Needs vs. wants: a guide to understanding your budget

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When out shopping, how many times have you needed to justify a purchase as a need? This could sound a lot like: “Well, my DVD player has been on the fritz, so this new one is an essential,” or maybe, “I don’t have any black shorts, so I definitely need these.” 

In theory, distinguishing between needs vs. wants should be easy, but it can be difficult in practice if you’re ill-advised on what exactly “needs” and “wants” are. Understanding the difference can help you be better prepared to put together a budget you can follow, and it may help you from putting unnecessary purchases on your credit card (which can potentially lead to poor credit). 

Read on for more tips on how to tell a need from a want, or jump down to our infographic below for more tips on being happy with what you have instead of focusing on wants.

Need vs. want definition

At a glance, the difference between budgeting needs vs. wants is relatively simple. Needs are required for you to lead a healthy life, while wants are things that you’d like to have, but could ultimately live without.

Needs include things such as basic living expenses. If someone goes without a need, there is a clear adverse outcome, like lack of food or shelter. Some examples of needs include:


  • Groceries
  • Pantry essentials



  • Basic clothing 
  • One pair of sturdy shoes

Wants, however, are basically everything else—things that you’d like to own or choose to buy. Some examples of wants that you may come across while budgeting are:


  • Restaurants 
  • Takeout


  • Home decor 
  • Electronics


  • Extra clothing
  • Four pairs of sneakers

This isn’t to say that wants aren’t important or are inherently bad—in fact, many wants support important personal goals, such as doing things you enjoy or helping you stay healthy. Wants just aren’t typically necessary to your survival or overall health.

It’s important to prepare for both needs and wants in your monthly budgets. This way, you’ll be able to cover what you need, while saving some extra money to do or buy what you want.

Explanation of needs vs. wants

The difference between needs and wants

Now that you know the basic definitions and reasoning behind why we want or need certain things, it’s time to help you decide whether something is a want or a need. Remember to build your budget around both kinds of things—balance is important. Use these questions to guide your thinking around whether or not you absolutely need something, and then use your personal budget and/or line of credit to see if this purchase makes sense for you.

1. Does this fulfill a basic need?

“Basic needs” typically include food, water and security or shelter, and can be expanded to include things most people need at some point (such as clothing). So while a new apartment or grocery trip would fulfill a basic need, a designer handbag or computer upgrade typically wouldn’t. 

This isn’t to say that some wants can’t also be classified as a need—for instance, if you work from home and your computer breaks, you’ll need to replace it so you can continue working and earning an income. This question typically doesn’t apply to these scenarios, just ones where you’re tempted by something while browsing online or in-store.

Ask yourself: What basic need does this cover? Is this essential to me living a healthy life?

2. Will you be okay without this?

One of the aspects that most differentiates a need from a want is that nonfulfillment of a need can lead to an adverse outcome—in the worst-case scenario, this includes death (like from lack of water or food). Not having a want can lead to temporary discomfort, but this is not as harmful of an outcome as when you don’t have a need.

If you’re debating a purchase and trying to rein in your spending, ask yourself whether or not you’ll be able to survive without this purchase. You can test this by not purchasing it right away, and seeing if you’re thinking about the item a week later. 

You can also set aside the dramatics (you won’t literally die without a new sweater) to carefully evaluate whether or not you’ll be okay without this an hour, a week, a month or six months from now. If the item in question won’t negatively impact your life if you don’t have it, then it’s easy to tell that it’s a want, not a need.

Ask yourself: Will not having this in my life cause me any sort of harm?

3. Will this make you happier or healthier in the long term?

Another thing that differentiates a need from a want is that needs very rarely change or differ over time, while wants can be fads or trends that will fade. It may be hard when your vision is clouded with excitement, but see if this purchase will make you happy, healthy or otherwise fulfilled for a long time, or if it’s just something you want because it’s popular or trendy.

While retail therapy is sometimes called for, you should be careful about purchasing things because they make you happy or feel better in the moment—these purchases are often forgotten about weeks (or even days) later. Think long-term about purchases, especially large ones: If the item will still serve its purpose, and serve it well, two years from now, then you can feel better about buying. However, if you could see yourself forgetting about it between now and two years from now, you might be better off passing on the item.

