Needs Vs. Wants Budget

Carefully calculating needs and wants is the first step to a healthy budget.

The foundation of every functional budget is a workable understanding of needs versus wants. If you count all of your regular expenses as needs, you may be frittering away money on extras you could live without. Once you've taken an objective look at where your money goes, you will be better equipped to make thoughtful decisions about your spending and control where your money truly goes.

Basic Needs

The first item in any budget should be your most basic needs. These are what you literally need to survive. Basic needs include food, shelter, clothing and, for some people, medication. Items to sustain employment should also be counted as basic needs, as these are necessary to the continued ability to sustain a regular income. Though you can find frugal approaches to some of these areas, you must include groceries, rent or mortgage, medical expenses and transportation in your budget as absolute needs. Toiletries are basic needs as well. Also plan for the occasional purchase of items such as toilet paper, soap, toothbrushes and laundry detergent.

Comfort Needs

Distinguishing comfort needs from basic needs can be difficult and requires absolute honesty with yourself. It's tempting to keep these items under basic needs and deem them absolutely necessary, but identifying the fact that these expenses provide comfort but not survival will help you find ways to cut back in hard times. Frequent hair cuts at a nice salon are a prime example. You may need to maintain a well-kept appearance for work, but you could probably go to a more-affordable salon, skip the highlights and opt for more infrequent visits. Cellphones are often comfort needs if you have a land line. Unless you work from home and need the Internet to sustain employment, Internet access in your home is a convenient but unnecessary need, as is cable television. Even a car can be a comfort need if you have access to reliable public transportation.

Unnecessary Wants

Wants are those items that truly have no justification for your basic well being. Eating out is a prime example of a want. It may provide a welcome break in the middle of the work day to head to a nearby restaurant, but you don't need such expensive food. It is purely a want. Entertainment such as movies, magazine subscriptions and video games are wants. Though you may think you can't possibly live with that ugly shag carpeting another day, home decor falls squarely in the want category too.

Maintaining Balance

In an ideal budget, basic needs always take first priority, followed by comfort needs. Before you get to wants, examine how much additional income is at your disposal and allocate these remaining funds wisely. If you opt to pay off debt and fund investments before you begin spending on your wants, you will ultimately have more funds for these wants down the road as well as financial security and stability.

Frugal Solutions

If your budget seems tight and you can't include some of the comforts or wants that are important to you, explore frugal alternatives to your regular routines. Pay close attention to sales. Shop around at a variety of stores to get the best prices. Shop at thrift stores when you need to purchase new clothing. Cut back on your cellphone, cable or Internet plan.

References

• Consumer Credit Counseling Services: How to Save Monty: Household Budgeting: Needs First, Then Wants
• America's Cheapest Family Gets Your Right on the Money; Steve Economides et al.; 2007
• The Pocket Idiot's Guide to Living on a Budget; Peter J. Sander et al.; 2005