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What’s the difference between a want and a need? It can be deceptively difficult to separate the two. For example, do you need a new car, or simply want one? Will not having the latest computer actually negatively impact your productivity? What about new furniture for your house: want or need?
If you’re on a budget or have limited income, knowing the difference between the two can be enormously important, and mistaking one for the other can cost you dearly. So, how can you identify which is which? Luckily, there are some simple and effective ways to tell the difference between your wants and needs.
Fundamentally, being unable to identify the differences between wants and needs boils down to a lack of knowledge, and the only way you’re going to be able to address and fix that situation is by understanding your behaviors concerning money and what you spend it on.
The saying goes that hindsight is 20-20, so why not use that to your advantage? Draw up a list of your major expenses from the past year and create a graph to see where your money is going. Examine what you spent it on and force yourself to give an honest assessment of whether it was worth it or not.
Looking back on how effective your spending choices in the past have been will help you going forward in identifying what’s a true need, and what may just be something you wanted in the moment. When you add up the cost, you may be shocked at exactly how much money you have wasted on items you truly didn’t need.
After you have a better understanding of your spending history, another way you can help yourself differentiate between wants and needs is by determining your minimum income. A minimum income is pretty much what it sounds like: it’s the absolute bare minimum income you can survive on. This is a useful number to have because it helps you zero in on what’s absolutely necessary to survive, and what isn’t.
The truth is that not all wants are frivolous or wasteful and that many of the things we classify as needs are just steps toward achieving long-term goals. For example, at its most basic, a need for food is simply a long-term want of not starving. Another example is that saving for retirement is only a “need” if you want to retire comfortably someday.
So, instead of just getting rid of anything that seems like a want when you’re trying to decide on your budget and spending choices, instead discern between what’s a short-term and a long-term want, and then prioritize appropriately.
One final trick to differentiate between a want and a need is to ask yourself if you would take out a title loan to buy it. Title loans are undeniably useful, but like any kind of loan, it shouldn’t be spent frivolously. If you do feel like it’s worth taking out a title loan for, then you have a pretty good idea of whether it is a want or a need.