NEEDS VS. WANTS: Does your budget know which is which?

Coming up with a good budget is easier said than done. In most cases it will require some serious soul-searching. Spending habits are often deep-rooted impulses that can slip through the radar of your most conscientious budgeting efforts. Left unchecked, spending can take on a life of its own, wreaking havoc on your financial and emotional well-being. So how do you get into the right headspace before slashing your shopping list? At their very core, budgets require us to balance needs vs. wants and to reduce our spending on the latter, as much as we possibly can.

The needs vs. wants conundrum

First of all, what’s the difference between a need and a want? Simply put, a need is something you can’t do without and a want is something you can forgo, right? Not so fast: we’ve found that it’s more complicated than that.

In the recent BDO Canada Affordability Index, we found that most Canadians can’t agree on which is which. For instance, “Owning a home” split Canadians in half: 53 per cent considered this a need, whereas 47 per cent a want. “Owning a smartphone” also divided Canadians: 45 per cent considered this a need, 55 per cent a want. Even more surprising: 26 per cent of Canadians think that “Owning a pet” is something they must have in their lives.

Surely, we need more clarity in this arena.

People need and want different things

When we dig deeper into the Affordability Index, we find that the needs vs. wants dilemma varies according to different age groups. Millennials are naturally in the pro smartphone camp (60 per cent consider it a need) whereas only 36 per cent of baby boomers think that a smartphone is a must-have. Older people also tend to think that having a gym membership is not one of life’s necessities. Does wisdom really come with age?

A better conclusion is that we all face a certain amount of “need confusion”. Obvious wants (like a yearly vacation, new clothes, restaurant outings, a university education) morph into needs based on how important they are to us at specific points in our lives. And just as wants become needs, the opposite can be true. Needs can fool us into spending more money on things like expensive food, expensive housing and expensive clothes.

Feel like reading more about the common needs vs. wants pitfalls? Here’s an informative article on Makingsenseofcents.com

Prioritize your wants

Is it wrong to think that we need a vacation or a furry companion? Not at all. Part of having a healthy budget and a healthy mindset is knowing what you really want in life, and to honour your favourite things to the best of your ability.

Know thyself: if you love good food, fashion, travelling, etc., your budget should be able to accommodate this in a way that focuses your short-term savings so you can plan for your pleasure purchases and avoid putting them on credit.

The problem arises when you have trouble prioritizing your wants and take on too much. The “treat yourself” mantra can definitely go too far. Mindful spending means being connected to what you spend your money on, and not being detached from all the little money decisions you have to make in a day. Try and see how the small things relate to your bigger financial picture. When choosing to treat yourself, adjust your budget accordingly, from month to month and season to season. Give priority to wants that will provide more long-term satisfaction and that can have a positive influence in your life.

When deciding between a night out at a bar and dinner with a friend, for example, think about the experience that you will get from one vs. the other.

It also helps to know why you want something. Your budget should channel your wants and help you realize what is really important to you.

How do you manage your #NeedsVsWants dilemmas? Connect with us on Twitter to share your stories and see what others are saying during Financial Literacy Month 2018 #FLM2018