Ask yourself: Is this purchase something that only makes me happy in the moment, or is it something that will still serve its purpose two years from now?

How to build a budget for needs and wants

In an ideal world, everyone would have enough money to buy everything they both want and need. However, this isn’t always the case, and there are several things you can do to build a budget that accounts for both needs and wants.

Stay in control of impulse spending

We’ve all been there—we get tempted by a big sale, see something that’s been on our wish list for a while or shop “just to look” and end up leaving with hundreds of dollars’ worth of items we now have to pay for later on our credit card bills.

Though an impulse purchase now and then won’t hurt, the temptation can be real—in fact, a 2020 survey showed that millennials spent up to $374 on impulse purchases in a 30-day time period, showing the importance of getting in control of impulse buying before it starts to control you.

Much like determining between needs and wants, getting impulse buying under control may be easier said than done. However, you can rein in your impulse spending by doing the following and more:

  • Leave your credit cards at home when you go shopping if you don’t need anything.
  • Shop when you have a limited amount of time to do so, like on a lunch break, so you aren’t tempted to waste time (and money).
  • Bring cash or cash envelopes with you instead of a credit card. Studies show that there is a psychological “pain” associated with spending cash, since you can immediately see how much you’re spending. 
  • Wrap or print your credit card with a picture of what you’re ultimately saving for (like a car, your student loans, a wedding, etc.) so you can see where that money could ultimately be better spent.
  • Load a prepaid card (like a gift card) with a certain amount of money to dedicate to your impulse spending every month. Treat this like your spending money or allowance for the month—once it’s out, it’s out.

Budget for both needs and wants

Ideally, you’d follow your budget to the letter every month, never going over. While some master budgeters may have accomplished this, the beginner or everyday budgeter will likely need to work on this skill. This is where the 50/30/20 budget comes in.

The 50/30/20 budget is a way of budgeting that provides guidelines to help users create a budget that works for them. Budget areas are divided up to 50 percent needs, 30 percent wants and 20 percent financial goals. This allows users to be able to both afford what they need and pay for what they want. 

A 50/30/20 monthly budget would look like this:

50 percent needs:

  • Rent
  • Utilities
  • Groceries
  • Insurance

30 percent wants:

  • Travel fund
  • New clothes 
  • Hobbies
  • Dining out

20 percent financial goals:

  • Student loan payment
  • Credit card bill payments

Though not an exact science, this budgeting method is useful for people who want to be able to have a little fun with their money, pay for what they need and also get ahead of their financial goals.

Be specific in budget categories

It’s usually better to be specific than to generalize, and budgeting is no exception. One way to build a budget that works for both needs and wants is to be as specific as possible when making your monthly or weekly budget.

Instead of having generalized categories like “food,” “entertainment” and “utilities,” separate these categories into specific subsections as best as you can. For example, this would mean “food” turns into two subcategories: “groceries” and “dining out.” The “entertainment” category would be expanded into three subcategories: “going out,” “cable” and “books.” 

The more specific you can be, the more you can accurately budget for each specific category. This helps you see your spending at a glance and helps prepare you for all of the various categories you’ll come across on a monthly or weekly basis.

Remain mindful when using your credit card

Impulse purchases happen, and as long as you’re budgeting and doing what you can to stay on top of your spending, you shouldn’t feel guilty for indulging in something you want but don’t need from time to time. However, be sure you’re cognizant of not whipping out your credit card for everything you want at the mall or when out at dinner.

Putting too many wants (or too much of anything) onto a credit card could hurt you down the line for something you hardly remember buying. This could include your credit score dropping, meaning you’ll need to put in the hard work necessary to rebuild your credit

"Less is more" mantras to keep you on track

It’s important to understand both the difference between needs vs. wants when it comes to budgeting, and how to build a budget that accommodates both your needs (like rent) and wants (like a new pair of jeans). By budgeting accurately and making smart choices with your credit, you’ll be on your way to being able to comfortably pay for what you need and afford what you want.

Posted in Finance
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