Needs vs. Wants

Your expenses can be qualified as either a want or need with certain items lying on the grey line. Knowing which items fall into one of these categories will allow you to analyze your spending better.

Whether you’re trying to save more or quicken your debt pay-off, understanding your expenses will go a long way. And it is important to determine your wants and needs for the following reasons:

When Finances are Tight, You know Where to Cut Back

Food is a universal human need, but eating out in fancy restaurants is a luxury. Knowing the difference between a need and want will help you cut back on luxuries first so you don’t have to sacrifice your basic needs.

You Get to Free Up Money from Your Budget

Magazine subscriptions, gym memberships and cable are nice to have, but you can live without them if your income calls for it. It’s easier to cut back on certain expenses and live with the bare minimum if you can already identify expenses that don’t add value to your life.

You Get to Simplify and De-clutter your Life

Wants and luxuries can add clutter to your life. If you can cut some or most of them from your budget, not only will you have some extra money at hand, you’re also ensuring that you’re only spending on things that you need and add value to your life.

It doesn’t hurt to splurge from time to time on wants. After all, you’re only human and would want to have some fun. It just helps that you know what your priorities so you can make the necessary adjustments when the situation calls for it.