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Needs vs Wants: Create a Budget That Balances Both

Needs vs Wants: Create a Budget That Balances Both

If you have a budget that is stretched too thin, an obvious but often hard step is to look for spending you can eliminate. Yet it’s no fun to go through life only buying things you absolutely need. The trick is to create a sensible, flexible budget that makes room for both needs and wants. In this article, I’ll identify the characteristics of a need versus a want. I’ll also provide some tips to create a budget that helps you spend responsibly while also creating some wiggle room for some good stuff.


Needs are things that are necessary for you to be able to live and work. They are your basic expenses. Needs are the things that keep you warm, dry, fed and mobile. Some of the most common basic needs are:

  • Rent and mortgage payments
  • Car expenses or public transport costs
  • Home and health insurance
  • Food and grocery items
  • Clothing
  • Utility bills
  • Medical expenses


Wants are the little extras that bring fun or comfort into your life. Wants are what we desire. You might think you can’t live without them, but if push came to shove, you’d survive if you cut them out. Some typical examples of wants are:

  • Vacation expenses
  • Gym memberships
  • Entertainment
  • A portion of your clothing budget
  • Coffee and lunch budgets

Wants aren’t bad. They don’t mean you are living a frivolous lifestyle. But wants are the first place to look when you are trying to balance your budget.

How do you distinguish between needs and wants?

It’s very hard to separate needs from wants. One person’s need might be another person’s want. For example, you’re an uber driver. You need a decent car to succeed. Your neighbour works at home and can take public transit. For him, a vehicle is a want.

Wants vary from person to person. They are tied to our personality, culture and economic position, so not every person has the same wants. Our wants are influenced by marketing, social media and the people we have around us. That’s why it’s important to look at your wants with a critical eye and in relation to what you can afford. It’s OK to include a few extras in your budget, but keeping up with the Joneses isn’t a good want.

Wants are also sometimes a matter of degree. For example, you need a functional coat for winter, but you want that high-cost designer coat. We do need an internet subscription today. But you might want the highest speed, most expensive package. Our daily choices can move a portion of our spending from a pure need to a partial want.

Wants can vary in intensity. Streaming is great, but subscribing to Netflix, Crave, Prime Video, and Disney+ might be something you can rethink if you are looking for cost savings.

Look out for wants that turn into a demand. You can think of this as lifestyle creep. When we can afford things, wants can turn into needs. You get used to having them, so you can’t see living without them.  It’s not always true, but that is our perception.  We think we need that gym membership to stay healthy. But the truth is you can work out at home or outside if need be.  Turning something from a want into a need permits us to overspend.

Why credit increases our wants and needs

Money itself isn’t a need or a want; it’s what allows us to pay for things. We don’t need money – we need food, housing, clothing and healthcare.

Be aware that credit helps us turn wants into needs. If you have room on your credit card, you think you can afford it, so you feel the need to buy.

Good debt can help us pay for needs. We can buy a house with a mortgage and can pay for education with a student loan. But bad debt is when we borrow more than we can repay or use credit to buy more than we should. Credit gives us the illusion that we have extra money. Buy too big a home and take on a supersized mortgage, and you’ve turned a need (shelter) into a want (a mansion), all on debt.  Using credit to buy big wants can limit your ability to pay for financial needs down the road.

Create a budget that balances needs and wants

The 50-30-20 rule

To create a budget that has room for both your needs and wants, you need to prioritize all your spending. Look at your current spending and divide all your outgoings into two categories: needs and wants. Put every single one of your expenses into one of the two categories.

Be honest with yourself when you do this. Your rent, car insurance, and grocery spend are all definitely needs, but you can likely categorize some costs as non-essential. 

Is what you want really what you want? Here are five questions you can ask yourself to see if you truly want something or can do without it.

  1. What would happen if I didn’t buy it at all?
  2. Would I pay to move it?
  3. Is there something I want more?
  4. Is there a cheaper alternative?
  5. Will it help or hurt me in achieving my financial goal?

Creating this distinction doesn’t mean that you will have to cut out all the stuff in your want pile – that would be no fun. Rather, it gives you the overview you need to make a balanced budget that makes room for some wants while still allowing you to save or put more money toward other financial goals like saving money or paying down debt.

Once you have created your need and want lists, it’s time to create a budget that creates room for both.

A good rule for distributing your money is the 50-30-20 rule, which means that:

  • 50% should be spent on things you absolutely need (rent, groceries)
  • 30% should be the maximum you spend on things you want (gym memberships, vacations, clothes, fancy food)
  • 20% should be used to save, invest or pay down debt.

Using this rule, you get to spend on your wants guilt-free. There’s absolutely no issue with buying a fancy winter coat rather than a more budget-friendly one, so long as it fits in within the 30% bracket of your overall budget. The key is to be honest about the difference between your needs and wants to make more conscious choices about how you spend money.

And remember, this rule only works if you have room in your budget. If you have limited cash flow, paying for needs should always come first.

Debt repayment is a need

One of the most overlooked necessities is debt repayment. If you have any outstanding debt, then you should be budgeting for debt reduction. To avoid late payment charges and negative hits to your credit score, you must keep up with all minimum monthly payments. However, if you want to pay off your debt sooner, you should put as much as you can afford every month towards your debts. Paying off your debts should be a conscious need.

If you have any debts, allocate as much as you can afford to pay them off. This will make your ‘need’ pile take up most of your available budget each month for a while, but in the long run, it will free up money you are spending on interest today to be able to afford more of the things you really desire.

How to find expense reductions among your wants

Here are some additional tips to help you look for ways to target items for savings:

  • Nothing should be off the list. If you are serious about cutting back, you have to look at everything.  Live in a city with good public transit?  Even getting rid of your car may be something you want to think about.
  • Get competitive quotes for everything. Taking a little time to compare insurance premiums, cell phone plans, and other costs can result in tremendous savings.
  • Comparison shop. Don’t always assume the sale price at one store is the best deal. Look at alternate brands. You can often get comparable quality merchandise for a lower price just by switching stores or switching from the name brand to the store brand.
  • Eliminate impulse buys. Last-minute shopping decisions almost always a want and not a need. Make a list and set priorities.
  • Save ahead for big-ticket items. You don’t have to do without every wish or extra item. You just have to be sure you can afford it.  Put an amount in your monthly budget to save up for large cost items like a vacation.

The bottom line is to learn the difference between needs and wants if you want to have a balanced budget, stop living paycheque to paycheque and achieve your financial goals.

Similar Posts:

  1. Top Tips to Help You Create Your First Budget
  2. Zero-based budgeting: How to Give Every Dollar a Purpose
  3. 5 Ways To Survive Without a Credit Card
  4. 7 Reasons Why Budgets Fail and How You Can Succeed
  5. What To Do When You Are Using Debt To Make Ends Meet

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