How do you budget your money so you can have both your needs and wants? I hear it all the time, “Josh, if I just made more money I could have everything I’ve always wanted.” This might be true for some, but having more money isn’t addressing the issue at hand — how you budget and spend money.
Clearly identifying my needs vs. wants is one of the habits that helped me pay off over $50,000 of debt in two years. Before I would make a purchase, I would ask, “do I really need this”? It turns out we need a lot less than we think and this simple question helped me conquer my bad spending habits. Since I wasn’t buying everything I wanted, I was able to pay down debt quicker, stop living paycheck to paycheck, and ultimately leave a job I didn’t enjoy.
Needs are things we must have to live a healthy and happy life. This includes shelter, food, water, healthcare, utilities, and clothing. It turns out we need a lot less than we think we do. Start by writing down your list of needs.
Here are a few examples:
Our needs are surprisingly small, but our wants seem to be endless. Wants are luxuries and they are nice to have, but not essential to live a healthy and happy life. Marketers are working hard to make us think many of these things are needs. Start by writing down some of your wants that you currently spend on.
Here are a few examples of wants:
Do you notice the difference between wants and needs? We will always want more in an ever-changing world. That’s why it’s critical to understand what a want is and budget accordingly for the things we desire. Without a clear budget, we may begin to think we need certain desired purchases and lose sight of what's important.
Needs once met, have limits, and never truly change. We’re always going to need food, shelter, utilities, clothing, and healthcare to live a healthy and happy life.
Investing and saving money also needs to be considered and should come before our wants. Whether it is saving cash to build an emergency fund, or investing for retirement, this is something you don’t want to delay.
For millennials, I suggest following a 50/25/25 budget. This means you can spend 50% of your income on needs, 25% on savings/investing, and 25% for wants. If your goal is financial independence or early retirement, you’ll need to be saving and investing an even higher percentage.
If you’re new to investing, be sure to check out my free guide on how to get started investing with only $100/month.
I often hear from executives and other entrepreneurs that I “need” to have the latest and greatest technology for business. For some, it might actually be a need, but for the majority of people, having the best and latest technology is really a want.
Instead what if you save the money and buy a cheaper iPhone or another smartphone. It might not have all the newest features, but you’ll probably be just as happy with your new phone.
Let’s walk through an example:
iPhone 11 Pro — $1000
iPhone SE — $399
If you took the money you saved by buying a cheaper iPhone you would have saved $601. How does this small decision compound over 30 years? Assuming you upgrade every three years, as many millennials do, and invest the savings into an investment account earning 8% annually — you’d have more than $28,000.
This is why it’s important to be a bit more intentional about how we spend on our needs vs. our wants. Following a 50/25/25 budget can help us do that and much more.
You can use this way of thinking on nearly anything you desire in life. This simple exercise I use with many of my financial coaching clients to help them better understand their spending. It’s not about depriving ourselves or being cheap, it’s about being intentional with our spending and identifying our needs vs. our wants.
It can be hard to know where to start or what to do first. As a financial coach, I have helped hundreds of people get out of debt, save more, and transform their relationship with money.
I will help you create a system that builds the right money habits to enable you to achieve your financial goals. Everyone’s situation is unique so you’ll get personalized coaching tailored to your specific needs. I guarantee that you’ll leave feeling confident about your financial future and in control of your money!
If you’re interested, please schedule a free consult on my website and we can see if we are a good fit for each other. You can also email me with any questions at firstname.lastname@example.org.