One way to help you stick to your budget is distinguishing between wants and needs and not giving in to more “wants” than your budget allows.
There are some things in life that are very clearly wants rather than needs, like a dinner at a 5 star restaurant on a random Tuesday, or a pair of very expensive designer shoes. But there are also some things that walk the thin line between needs and wants.
Here are some examples that people commonly lump into the “need” category when they truly are more of a want than a need and some tips on how to avoid this happening to you.
Ok hear me out on this one. Food is a need, I won’t argue that at all. But where you draw the line with food being a need can be quite fuzzy.
Do you need to spend hundreds of dollars going out to eat every month?
Do you need to eat steak and shrimp every week, even if you buy it at the grocery store and cook it yourself?
Food is completely necessary to survival and I’m not suggestion you live on only ramen noodles and macaroni and cheese to save a few dollars in your monthly budget, but you should make an effort to keep overly expensive meals under control. Steak and shrimp or a meal at a nice restaurant should be treats on a rare occasion, not an everyday occurrence.
Much like the food example, shelter is a need and I’d never suggest that you live on the streets or in a cardboard box to save money. I wouldn’t even go so far as to say you should live in a shoebox sized apartment or somewhere that is unsanitary. But you don’t need to live in a huge mansion with high-end finishes either, especially if you can’t afford it.
Everyone wants to have a nice home to live in, but that doesn’t mean you should make yourself real estate poor in the process. The general benchmark used by financial professionals is that housing should take up no more than about 30% of your monthly budget.
Transportation can be a tricky subject. Most people need transportation to get to and from work so they can make money to afford the other things they need in life (and some wants too). The bad thing about this situation is that often people can afford the transportation to get to and from work without the wages they earn at work.
Which means they are spending money (on transportation) to make money. Sometimes when you spend money to make money it’s considered an investment, but remember that even investments take money out of your pocket in the here and now. Besides, how good is an “investment” in a brand new car that depreciates the moment it leaves the dealership lot?
Transportation, food, and shelter are all needs for most people, but that doesn’t mean you shouldn’t try to limit your spending on them. At some point even your spending on these needs isn’t actually a need anymore. Instead it turns into a want.
What needs and wants do you have trouble distinguishing between?