One of most important keys to managing the household’s finances is the ability to properly distinguish between our needs (the things that we need in our lives in order to survive) and our wants (the things that are not absolutely necessary in order to survive). Some great examples of needs are food, shelter and clothing. While many of us are aware of this, it can be difficult to admit that we have turned some of our wants into needs without even noticing. To that list of needs, we would add saving for the future. This is not an option, but something that is indispensable.
Like the situation above, it is essential that we have the proper vitamins, minerals and nutrients that make our bodies run – does this include the chocolate ice cream that was calling your name? Of course not! This is a want or something we’d like to have. This is, of course, a very simple example but it seems that as soon as our basic needs are met, our personal definition of wants and needs begin to blur.
The challenge with creating a budget and saving for the future is that it is intangible. You can’t eat that mutual fund, but I am sure it does go well with a nice Chianti. Paying extra for high-speed internet to catch up on the latest Facebook feed or download music is unarguably a want.
Every situation is different. When creating your budget, it is important to realise that creating wealth begins with taking care of your needs and cutting back on your wants. Setting aside consumption today in order to have greater consumption in the future is hard to do. Wants are important. They make life more than drudgery. But you have to stick to the wants you can afford, and we must be able to prioritize them. For example, there is nothing wrong with having all the movie channels on cable, but it shouldn’t be to the detriment of your budget. If you’re finding that things are a bit tight every month, then maybe a single Netflix account will suffice. You also can reduce spending within your needs. A great example would be to monitor your weekly grocery bill and ask yourself which items are essential for good nutrition and which are expensive luxuries with more affordable substitutes. Also, by doing all your shopping on a Wednesday and taking advantage of the five per cent discount, you can save enough over a year for two weeks of free groceries. By reducing our wants, there likely will be room for additional savings.
Review your budget and identify your needs and your wants. Remember that needs may mean different things to different people. The key here is to be honest with yourself and your budget; to live within your means and reward yourself along the way.