Question What’s the difference between needs and wants?
Answer Needs are those things that are required for you to live, thrive and survive. Wants, on the other hand, are those things that enrich our lives, things that we enjoy, things that are nice to have, things that are important to us.
Complete Answer Needs would include things such as shelter, food, clothing, health care, transportation, education and a marketable skill. In the example of Adam the imaginary person (post of August 29, 2016), he was spending 33% of his take-home pay for housing (shelter) and 16% for car expenses (transportation). Both expenses are considered needs and were within the guidelines of an effective spending plan.
Dining out, a new car, a vacation, going to a ball game with friends are examples of wants. In a recommended spending plan, wants fall into the category of Lifestyle. An evaluation of Adam’s spending plan showed that he was spending more than he as taking-home, and specifically, the excess spending was for wants; Adam’s spending was 42%, the recommended amount is 25%.
In summary, Adam needs to spend less than he is taking home, specifically, he needs to cut down on his Lifestyle spending. This may take a little temperance8, but with a little forethought and practice, he will be able to bring his spending down and spend less money than he brings home each month.
Helpful Hint Cutting down on Lifestyle Expenses is the easiest way to spend less. Not going out for dinner, not buying those new shoes, making coffee at home, and checking out a movies from the library (free) are just a few examples of decreasing Lifestyle Expenses.
Financial Literacy Knowledge/Skill
Understand the difference between needs and wants.
Comments or Questions
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Next week’s topic: Can you afford that?