manish

Posted on September 10th, 2009

Power of Asset Allocation and Portfolio Rebalancing says:

[...] more than that will be a “treat” for you and should come to you without compromising your Needs in Life [...]

Posted on May 1st, 2010

9 effective tips for spreading financial literacy in your child says:

[...] are giving them an opportunity to understand difference between needs and wants. This might not be true for small kids below 10, but will be more relevant for children in [...]

Posted on May 6th, 2010

Vinay says:

You have given very basic thing, which we usually ignore, while spending money. An eye-opener differentiation on “wants” n “needs” .

Posted on July 10th, 2010

Manish Chauhan says:

Vinay

thanks , keep coming and commenting

Manish

Posted on July 10th, 2010

Me. says:

Manish, this is a really good article but I was hoping to find the things that effect needs & wants such as location ..
For example, in really hot countries, people NEED air conditioning while in other countries ACs are considered a want. Another factor that effects N&Ws is occupation/education. A mobile is a NEED for a business man while for a shopkeeper its not that important.

I was hoping to find more factors for my research since I can’t find any other factors.
-ThankYouu. :]] x

Posted on September 16th, 2011

BARAKA says:

Its good and I like the answers given,keep it up and still providing me with many things apart from needs and wants

Posted on November 16th, 2011

krishna says:

really its very helpful for me.thanks lot.

Posted on February 8th, 2012

Manish Chauhan says:

Thanks Krishna

Posted on February 9th, 2012

Chetan Ambi says:

This article was really helpful in differentiating between my needs and wants. Thank you !!

Posted on November 1st, 2013

Manish Chauhan says:

Good to hear that !

Posted on November 4th, 2013