Distinguishing the difference between needs and wants is one critical aspect to stay on track when it comes to our family debt-free journey and entrepreneurial aspirations. As we are navigating the current economy, Hubby and I are determined to steer clear of distractions that will impend our financial goals which has required us to know the difference between needs and wants. We are also making sure to teach our girls that critical aspect of financial freedom.
In economics, a need is something needed to survive while a want is something that people desire to have, that they may, or may not, be able to obtain. Distinguishing the difference between needs and wants has not been easy for us as a family because saying no to our girls feels so heartless, especially when they swear that snacks are part of a growing child’s healthy habits.
In 2005, Harvard bankruptcy expert Elizabeth Warren, U.S. Senator from Massachusetts and named by Time magazine as one of the 100 Most Influential People in the World in 2010, popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” she co-authored with her daughter, Amelia Warren Tyagi.
The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings. Distinguishing the difference between needs and wants might seem straightforward but we all know that when it comes down to it we can justify any purchase and find all reasons why we need that particular thing.
We all know we need food, shelter and transportation. A car could be a need but that’s where the decision can become subjective and not objective. Financial prosperity is a responsibility and asking yourself some hard questions when it comes to distinguishing the difference between needs and wants is the difference maker.
Distinguishing the difference between needs and wants is about knowing your priorities and realizing that buying a new Summer wardrobe versus saving for that back to school supplies is worth taking an honest look at. Hence this is the opportunity to allocate certain non necessary budget categories to those essential like grocery and even start building on that emergency fund we all need. It’s about being content with what you have and when you really think of it, you really have more than you need.
Hubby and I know what it is to have plenty and what it is to have barely enough so our hearts go out to those suffering with job loss or with a tight income. One thing that has helped through the toughest times is understanding that even though money is important in our everyday life, it is really not the most important thing. Distinguishing the difference between needs and wants is looking at what you already have and being thankful in any and every situation because if we can be honest with ourselves, we have pretty good than most.
WELLthy Life NODte:”Needs are imposed by nature. Wants are sold by society.” –Mokokoma Mokhonoana
