With the current global crisis upon us, there are many different aspects of your life that are rapidly changing. Understandably this can cause panic - but this also presents you with the opportunity to examine some of your financial habits and look at ways to make better decisions.
In this chapter, we will aim to understand what are needs and wants and how can you differentiate between the two.
What is a 'Need'?
A need is basically an expense which you need to incur in order to live and work. In other words, needs are necessary expenses.
Examples of 'Needs' might include -
- Rent
- Transportation
- Groceries
- Home and Utilities
- Insurance
- Bills & EMIs
- Health and Personal care
What is a 'Want'?
A 'want' is an expenses which allows you to live more comfortably and fulfil certain desires. Wants often improve the quality of your overall lifestyle and these may include:
- Shopping and Entertainment
- Food and Dining
- Travel
- Gym / OTT memberships
How to Differentiate Between Needs and Wants?
Examine Your Wants Closely
Look at the past 3 months of expenses and categorise them into needs and wants - for example clothing, dining out, gadgets, etc.. When you start listing this down, you can analyse the spikes and look at the wants that you tend to overspend on. Maybe, now it’s a good time to unsubscribe from certain brand emails, and identify some of the triggers that make you shop impulsively. If you see that online shopping is your vice, then you can delete apps from your phone and even block certain shopping websites.
Categorise Your Needs and Wants Further
After categorising your expenses into basic two categories of 'Needs' and 'Wants', you can also try to further categorise them into these four categories:
- High-priority Needs
- High-priority Wants
- Low-priority Needs
- Low-priority Wants
The items in each of these lists will differ basis what you think is a high-priority item versus low-priority item. Categorising your needs and wants in this manner will help you plan and manage your finances in a much controlled and organised manner.
Be Grateful for What You Have
Try not to take simple things in life for granted - your personal relationships, your cozy home, having food everyday, and the value of time. If you take these lessons forward, your mindset towards your finances can change. Truly being thankful for what you already own, allows you to be more mindful of your consumption habits and your finances, at large.
Remember: While times are tough, it also presents us with lessons we can take forward in our life. This time is a reminder of how important it is to continually build good financial habits and remain prepared for any unexpected circumstances that may come our way.
